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McGrath RentCorp Announces Results for Third Quarter 2016

Rental revenues decrease 3%
Net income down 5%
EPS flat at $0.54 for the quarter

LIVERMORE, Calif., Nov. 01, 2016 (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, 2016 of $122.0 million, an increase of 8%, compared to $113.0 million in the third quarter of 2015.  The Company reported net income of $12.9 million, or $0.54 per diluted share for the third quarter of 2016, compared to net income of $13.6 million, or $0.54 per diluted share, in the third quarter of 2015.

Third quarter EPS was unchanged compared to a year ago as higher operating profit at Mobile Modular and Enviroplex, combined with the favorable effect of a lower dilutive share count, was offset by lower operating profit at Adler Tank Rentals and TRS-RenTelco.

Modular division-wide rental revenues for the quarter increased $3.1 million, or 10%, to $33.2 million from a year ago.  This is the fourteenth consecutive year over year quarterly rental revenue increase. However, gross profit from rental revenues increased by only 3% primarily due to higher building preparation expenses.  Modular division income from operations grew 4% from a year ago as a result of 9% growth in total gross profit, primarily from higher gross profit from sales revenues, partly offset by higher SG&A expenses.  Modular division average rental equipment utilization based on original cost for the quarter was flat compared to a year ago at 76.7%. 

Mobile Modular Portable Storage continued to make good progress during the third quarter and grew rental revenues 18% compared to the same period a year ago. Progress continued towards making each of the portable storage operating geographies increasingly successful.

Rental revenues for TRS-RenTelco declined $2.2 million for the quarter, or 10%, to $20.4 million from a year ago.  The year over year reduction in rental revenues was driven primarily by lower communications test equipment business activity and a continuing highly competitive environment.  Communications test equipment rental revenues declined by 21% while general-purpose increased 2% for the quarter compared to the same period a year ago.  Average equipment utilization was 61.2% compared to 61.0% in the same period in 2015.  Average rental rates declined for the quarter to 4.41% from 4.62% for the third quarter of 2015, primarily due to the business activity mix shift from communications to general-purpose test equipment as well as a highly competitive communications test equipment marketplace.  Income from operations declined 10% to $6.4 million as lower rental and sales revenues were partly offset by lower rental equipment depreciation, lower SG&A expenses and higher gross margins on equipment sales as compared to a year ago.

Rental revenues at Adler Tank Rentals declined $3.2 million for the quarter, or 19%, to $14.2 million from a year ago.  Average utilization and total original acquisition cost of rental equipment were 49.4% and $308 million, respectively, for the quarter compared to 58.6% and $306 million a year ago, and were unchanged compared to the second quarter of 2016.  Third quarter average equipment on rent declined to $152 million from $179 million a year ago, and was unchanged from the second quarter of 2016.  Average monthly rental rates decreased from 3.25% to 3.11% year over year.  The reduction in utilization from a year ago and the continuing downward pressure on pricing, especially for tank rental assets, are directly related to lower crude oil prices and the significant decline in wellhead related drilling and completions activity.  Upstream oil and natural gas rental revenue declined from 17% of total Adler rental revenues in the third quarter of 2015 to 9% for the same period in 2016.  These dynamics have put increasing downward pressure on 21K multi-purpose tank utilization and rental rates in upstream, midstream and downstream energy sectors, as well as in other market verticals. Income from operations for the quarter decreased $2.4 million, or 48%, to $2.7 million from a year ago.  The Company remains very cautious in its outlook for the liquid and solid containment rental business for the foreseeable future as market forces drive a material reset of both the oil and natural gas industries.

Despite very challenging end market conditions throughout the year for Adler Tank Rentals, and to a lesser extent TRS-RenTelco, positive results at Mobile Modular and Enviroplex enabled the Company to grow year to date income from operations to $56.6 million from $55.5 million a year ago.  Strong year to date cash flows have enabled the Company to reduce debt by $36 million, while paying dividends of $18.3 million and selectively deploying new capital to increase the size of the modular division rental equipment fleet by $26.9 million.

All comparisons presented below are for the quarter ended September 30, 2016 to the quarter ended September 30, 2015 unless otherwise indicated.

MOBILE MODULAR

For the third quarter of 2016, the Company’s Mobile Modular division reported a $0.5 million increase in income from operations, or 4%, to $12.7 million. Rental revenues increased 10% to $33.2 million, depreciation expense increased 7% to $5.3 million and other direct costs increased 30% to $9.7 million, which resulted in an increase in gross profit on rental revenues of 3% to $18.2 million.  Rental related services revenues decreased 4% to $13.7 million, with gross profit on rental related services revenues decreasing 12% to $3.7 million. Sales revenues increased 96% to $16.7 million, with gross profit on sales revenues increasing 109% to $4.1 million, due to higher new and used equipment sales in the third quarter of 2016.  Selling and administrative expenses increased 13% to $13.4 million, primarily due to increased employee headcount, salaries and employee benefit costs and higher allocated corporate expenses. 

TRS-RENTELCO

For the third quarter of 2016, the Company’s TRS-RenTelco division reported a $0.7 million decrease in income from operations, or 10%, to $6.4 million.  Rental revenues decreased 10% to $20.4 million, depreciation expense decreased 13% to $8.6 million and other direct costs increased 2% to $3.5 million, which resulted in a decrease in gross profit on rental revenues of 11% to $8.3 million.  Sales revenues decreased 11% to $4.8 million.  Gross profit on sales revenues increased 3% to $2.7 million, with gross margin percentage increasing to 57% from 49%, due to higher gross margins on new and used equipment sales in the third quarter of 2016. Selling and administrative expenses decreased 6% to $5.1 million, primarily due to lower marketing and administrative costs and corporate allocated expenses.

ADLER TANKS

For the third quarter of 2016, the Company’s Adler Tanks division reported a $2.4 million decrease in income from operations, or 48%, to $2.7 million.  Rental revenues decreased 19% to $14.2 million, depreciation expense decreased 1% to $4.0 million and other direct costs decreased 28% to $2.2 million, which resulted in a decrease in gross profit on rental revenues of 23% to $8.0 million.  Rental related services revenues decreased 14% to $5.8 million, with gross profit on rental related services decreasing 27% to $1.3 million. Selling and administrative expenses decreased 4% to $6.6 million, primarily due to lower corporate allocated expenses.

OTHER HIGHLIGHTS

  • Debt decreased $17.8 million during the quarter to $345.3 million, with the Company’s funded debt (notes payable) to equity ratio decreasing from 0.95 to 1 at June 30, 2016 to 0.88 to 1 at September 30, 2016.  As of September 30, 2016, the Company had capacity to borrow an additional $226.6 million under its lines of credit.

  • Dividend rate increased 2% to $0.255 per share for the third quarter of 2016 compared to the third quarter of 2015. On an annualized basis, this dividend represents a 3.4% yield on the October 31, 2016 close price of $30.10 per share.

  • Adjusted EBITDA decreased 4% to $45.1 million for the third quarter of 2016 compared to the third quarter of 2015.  At September 30, 2016, the Company’s ratio of funded debt to the last twelve months actual Adjusted EBITDA was 2.11 to 1, compared to 2.20 to 1 at June 30, 2016.  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.

This press release should be read in conjunction with the financial statements and notes thereto included in the Company’s latest Forms 10-K, 10-Q and other SEC filings.  Please 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.

FINANCIAL OUTLOOK

The Company expects income from operations and earnings per diluted share for the fourth quarter 2016 to be comparable to, or slightly below, the same period in 2015, which should result in full year earnings per diluted share slightly ahead of 2015.

ABOUT MCGRATH RENTCORP

Founded in 1979, McGrath RentCorp is a diversified business-to-business rental company.  The Company’s Mobile Modular division 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.  The Company’s TRS-RenTelco division rents and sells electronic test equipment and is one of the leading rental providers of general purpose and communications test equipment in the Americas.  The Company’s Adler Tank Rentals subsidiary rents and sells containment solutions for hazardous and nonhazardous liquids and solids with operations today serving key markets throughout the United States.  In 2008, the Company entered the portable storage container rental business under the trade name Mobile Modular Portable Storage.  Today, the business is located in the key markets of California, Texas, Florida, Northern Illinois, New Jersey and most recently entered the North Carolina region.  For more information on McGrath RentCorp and its operating units, please visit our websites:

Corporate – www.mgrc.com
Tanks and Boxes – www.adlertankrentals.com
Modular Buildings – www.mobilemodular.com
Portable Storage – www.mobilemodularcontainers.com
Electronic Test Equipment – www.trs-rentelco.com
School Facilities Manufacturing – www.enviroplex.com

CONFERENCE CALL NOTE

As previously announced in its press release of October 11, 2016, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on November 1, 2016 to discuss the third quarter 2016 results.  To participate in the teleconference, dial 1-888-655-3290 (in the U.S.), or 1-484-895-1592 (outside the U.S.), or visit the investor relations section of the Company’s website at www.mgrc.com. Telephone replay of the call will be available for 7 days 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 92917895. 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 statements made in this press release about the following topics are forward looking statements: the Company’s cautious outlook for the liquid and solid containment rental business for the foreseeable future and financial guidance relating to income from operations and earnings per diluted share for the fourth quarter and full year 2016 in the section entitled “Financial Outlook.”

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, particularly in California; the impact of material forces in the oil and natural gas industries on the utilization levels of our Adler Tanks liquid and sold containment tank and box rental assets; the impact of continuing softness in communications test equipment rental demand in our electronics division; our continuing ability to sell lower utilized electronics rental equipment to reduce depreciation expense; the extent of economic recovery, particularly in California, including the impact on funding for school facility projects and residential and commercial construction sectors; our ability to manage our capital expenditures and reduce operating costs in a timely manner in response to market challenges in our various business segments; 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; the impact of the recent medical leave of absence of our Chief Executive Officer; 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; new or modified statutory or regulatory requirements; success of our strategic growth initiatives; success of our ROIC analysis for our business segments; 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, 2015, 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
September 30,
    Nine Months Ended
September 30,
 
(amounts in thousands, except per share amounts)   2016     2015     2016     2015  
                                 
Revenues                                
Rental   $ 67,757     $ 70,195     $ 201,036     $ 203,002  
Rental related services     20,122       21,862       57,028       54,456  
Rental operations     87,879       92,057       258,064       257,458  
Sales     33,486       20,426       58,916       40,181  
Other     628       565       1,817       1,623  
Total revenues     121,993       113,048       318,797       299,262  
Costs and Expenses                                
Direct costs of rental operations:                                
Depreciation of rental equipment     17,819       18,809       54,590       56,507  
Rental related services     15,240       15,802       42,404       40,602  
Other     15,475       14,032       48,015       45,469  
Total direct costs of rental operations     48,534       48,643       145,009       142,578  
Costs of  sales     23,026       14,259       38,944       26,533  
Total costs of revenues     71,560       62,902       183,953       169,111  
Gross profit     50,433       50,146       134,844       130,151  
Selling and administrative expenses     26,201       24,996       78,281       74,661  
Income from operations     24,232       25,150       56,563       55,490  
Other income (expenses):                                
Interest expense     (2,940 )     (2,444 )     (9,486 )     (7,182 )
Foreign currency exchange gain (loss)     (15 )     (201 )     59       (454 )
Income before provision for income taxes     21,277       22,505       47,136       47,854  
Provision for income taxes     8,405       8,889       18,619       18,902  
Net income   $ 12,872     $ 13,616     $ 28,517     $ 28,952  
Earnings per share:                                
Basic   $ 0.54     $ 0.54     $ 1.19     $ 1.12  
Diluted   $ 0.54     $ 0.54     $ 1.19     $ 1.12  
Shares used in per share calculation:                                
Basic     23,911       25,334       23,891       25,853  
Diluted     24,041       25,408       23,957       25,954  
Cash dividend declared per share   $ 0.255     $ 0.250     $ 0.765     $ 0.750  
                                 


MCGRATH RENTCORP  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(UNAUDITED)  
                 
    September 30,     December 31,  
(in thousands)   2016     2015  
                 
Assets                
Cash   $ 1,092     $ 1,103  
Accounts receivable, net of allowance for doubtful accounts of $2,087 in 2016 and  2015     104,004       95,263  
Income taxes receivable           11,000  
Rental equipment, at cost:                
Relocatable modular buildings     763,777       736,875  
Electronic test equipment     252,573       262,945  
Liquid and solid containment tanks and boxes     308,852       310,263  
      1,325,202       1,310,083  
Less accumulated depreciation     (462,674 )     (440,482 )
Rental equipment, net     862,528       869,601  
Property, plant and equipment, net     113,497       109,753  
Prepaid expenses and other assets     27,182       28,556  
Intangible assets, net     8,812       9,465  
Goodwill     27,808       27,808  
Total assets   $ 1,144,923     $ 1,152,549  
Liabilities and Shareholders Equity                
Liabilities:                
Notes payable   $ 345,286     $ 381,281  
Accounts payable and accrued liabilities     72,397       71,942  
Deferred income     41,479       36,288  
Deferred income taxes, net     295,161       283,351  
Total liabilities     754,323       772,862  
Shareholders’ equity:                
Common stock, no par value - Authorized 40,000 shares                
Issued and outstanding - 23,914 shares as of September 30, 2016 and 23,851 shares as of December 31, 2015     101,828       101,046  
Retained earnings     288,884       278,708  
Accumulated other comprehensive loss     (112 )     (67 )
Total shareholders’ equity     390,600       379,687  
Total liabilities and shareholders’ equity   $ 1,144,923     $ 1,152,549  
                 


MCGRATH RENTCORP  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(UNAUDITED)  
                 
    Nine Months Ended September 30,  
(in thousands)   2016     2015  
Cash Flows from Operating Activities:                
Net income   $ 28,517     $ 28,952  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     61,528       63,303  
Provision for doubtful accounts     1,366       1,179  
Share-based compensation     2,327       2,863  
Gain on sale of used rental equipment     (10,798 )     (9,066 )
Foreign currency exchange loss (gain)     (59 )     454  
Change in:                
Accounts receivable     (10,107 )     (7,445 )
Income taxes receivable     11,000        
Prepaid expenses and other assets     1,374       12,905  
Accounts payable and accrued liabilities     4,082       (1,055 )
Deferred income     5,191       11,033  
Deferred income taxes     11,810       (2,519 )
Net cash provided by operating activities     106,231       100,604  
Cash Flows from Investing Activities:                
Purchases of rental equipment     (64,349 )     (104,884 )
Purchases of property, plant and equipment     (10,028 )     (8,045 )
Proceeds from sale of used rental equipment     24,037       19,681  
Net cash used in investing activities     (50,340 )     (93,248 )
Cash Flows from Financing Activities:                
Net borrowings (repayments) under bank lines of credit     (16,034 )     79,635  
Principal payments on Series A senior notes     (20,000 )     (20,000 )
Amortization of debt issuance cost     39       39  
Proceeds from the exercise of stock options     37       1,458  
Excess tax benefit (shortfall) from exercise of stock awards     (993 )     349  
Taxes paid related to net share settlement of stock awards     (589 )     (729 )
Repurchase of common stock           (48,785 )
Payment of dividends     (18,349 )     (19,728 )
Net cash used in financing activities     (55,889 )     (7,761 )
Effect of foreign currency exchange rate changes on cash     (13 )     (5 )
Net decrease in cash     (11 )     (410 )
Cash balance, beginning of period     1,103       1,167  
Cash balance, end of period   $ 1,092     $ 757  
Supplemental Disclosure of Cash Flow Information:                
Interest paid, during the period   $ 9,042     $ 7,224  
Net income taxes paid, during the period   $ 7,751     $ 2,240  
Dividends accrued during the period, not yet paid   $ 6,144     $ 6,159  
Rental equipment acquisitions, not yet paid   $ 3,688     $ 5,707  
                 


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     10,025       700       4,515             15,240  
Other     9,735       3,524       2,216             15,475  
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     18,180       8,288       7,995             34,463  
Rental related services     3,672       (45 )     1,255             4,882  
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)                                        
Three months ended September 30, 2015                                        
(dollar amounts in thousands)   Mobile
Modular
    TRS-
RenTelco
    Adler
Tanks
    Enviroplex     Consolidated  
                                         
Revenues                                        
Rental   $ 30,154     $ 22,612     $ 17,429     $     $ 70,195  
Rental related services     14,313       821       6,728             21,862  
Rental operations     44,467       23,433       24,157             92,057  
Sales     8,539       5,401       321       6,165       20,426  
Other     107       439       19             565  
Total revenues     53,113       29,273       24,497       6,165       113,048  
                                         
Costs and Expenses                                        
Direct costs of rental operations:                                        
Depreciation     4,938       9,858       4,013             18,809  
Rental related services     10,124       664       5,014             15,802  
Other     7,485       3,448       3,099             14,032  
Total direct costs of rental operations     22,547       13,970       12,126             48,643  
Costs of  sales     6,569       2,761       368       4,561       14,259  
Total costs of revenues     29,116       16,731       12,494       4,561       62,902  
                                         
Gross Profit (Loss)                                        
Rental     17,731       9,306       10,317             37,354  
Rental related services     4,189       157       1,714             6,060  
Rental operations     21,920       9,463       12,031             43,414  
Sales     1,970       2,640       (47 )     1,604       6,167  
Other     107       439       19             565  
Total gross profit     23,997       12,542       12,003       1,604       50,146  
Selling and administrative expenses     11,794       5,448       6,936       818       24,996  
Income from operations   $ 12,203     $ 7,094     $ 5,067     $ 786       25,150  
Interest expense                                     (2,444 )
Foreign currency exchange loss                                     (201 )
Provision for income taxes                                     (8,889 )
Net income                                   $ 13,616  
                                         
Other Information                                        
Average rental equipment 1   $ 678,274     $ 267,552     $ 305,550                  
Average monthly total yield 2     1.48 %     2.82 %     1.90 %                
Average utilization 3     76.7 %     61.0 %     58.6 %                
Average monthly rental rate 4     1.93 %     4.62 %     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)                                        
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     26,346       1,965       14,093             42,404  
Other     30,525       10,500       6,990             48,015  
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     49,836       24,122       24,473             98,431  
Rental related services     10,688       191       3,745             14,624  
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.
                                         


                                         
MCGRATH RENTCORP                                        
BUSINESS SEGMENT DATA (unaudited)                                        
Nine months ended September 30, 2015                                        
(dollar amounts in thousands)   Mobile
Modular
    TRS-
RenTelco
    Adler
Tanks
    Enviroplex     Consolidated  
                                         
Revenues                                        
Rental   $ 84,242     $ 66,612     $ 52,148     $     $ 203,002  
Rental related services     33,904       2,271       18,281           54,456  
Rental operations     118,146       68,883       70,429           257,458  
Sales     15,630       15,173       1,012       8,366       40,181  
Other     341       1,212       70           1,623  
Total revenues     134,117       85,268       71,511       8,366       299,262  
                                         
Costs and Expenses                                        
Direct costs of rental operations:                                        
Depreciation     14,218       30,335       11,954           56,507  
Rental related services     24,293       2,054       14,255           40,602  
Other     27,750       10,121       7,598           45,469  
Total direct costs of rental operations     66,261       42,510       33,807           142,578  
Costs of  sales     11,593       7,465       1,321       6,154       26,533  
Total costs of revenues     77,854       49,975       35,128       6,154       169,111  
                                         
Gross Profit (Loss)                                        
Rental     42,274       26,156       32,596           101,026  
Rental related services     9,611       217       4,026           13,854  
Rental operations     51,885       26,373       36,622           114,880  
Sales     4,037       7,708       (309 )     2,212       13,648  
Other     341       1,212       70           1,623  
Total gross profit     56,263       35,293       36,383       2,212       130,151  
Selling and administrative expenses     34,436       17,059       20,755       2,411       74,661  
Income (loss) from operations   $ 21,827     $ 18,234     $ 15,628     $ (199 )   $ 55,490  
Interest expense                                     (7,182 )
Foreign currency exchange loss                                     (454 )
Provision for income taxes                                     (18,902 )
Net income                                   $ 28,952  
                                         
Other Information                                        
Average rental equipment 1   $ 658,404     $ 266,748     $ 302,992                  
Average monthly total yield 2     1.42 %     2.77 %     1.91 %                
Average utilization 3     75.3 %     60.2 %     59.9 %                
Average monthly rental rate 4     1.89 %     4.61 %     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
September 30,
    Nine Months Ended
September 30,
    Twelve Months Ended
September 30,
 
    2016     2015     2016     2015     2016     2015  
Net income   $ 12,872     $ 13,616     $ 28,517     $ 28,952     $ 40,035     $ 42,839  
Provision for income taxes     8,405       8,889       18,619       18,902       25,624       29,237  
Interest     2,940       2,444       9,486       7,182       12,396       9,538  
Depreciation and amortization     20,111       21,132       61,528       63,303       82,505       84,045  
EBITDA     44,328       46,081       118,150       118,339       160,560       165,659  
Share-based compensation     741       910       2,327       2,863       2,863       3,707  
Adjusted EBITDA 1   $ 45,069     $ 46,991     $ 120,477     $ 121,202     $ 163,423     $ 169,366  
Adjusted EBITDA margin 2     37 %     42 %     38 %     41 %     39 %     41 %
                                                 


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,
 
    2016     2015     2016     2015     2016     2015  
Adjusted EBITDA 1   $ 45,069     $ 46,991     $ 120,477     $ 121,202     $ 163,423     $ 169,366  
Interest paid     (2,396 )     (2,328 )     (9,042 )     (7,224 )     (11,859 )     (9,982 )
Net income taxes paid     (2,072 )     (750 )     (7,751 )     (2,240 )     (8,009 )     (8,821 )
Gain on sale of used rental equipment     (4,516 )     (3,501 )     (10,798 )     (9,066 )     (13,634 )     (13,657 )
Foreign currency exchange loss (gain)     15       201       (59 )     454       (25 )     672  
Change in certain assets and liabilities:                                                
Accounts receivable, net     (8,144 )     (13,586 )     (8,741 )     (6,266 )     3,556       (3,990 )
Income taxes receivable                 11,000                    
Prepaid expenses and other assets     4,237       4,924       1,374       12,905       1,125       1,533  
Accounts payable and other liabilities     (2,323 )     (7,031 )     4,580       (20,195 )     14,243       (3,905 )
Deferred income     3,130       10,447       5,191       11,034       1,306       7,398  
Net cash provided by operating activities   $ 33,000     $ 35,367     $ 106,231     $ 100,604     $ 150,126     $ 138,614  
                                                 
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
Chief Financial Officer                
925 606 9200

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McGrath RentCorp