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McGrath RentCorp Announces Results for Third Quarter 2017

LIVERMORE, Calif., Oct. 31, 2017 (GLOBE NEWSWIRE) -- McGrath RentCorp (NASDAQ:MGRC) (the “Company”), a diversified business to business rental company, today announced total revenues for the quarter ended September 30, 2017 of $135.4 million, an increase of 11%, compared to the third quarter of 2016. The Company reported net income of $16.8 million, or $0.69 per diluted share for the third quarter of 2017, compared to net income of $12.9 million, or $0.54 per diluted share, in the third quarter of 2016.

THIRD QUARTER 2017 Company HIGHLIGHTS:

  • Income from operations increased 25% year-over-year to $30.3 million.
  • Rental revenues increased 9% year-over-year to $73.8 million.
  • Adjusted EBITDA1 increased 12% to $50.7 million for the third quarter of 2017.
  • Dividend rate increased 2% year-over-year to $0.26 per share for the third quarter of 2017. On an annualized basis, this dividend represents a 2.3% yield on the October 30, 2017 close price of $44.46 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 third quarter performance. Mobile Modular, Adler Tank Rentals and TRS-RenTelco each delivered significant operating profit growth compared to a year ago, contributing to the Company’s 25% operating profit increase. Company operating profit growth was driven by a $6.8 million increase in gross profit from rental operations and a $1.1 million increase in sales gross profit also contributed to the strong results. Hurricanes Harvey and Irma had no material impact on our third quarter results.

Mobile Modular rental revenues for the quarter increased 9% from a year ago as rental rates and equipment on rent both increased, while average utilization declined slightly. 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 increased 3% as a result of higher general-purpose test equipment business activity. General-purpose test equipment rental revenues increased by 9%, but were partly offset by a 1% decrease for communications test equipment. While average equipment utilization increased, average rental rates declined for the quarter, primarily due to the business activity mix shift to general-purpose from communications test equipment.

Adler Tank Rentals rental revenues for the quarter increased 17% from a year ago. Rental revenue growth occurred across a broad mix of vertical markets, including upstream oil and natural gas, which increased from 9% to 10% of total Adler rental revenues. Average equipment on rent increased 16% to $176 million from $152 million a year ago, and average utilization increased to 57% from 49%. Despite ongoing competitive price pressure, average rental rates improved slightly as a result of product mix shifts.

Our third quarter results reflect some improvement in market conditions at Adler Tank Rentals and TRS-RenTelco. In addition we benefited from the various return on invested capital performance improvement initiatives across the business. We are also maintaining discipline on new rental equipment capital spending while selectively selling non-core equipment.

Based on our third quarter and year to date results, and our current outlook for the remainder of the year, we are raising our financial outlook and expect 2017 total Company operating profit to increase 15% to 18% above 2016, compared to our prior expectation of a 9% to 12% increase.”

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 September 30, 2017 to the quarter ended September 30, 2016 unless otherwise indicated.

MOBILE MODULAR

For the third quarter of 2017, the Company’s Mobile Modular division reported income from operations of $15.8 million, an increase of $3.1 million, or 25%. Rental revenues increased 9% to $36.2 million, depreciation expense was flat at $5.3 million and other direct costs increased 5% to $9.4 million, which resulted in an increase in gross profit on rental revenues of 14% to $21.6 million. Rental related services revenues increased 8% to $14.7 million, with associated gross profit increasing 27% to $3.7 million. Sales revenues increased 5% to $17.5 million and gross margin on sales increased to 27% compared to 25% in 2016, resulting in increased gross profit on sales revenues of $0.7 million, or 16%. Selling and administrative expenses increased 9% to $14.5 million, primarily due to increased salaries and employee benefit costs and higher allocated corporate expenses.

TRS-RENTELCO

For the third quarter of 2017, the Company’s TRS-RenTelco division reported income from operations of $7.1 million, an increase of $0.7 million, or 12%. Rental revenues increased 3% to $21.0 million, depreciation expense decreased 3% to $8.3 million and other direct costs decreased 5% to $3.4 million, which resulted in an increase in gross profit on rental revenues of 13% to $9.4 million. Sales revenues increased 3% to $4.9 million. Gross margin on sales decreased to 51% from 57% in 2016 primarily due to lower margins on used equipment sales, resulting in a 9% decrease in gross profit on sales revenues to $2.5 million. Selling and administrative expenses increased 7% to $5.5 million, primarily due to increased salaries and employee benefit costs.

ADLER TANKS

For the third quarter of 2017, the Company’s Adler Tanks division reported income from operations of $4.2 million, an increase of $1.6 million, or 60%. Rental revenues increased 17% to $16.5 million, depreciation expense decreased 1% to $3.9 million and other direct costs increased 19% to $2.6 million, which together resulted in an increase in gross profit on rental revenues of $1.9 million. Rental related services revenues increased 10% to $6.3 million, with gross profit on rental related services increasing 19% to $1.5 million. Selling and administrative expenses increased 10% to $7.3 million, primarily due to increased salaries and employee benefit costs.

FINANCIAL OUTLOOK:

Based upon the Company’s year to date results and current outlook for the remainder of the year, the Company is raising its financial outlook and expects 2017 total Company operating profit to increase 15% to 18% above 2016, compared to our prior expectation of a 9% to 12% 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 October 2, 2017, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on October 31, 2017 to discuss the third 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 92731571. 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://www.mgrc.com/investors#events-archives.

FORWARD-LOOKING STATEMENTS:

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, regarding McGrath RentCorp’s expectations, strategies, prospects or targets are forward looking statements. These forward-looking statements also can be identified by the use of forward-looking terminology such as “believes,” “expects,” “will,” or “anticipates” or the negative of these terms or other comparable terminology. In particular, the full year 2017 operating profit outlook in the CEO comments and “Financial Outlook” sections are forward-looking.

These forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties that could cause our actual results to differ materially from those projected including: the extent of the recovery underway in our modular building division; the state of the wireless communications network upgrade environment; the utilization levels and rental rates 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; and our ability to effectively manage our rental assets, as well as the factors disclosed under “Risk Factors” in the Company’s Form 10-K and other SEC filings.

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

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except per share amounts)2017 2016 2017 2016
Revenues
Rental$73,781 $67,757 $211,712 $201,036
Rental related services 21,856 20,122 58,587 57,028
Rental operations 95,637 87,879 270,299 258,064
Sales 38,684 33,486 67,166 58,916
Other 1,067 628 2,342 1,817
Total revenues 135,388 121,993 339,807 318,797
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment 17,492 17,819 52,113 54,590
Rental related services 16,611 16,026 44,756 44,428
Other 15,396 14,689 46,794 45,991
Total direct costs of rental operations 49,499 48,534 143,663 145,009
Costs of sales 27,114 23,026 44,488 38,944
Total costs of revenues 76,613 71,560 188,151 183,953
Gross profit 58,775 50,433 151,656 134,844
Selling and administrative expenses 28,489 26,201 83,702 78,281
Income from operations 30,286 24,232 67,954 56,563
Other income (expense):
Interest expense (2,986) (2,940) (8,724) (9,486)
Foreign currency exchange gain (loss) 36 (15) 273 59
Income before provision for income taxes 27,336 21,277 59,503 47,136
Provision for income taxes 10,574 8,405 23,307 18,619
Net income$16,762 $12,872 $36,196 $28,517
Earnings per share:
Basic$0.70 $0.54 $1.51 $1.19
Diluted$0.69 $0.54 $1.50 $1.19
Shares used in per share calculation:
Basic 24,015 23,911 23,984 23,891
Diluted 24,228 24,041 24,201 23,957
Cash dividends declared per share$0.260 $0.255 $0.780 $0.765


MCGRATH RENTCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
(in thousands) 2017 2016
Assets
Cash $1,369 $852
Accounts receivable, net of allowance for doubtful accounts of $1,987 in 2017
and $2,087 in 2016
107,413 96,877
Rental equipment, at cost:
Relocatable modular buildings 781,791 769,190
Electronic test equipment 258,877 246,325
Liquid and solid containment tanks and boxes 309,825 308,542
1,350,493 1,324,057
Less accumulated depreciation (484,769) (467,686)
Rental equipment, net 865,724 856,371
Property, plant and equipment, net 119,315 112,190
Prepaid expenses and other assets 26,844 25,583
Intangible assets, net 7,942 8,595
Goodwill 27,808 27,808
Total assets $1,156,415 $1,128,276
Liabilities and Shareholders' Equity
Liabilities:
Notes payable $323,117 $326,266
Accounts payable and accrued liabilities 81,765 78,205
Deferred income 42,188 37,499
Deferred income taxes, net 296,563 292,019
Total liabilities 743,633 733,989
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,032 shares as of September 30, 2017 and 23,948 shares as of December 31, 2016 102,703 101,821
Retained earnings 310,210 292,521
Accumulated other comprehensive loss (131) (55)
Total shareholders’ equity 412,782 394,287
Total liabilities and shareholders’ equity $1,156,415 $1,128,276


MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
(in thousands) 2017 2016
Cash Flows from Operating Activities :
Net income $36,196 $28,517
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 58,425 61,528
Provision for doubtful accounts 1,155 1,366
Share-based compensation 2,245 2,327
Gain on sale of used rental equipment (13,006) (10,798)
Foreign currency exchange gain (273) (59)
Amortization of debt issuance costs 38 39
Change in:
Accounts receivable (11,691) (10,107)
Income taxes receivable 11,000
Prepaid expenses and other assets (1,261) 1,374
Accounts payable and accrued liabilities 80 3,089
Deferred income 4,689 5,191
Deferred income taxes 4,544 11,810
Net cash provided by operating activities 81,141 105,277
Cash Flows from Investing Activities:
Purchases of rental equipment (73,193) (64,349)
Purchases of property, plant and equipment (12,784) (10,028)
Proceeds from sales of used rental equipment 28,478 24,037
Net cash used in investing activities (57,499) (50,340)
Cash Flows from Financing Activities:
Net borrowings (repayments) under bank lines of credit 16,813 (16,034)
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 (1,363) (589)
Payment of dividends (18,628) (18,349)
Net cash used in financing activities (23,178) (54,935)
Effect of foreign currency exchange rate changes on cash 53 (13)
Net increase (decrease) in cash 517 (11)
Cash balance, beginning of period 852 1,103
Cash balance, end of period $1,369 $1,092
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period $8,563 $9,042
Net income taxes paid, during the period $23,510 $7,751
Dividends accrued during the period, not yet paid $5,979 $6,144
Rental equipment acquisitions, not yet paid $6,622 $3,688


MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended September 30, 2017
(dollar amounts in thousands) Mobile
Modular
TRS-
RenTelco
Adler Tanks Enviroplex Consolidated
Revenues
Rental $36,239 $21,018 $16,524 $ $73,781
Rental related services 14,729 783 6,344 21,856
Rental operations 50,968 21,801 22,868 95,637
Sales 17,533 4,909 461 15,781 38,684
Other 386 594 87 1,067
Total revenues 68,887 27,304 23,416 15,781 135,388
Costs and Expenses
Direct costs of rental operations:
Depreciation 5,285 8,264 3,943 17,492
Rental related services 11,075 683 4,853 16,611
Other 9,396 3,352 2,648 15,396
Total direct costs of rental operations 25,756 12,299 11,444 49,499
Costs of sales 12,770 2,432 397 11,515 27,114
Total costs of revenues 38,526 14,731 11,841 11,515 76,613
Gross Profit
Rental 21,558 9,402 9,933 40,893
Rental related services 3,654 100 1,491 5,245
Rental operations 25,212 9,502 11,424 46,138
Sales 4,763 2,477 64 4,266 11,570
Other 386 594 87 1,067
Total gross profit 30,361 12,573 11,575 4,266 58,775
Selling and administrative expenses 14,540 5,456 7,327 1,166 28,489
Income from operations $15,821 $7,117 $4,248 $3,100 30,286
Interest expense (2,986)
Foreign currency exchange gain 36
Provision for income taxes (10,574)
Net income $16,762
Other Information
Average rental equipment 1 $748,779 $254,369 $307,790
Average monthly total yield 2 1.61% 2.75% 1.79%
Average utilization 3 76.3% 63.4% 57.1%
Average monthly rental rate 4 2.11% 4.35% 3.14%

  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 September 30, 2016
(dollar amounts in thousands) Mobile
Modular
TRS-
RenTelco
Adler Tanks Enviroplex Consolidated
Revenues
Rental $33,210 $20,365 $14,182 $ $67,757
Rental related services 13,697 655 5,770 20,122
Rental operations 46,907 21,020 19,952 87,879
Sales 16,700 4,788 358 11,640 33,486
Other 82 509 37 628
Total revenues 63,689 26,317 20,347 11,640 121,993
Costs and Expenses
Direct costs of rental operations:
Depreciation 5,295 8,553 3,971 17,819
Rental related services 10,811 700 4,515 16,026
Other 8,949 3,524 2,216 14,689
Total direct costs of rental operations 25,055 12,777 10,702 48,534
Costs of sales 12,592 2,065 360 8,009 23,026
Total costs of revenues 37,647 14,842 11,062 8,009 71,560
Gross Profit (Loss)
Rental 18,966 8,288 7,995 35,249
Rental related services 2,886 (45) 1,255 4,096
Rental operations 21,852 8,243 9,250 39,345
Sales 4,108 2,723 (2) 3,631 10,460
Other 82 509 37 628
Total gross profit 26,042 11,475 9,285 3,631 50,433
Selling and administrative expenses 13,364 5,101 6,631 1,105 26,201
Income from operations $12,678 $6,374 $2,654 $2,526 24,232
Interest expense (2,940)
Foreign currency exchange loss (15)
Provision for income taxes (8,405)
Net income $12,872
Other Information
Average rental equipment 1 $729,943 $251,786 $307,621
Average monthly total yield 2 1.52% 2.70% 1.54%
Average utilization 3 76.7% 61.2% 49.4%
Average monthly rental rate 4 1.98% 4.41% 3.11%

  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)
Nine months ended September 30, 2017
(dollar amounts in thousands) Mobile
Modular
TRS-
RenTelco
Adler Tanks Enviroplex Consolidated
Revenues
Rental $104,923 $60,569 $46,220 $ $211,712
Rental related services 38,283 2,095 18,209 58,587
Rental operations 143,206 62,664 64,429 270,299
Sales 30,001 14,897 1,576 20,692 67,166
Other 621 1,596 125 2,342
Total revenues 173,828 79,157 66,130 20,692 339,807
Costs and Expenses
Direct costs of rental operations:
Depreciation 15,951 24,335 11,827 52,113
Rental related services 28,802 1,937 14,017 44,756
Other 29,290 9,957 7,547 46,794
Total direct costs of rental operations 74,043 36,229 33,391 143,663
Costs of sales 21,846 6,508 1,332 14,802 44,488
Total costs of revenues 95,889 42,737 34,723 14,802 188,151
Gross Profit
Rental 59,683 26,277 26,846 112,806
Rental related services 9,481 158 4,191 13,830
Rental operations 69,164 26,435 31,037 126,636
Sales 8,154 8,389 245 5,890 22,678
Other 621 1,596 125 2,342
Total gross profit 77,939 36,420 31,407 5,890 151,656
Selling and administrative expenses 42,157 16,475 21,855 3,215 83,702
Income from operations $35,782 $19,945 $9,552 $2,675 67,954
Interest expense (8,724)
Foreign currency exchange gain 273
Provision for income taxes (23,307)
Net income $36,196
Other Information
Average rental equipment 1 $746,632 $249,740 $307,322
Average monthly total yield 2 1.56% 2.69% 1.67%
Average utilization 3 76.6% 62.8% 54.7%
Average monthly rental rate 4 2.04% 4.29% 3.06%

  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)
Nine months ended September 30, 2016
(dollar amounts in thousands) Mobile
Modular
TRS-
RenTelco
Adler Tanks Enviroplex Consolidated
Revenues
Rental $96,002 $61,562 $43,472 $ $201,036
Rental related services 37,034 2,156 17,838 57,028
Rental operations 133,036 63,718 61,310 258,064
Sales 25,132 17,050 947 15,787 58,916
Other 284 1,441 92 1,817
Total revenues 158,452 82,209 62,349 15,787 318,797
Costs and Expenses
Direct costs of rental operations:
Depreciation 15,642 26,939 12,009 54,590
Rental related services 28,370 1,965 14,093 44,428
Other 28,501 10,500 6,990 45,991
Total direct costs of rental operations 72,513 39,404 33,092 145,009
Costs of sales 18,610 8,772 895 10,667 38,944
Total costs of revenues 91,123 48,176 33,987 10,667 183,953
Gross Profit
Rental 51,860 24,122 24,473 100,455
Rental related services 8,664 191 3,745 12,600
Rental operations 60,524 24,313 28,218 113,055
Sales 6,521 8,279 52 5,120 19,972
Other 284 1,441 92 1,817
Total gross profit 67,329 34,033 28,362 5,120 134,844
Selling and administrative expenses 38,162 16,444 20,786 2,889 78,281
Income from operations $29,167 $17,589 $7,576 $2,231 56,563
Interest expense (9,486)
Foreign currency exchange gain 59
Provision for income taxes (18,619)
Net income $28,517
Other Information
Average rental equipment 1 $719,206 $255,896 $307,669
Average monthly total yield 2 1.48% 2.67% 1.57%
Average utilization 3 76.3% 60.1% 49.9%
Average monthly rental rate 4 1.94% 4.44% 3.15%

  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
September 30,
Nine Months Ended
September 30,
Twelve Months Ended
September 30,
2017 2016 2017 2016 2017 2016
Net income $16,762 $12,872 $36,196 $28,517 $45,930 $40,035
Provision for income taxes 10,574 8,405 23,307 18,619 33,368 25,624
Interest 2,986 2,940 8,724 9,486 11,445 12,396
Depreciation and amortization 19,673 20,111 58,425 61,528 78,076 82,505
EBITDA 49,995 44,328 126,652 118,150 168,819 160,560
Share-based compensation 707 741 2,245 2,327 3,009 2,863
Adjusted EBITDA 1 $50,702 $45,069 $128,897 $120,477 $171,828 $163,423
Adjusted EBITDA margin 2 37% 37% 38% 38% 39% 39%


Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities

(dollar amounts in thousands) Three Months Ended
September 30,
Nine Months Ended
September 30,
Twelve Months Ended
September 30,
2017 2016 2017 2016 2017 2016
Adjusted EBITDA 1 $50,702 $45,069 $128,897 $120,477 $171,828 $163,423
Interest paid (2,746) (2,396) (8,563) (9,042) (11,957) (11,859)
Net income taxes paid (5,369) (2,072) (23,510) (7,751) (31,314) (8,009)
Gain on sale of used rental equipment (5,092) (4,516) (13,006) (10,798) (15,947) (13,634)
Foreign currency exchange loss (gain) (36) 15 (273) (59) (93) (25)
Amortization of debt financing cost 13 13 38 39 51 51
Change in certain assets and liabilities:
Accounts receivable, net (10,874) (8,144) (10,536) (8,741) (3,655) 3,302
Income taxes receivable 11,000
Prepaid expenses and other assets 7,578 4,237 (1,261) 1,374 (686) 1,379
Accounts payable and other liabilities (2,089) (2,444) 4,666 3,587 8,298 14,293
Deferred income (345) 3,130 4,689 5,191 34 1,306
Net cash provided by operating activities $31,742 $32,892 $81,141 $105,277 $116,559 $150,227

  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