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McGrath RentCorp Announces Results for Fourth Quarter 2016

Income from Operations increases 6%
EPS decreases 17% to $0.40 due to income tax expense increase
Company announces 2% dividend increase; 25th consecutive year increase

LIVERMORE, Calif., Feb. 28, 2017 (GLOBE NEWSWIRE) -- McGrath RentCorp (NASDAQ:MGRC) (the “Company”), a diversified business to business rental company, today announced total revenues for the quarter ended December 31, 2016 of $105.3 million, which was unchanged from the fourth quarter of 2015.  The Company reported net income of $9.7 million, or $0.40 per diluted share for the fourth quarter of 2016, compared to net income of $11.5 million, or $0.48 per diluted share, in the fourth quarter of 2015.

Total revenues for the year ended December 31, 2016 were $424.1 million, compared to $404.5 million in 2015.  Rental revenues decreased 1% to $271.4 million in 2016, compared to $273.7 million in 2015, with income from operations increasing 3% to $79.3 million.  Net income for the year ended December 31, 2016 decreased 5% to $38.3 million, compared to 2015.  Diluted earnings per share increased 1% to $1.60 in 2016 from $1.59 in 2015.  

The Company’s effective tax rate for the fourth quarter 2016 was 50.8% compared to 37.8% in the fourth quarter 2015.  This increase was driven by the full year 2016 effective tax rate rising to 42.9% as compared to 39.0 % for 2015, which increased the provision for income taxes in 2016 by $2.6 million and reduced earnings by $0.11 per diluted share in the fourth quarter results.  The increased effective tax rate in 2016 was primarily a result of a change in business mix by state and the decision to exit TRS-RenTelco’s branch operations in India.  Higher business levels in states with higher tax rates, in particular growth in California, and the resulting re-pricing of deferred tax liabilities accounted for approximately $1.6 million. In addition, the decision to exit branch operations in India accounted for approximately $0.7 million.  The Company estimates an effective tax rate of 40.0% for calendar year 2017.     

The Company also announced that the board of directors declared a quarterly cash dividend of $0.26 per share for the quarter ending March 31, 2017, an increase of 2% over the prior year period.  On an annualized basis, the 2017 dividend represents a 2.7% yield, based on the February 27, 2017 closing stock price.  The cash dividend will be payable on April 28, 2017 to all shareholders of record on April 14, 2017. This marks the 25th consecutive year the Company has increased its annual dividend.

Fourth quarter operating profit increased 6% compared to a year ago as higher operating profit at Mobile Modular and Enviroplex was partly offset by lower operating profit at Adler Tank Rentals and TRS-RenTelco.

Modular division-wide rental revenues for the quarter increased $2.8 million, or 9%, to $34.5 million from a year ago.  Gross profit from rental revenues increased by 24% as rental revenue margins increased from 54% to 62%, partly due to lower equipment preparation expenses.  Modular division income from operations grew 27% to $13.2 million from a year ago as a result of 18% growth in total gross profit, primarily from higher gross profit from rental revenues, partly offset by higher SG&A expenses.  Modular division average rental equipment utilization for the quarter was flat compared to a year ago at 77.5%.

Mobile Modular Portable Storage continued to make good progress during the fourth quarter and grew rental revenues 13% 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 $1.9 million for the quarter, or 8%, to $20.7 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 19% while general-purpose increased 5% for the quarter compared to the same period a year ago.  Average equipment utilization was 62.3% compared to 61.2% in the same period in 2015.  Average rental rates declined for the quarter to 4.46% from 4.67% for the fourth 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 5% to $6.3 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 $1.2 million for the quarter, or 8%, to $15.1 million from a year ago but were up from $14.2 million in the third quarter of 2016.  Average utilization was 51.3% for the quarter compared to 54.0% a year ago, and 49.4% for the third quarter of 2016.  Fourth quarter average equipment on rent declined to $157 million from $166 million a year ago, but was up from $152 million in the third quarter of 2016.  Upstream oil and natural gas rental revenue declined from 11% of total Adler rental revenues in the fourth quarter of 2015 to 8% for the same period in 2016.  Weak demand in the upstream oil and natural gas market put 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 $2.1 million, or 48%, to $2.2 million from a year ago, primarily due to lower gross profit on rental revenues. 

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 full year 2016 income from operations to $79 million from $77 million in 2015.  Strong cash flows enabled the Company to reduce debt by $55 million, while paying dividends of $24 million and selectively deploying new capital to increase the size of the modular division rental equipment fleet by $32 million.

All comparisons presented below are for the quarter ended December 31, 2016 to the quarter ended December 31, 2015 unless otherwise indicated.

MOBILE MODULAR

For the fourth quarter of 2016, the Company’s Mobile Modular division reported a $2.8 million increase in income from operations, or 27%, to $13.2 million. Rental revenues increased 9% to $34.5 million, depreciation expense increased 7% to $5.4 million and other direct costs decreased 17% to $7.8 million, which resulted in an increase in gross profit on rental revenues of 24% to $21.3 million.  Rental related services revenues increased 4% to $12.2 million, with gross profit on rental related services revenues increasing 11% to $3.8 million. Sales revenues decreased 36% to $4.3 million, with gross profit on sales revenues decreasing 29% to $1.3 million, primarily due to lower new equipment sales in the fourth quarter of 2016.  Selling and administrative expenses increased 10% to $13.3 million, primarily due to higher allocated corporate expenses. 

TRS-RENTELCO

For the fourth quarter of 2016, the Company’s TRS-RenTelco division reported a $0.4 million decrease in income from operations, or 5%, to $6.3 million.  Rental revenues decreased 8% to $20.7 million, depreciation expense decreased 14% to $8.3 million and other direct costs increased 9% to $3.8 million, which resulted in a decrease in gross profit on rental revenues of 9% to $8.6 million.  Sales revenues decreased 24% to $4.5 million.  Gross profit on sales revenues increased 5% to $2.7 million, with gross margin percentage increasing to 60% from 43%, primarily due to higher margins on new and used equipment sales in the fourth quarter of 2016.  Selling and administrative expenses decreased 7% to $5.5 million, primarily due to lower bad debt expense.

ADLER TANKS

For the fourth quarter of 2016, the Company’s Adler Tanks division reported a $2.1 million decrease in income from operations, or 48%, to $2.2 million.  Rental revenues decreased 8% to $15.1 million, depreciation expense decreased 3% to $3.9 million and other direct costs increased 26% to $3.1 million, which resulted in a decrease in gross profit on rental revenues of 18% to $8.0 million.  Rental related services revenues decreased 6% to $6.0 million, with gross profit on rental related services decreasing 12% to $1.1 million. Selling and administrative expenses increased 1% to $6.8 million.

OTHER HIGHLIGHTS

  • Debt decreased $19.0 million during the quarter to $326.4 million, with the Company’s funded debt (notes payable) to equity ratio decreasing from 0.88 to 1 at September 30, 2016 to 0.82 to 1 at December 31, 2016.  As of December 31, 2016, the Company had capacity to borrow an additional $245.6 million under its lines of credit. 
  • Share Repurchases of the Company’s common stock during the fourth quarter 2015 were 551,685 shares for an aggregate repurchase price of $15.2 million, or an average repurchase price of $27.50 per share.  There were no repurchases of the Company’s common stock made during the fourth quarter of 2016.
  • Dividend rate increased 2% to $0.255 per share for the fourth quarter of 2016 compared to the fourth quarter of 2015. On an annualized basis, this dividend represents a 2.7% yield on the February 27, 2017 close price of $37.95 per share.
  • Adjusted EBITDA was flat at $42.9 million for the fourth quarter of 2016 compared to the fourth quarter of 2015.  At December 31, 2016, the Company’s ratio of funded debt to the last twelve months actual Adjusted EBITDA was 2.00 to 1, compared to 2.11 to 1 at September 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.

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.

FINANCIAL OUTLOOK

Comparing 2017 with 2016, the Company currently expects operating profits to be higher at Mobile Modular and roughly flat at TRS-RenTelco and Adler Tanks

For the full-year 2017, the Company expects:

  • Rental revenues to increase between 1% and 3% over 2016. 
  • Sales revenues to be comparable to 2016. 
  • Rental equipment depreciation expense to be between $67 and $69 million
  • “Other” direct costs of rental operations, primarily for rental equipment maintenance and repair, to be between $62 and $64 million
  • Selling and administrative costs to be between $110 and $112 million
  • Operating profit to increase between 3% and 5% over 2016. 
  • Full year interest expense to be approximately $12 million
  • Effective tax rate to be 40%, excluding any potential impact from ASU 2016-09.
  • Diluted share count to be between 24.1 and 24.3 million shares. 

These forward-looking statements reflect McGrath RentCorp’s expectations as of February 28, 2017.  Actual 2017 results may be materially different and affected by many factors, including those factors outlined in the “forward-looking statements” paragraph at the end of this press release.

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.trsrentelco.com
School Facilities Manufacturing – www.enviroplex.com

CONFERENCE CALL NOTE

As previously announced in its press release of January 26, 2017, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on February 28, 2017 to discuss the fourth quarter 2016 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 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 61399095. 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, statements about the full year 2017 outlook in the section of the press release entitled “Financial Outlook” are forward-looking statements.

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
December 31,
    Twelve Months Ended
December 31,
 
(dollar amounts in thousands, except per share amounts)   2016     2015     2016     2015  
                                 
Revenues                                
Rental   $ 70,352     $ 70,694     $ 271,388     $ 273,696  
Rental related services     18,831       18,858       75,859       73,314  
  Rental operations     89,183       89,552       347,247       347,010  
Sales     15,494       15,204       74,410       55,385  
Other     606       526       2,423       2,149  
    Total revenues     105,283       105,282       424,080       404,544  
                                 
Costs and Expenses                                
Direct costs of rental operations:                                
  Depreciation of rental equipment     17,607       18,706       72,197       75,213  
  Rental related services     13,970       14,117       56,374       54,719  
  Other     14,785       15,467       62,800       60,936  
    Total direct costs of rental operations     46,362       48,290       191,371       190,868  
Costs of sales     9,598       10,236       48,542       36,769  
    Total costs of revenues     55,960       58,526       239,913       227,637  
      Gross profit     49,323       46,756       184,167       176,907  
Selling and administrative expenses     26,627       25,289       104,908       99,950  
  Income from operations     22,696       21,467       79,259       76,957  
Other expenses:                                
  Interest expense     (2,721 )     (2,910 )     (12,207 )     (10,092 )
  Foreign currency exchange loss     (180 )     (34 )     (121 )     (488 )
    Income before provision for income taxes     19,795       18,523       66,931       66,377  
  Provision for income taxes     10,061       7,005       28,680       25,907  
    Net income   $ 9,734     $ 11,518     $ 38,251     $ 40,470  
                                 
Earnings per share:                                
  Basic   $ 0.41     $ 0.48     $ 1.60     $ 1.60  
  Diluted   $ 0.40     $ 0.48     $ 1.60     $ 1.59  
Shares used in per share calculation:                                
  Basic     23,927       23,932       23,900       25,369  
  Diluted     24,123       24,015       23,976       25,457  
                                 
Cash dividend declared per share   $ 0.255     $ 0.250     $ 1.02     $ 1.00  
                                 
                                 


               

   
MCGRATH RENTCORP  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(UNAUDITED)  
                 
    December 31,     December 31,  
(in thousands)   2016     2015  
                 
Assets                
Cash   $ 852     $ 1,103  
Accounts receivable, net of allowance for doubtful accounts of $2,087 in 2016 and 2015     96,877       95,017  
Income taxes receivable           11,000  
Rental equipment, at cost:                
Relocatable modular buildings     769,190       736,875  
Electronic test equipment     246,325       262,945  
Liquid and solid containment tanks and boxes     308,542       310,263  
      1,324,057       1,310,083  
Less accumulated depreciation     (467,686 )     (440,482 )
Rental equipment, net     856,371       869,601  
Property, plant and equipment, net     112,190       109,753  
Prepaid expenses and other assets     25,583       28,802  
Intangible assets, net     8,595       9,465  
Goodwill     27,808       27,808  
  Total assets   $ 1,128,276     $ 1,152,549  
Liabilities and Shareholders Equity                
Liabilities:                
Notes payable   $ 326,266     $ 381,281  
Accounts payable and accrued liabilities     78,205       71,942  
Deferred income     37,499       36,288  
Deferred income taxes, net     292,019       283,351  
  Total liabilities     733,989       772,862  
Shareholders’ equity:                
Common stock, no par value - Authorized 40,000 shares                
Issued and outstanding - 23,948 shares as of December 31, 2016 and 23,851 shares as of December 31, 2015     101,821       101,046  
Retained earnings     292,521       278,708  
Accumulated other comprehensive loss     (55 )     (67 )
  Total shareholders’ equity     394,287       379,687  
  Total liabilities and shareholders’ equity   $ 1,128,276     $ 1,152,549  
                 
                 


   
MCGRATH RENTCORP  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(UNAUDITED)  
                 
    Year Ended December 31,  
(in thousands)   2016     2015  
Cash Flows from Operating Activities:                
Net income   $ 38,251     $ 40,470  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     81,179       84,280  
Provision for doubtful accounts     1,892       2,149  
Share-based compensation     3,091       3,399  
Gain on sale of used rental equipment     (13,739 )     (11,902 )
Foreign currency exchange loss     121       488  
  Amortization of debt issuance cost     51       52  
Change in:                
Accounts receivable     (3,752       3,628  
Income taxes receivable     11,000       (11,000 )
Prepaid expenses and other assets     3,219       12,910  
Accounts payable and accrued liabilities     11,492       (1,520 )
Deferred income     1,211       7,149  
Deferred income taxes     7,745       14,449  
  Net cash provided by operating activities     141,761       144,552  
Cash Flows from Investing Activities:                
Purchases of rental equipment     (79,038 )     (131,037 )
Purchases of property, plant and equipment     (10,548 )     (9,321 )
Proceeds from sale of used rental equipment     29,406       26,214  
 Net cash used in investing activities     (60,180 )     (114,144 )
Cash Flows from Financing Activities:                
Net borrowings (repayments) under bank lines of credit     (35,066 )     18,963  
Principal payments on Series A senior notes     (20,000 )     (20,000 )
Borrowings under Series C senior notes           60,000  
Proceeds from the exercise of stock options     37       2,149  
Excess tax shortfall from exercise of stock awards     (1,066 )     (292 )
Taxes paid related to net share settlement of stock awards     (1,287 )     (1,560 )
Repurchase of common stock           (63,953 )
Payment of dividends     (24,448 )     (25,779 )
 Net cash used in financing activities     (81,830 )     (30,472 )
Effect of foreign currency exchange rate changes on cash       (2      
 Net decrease in cash     (251 )     (64 )
Cash balance, beginning of period     1,103       1,167  
Cash balance, end of period   $ 852     $ 1,103  
Supplemental Disclosure of Cash Flow Information:                
Interest paid, during the period   $ 12,436     $ 10,041  
Net income taxes paid, during the period   $ 15,555     $ 2,498  
Dividends accrued during the period, not yet paid   $ 6,147     $ 6,019  
Rental equipment acquisitions, not yet paid   $ 2,876     $ 7,280  
                 
                 


                                         
MCGRATH RENTCORP                                        
BUSINESS SEGMENT DATA (unaudited)                                        
Three months ended December 31, 2016                                        
(dollar amounts in thousands)   Mobile
Modular
    TRS-
RenTelco
    Adler
Tanks
    Enviroplex     Consolidated  
Revenues                                        
Rental   $ 34,494     $ 20,745     $ 15,113     $     $ 70,352  
Rental related services     12,172       690       5,969             18,831  
  Rental operations     46,666       21,435       21,082             89,183  
Sales     4,261       4,532       367       6,334       15,494  
Other     133       441       32             606  
    Total revenues     51,060       26,408       21,481       6,334       105,283  
                                         
Costs and Expenses                                        
Direct costs of rental operations:                                        
  Depreciation     5,359       8,317       3,931             17,607  
  Rental related services     8,376       675       4,919             13,970  
  Other     7,828       3,820       3,137             14,785  
    Total direct costs of rental operations     21,563       12,812       11,987             46,362  
Costs of sales     3,010       1,832       447       4,309       9,598  
    Total costs of revenues     24,573       14,644       12,434       4,309       55,960  
                                         
Gross Profit (Loss)                                        
Rental     21,307       8,608       8,045             37,960  
Rental related services     3,796       15       1,050             4,861  
  Rental operations     25,103       8,623       9,095             42,821  
Sales     1,251       2,700       (80 )     2,025       5,896  
Other     133       441       32             606  
    Total gross profit     26,487       11,764       9,047       2,025       49,323  
Selling and administrative expenses     13,270       5,452       6,824       1,081       26,627  
Income from operations   $ 13,217     $ 6,312     $ 2,223     $ 944       22,696  
Interest expense                                     (2,721 )
Foreign currency exchange loss                                     (180 )
Provision for income taxes                                     (10,061 )
    Net income                                   $ 9,734  
                                         
Other Information                                        
Average rental equipment 1   $ 739,728     $ 248,841     $ 306,681                  
Average monthly total yield 2     1.55 %     2.78 %     1.64 %                
Average utilization 3     77.5 %     62.3 %     51.3 %                
Average monthly rental rate 4     2.01 %     4.46 %     3.20 %                
                                         
  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 December 31, 2015                                      
(dollar amounts in thousands)   Mobile
Modular
    TRS-
RenTelco
    Adler
Tanks
    Enviroplex     Consolidated
                                       
Revenues                                      
Rental   $ 31,744     $ 22,596     $ 16,354     $     $ 70,694  
Rental related services     11,712       784       6,362             18,858  
  Rental operations     43,456       23,380       22,716             89,552  
Sales     6,618       5,964       376       2,246       15,204  
Other     93       405       28             526  
    Total revenues     50,167       29,749       23,120       2,246       105,282  
                                       
Costs and Expenses                                      
Direct costs of rental operations:                                      
  Depreciation     5,028       9,639       4,039             18,706  
  Rental related services     8,283       668       5,166             14,117  
  Other     9,483       3,498       2,486             15,467  
    Total direct costs of rental operations     22,794       13,805       11,691             48,290  
Costs of sales     4,865       3,401       415       1,555       10,236  
    Total costs of revenues     27,659       17,206       12,106       1,555       58,526  
                                       
Gross Profit (Loss)                                      
Rental     17,233       9,459       9,829             36,521  
Rental related services     3,429       116       1,196             4,741  
  Rental operations     20,662       9,575       11,025             41,262  
Sales     1,753       2,563       (39 )     691       4,968  
Other     93       405       28             526  
    Total gross profit     22,508       12,543       11,014       691       46,756  
Selling and administrative expenses     12,060       5,871       6,739       619       25,289  
Income from operations   $ 10,448     $ 6,672     $ 4,275     $ 72       21,467  
Interest expense                                     (2,910
Foreign currency exchange loss                                     (34
Provision for income taxes                                     (7,005 )
    Net income                                   $ 11,518  
                                       
Other Information                                      
Average rental equipment 1   $ 696,482     $ 263,567     $ 307,390                
Average monthly total yield 2     1.52 %     2.86 %     1.77 %              
Average utilization 3     77.5 %     61.2 %     54.0 %              
Average monthly rental rate 4     1.96 %     4.67 %     3.28 %              
                                       
  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)                                        
Twelve months ended December 31, 2016                                        
(dollar amounts in thousands)   Mobile
Modular
    TRS-
RenTelco
    Adler
Tanks
    Enviroplex     Consolidated  
                                         
Revenues                                        
Rental   $ 130,496     $ 82,307     $ 58,585     $     $ 271,388  
Rental related services     49,206       2,846       23,807             75,859  
  Rental operations     179,702       85,153       82,392             347,247  
Sales     29,393       21,582       1,314       22,121       74,410  
Other     417       1,882       124             2,423  
    Total revenues     209,512       108,617       83,830       22,121       424,080  
                                         
Costs and Expenses                                        
Direct costs of rental operations:                                        
  Depreciation     21,001       35,256       15,940             72,197  
  Rental related services     34,722       2,640       19,012             56,374  
  Other     38,353       14,320       10,127             62,800  
    Total direct costs of rental operations     94,076       52,216       45,079             191,371  
Costs of sales     21,620       10,604       1,342       14,976       48,542  
    Total costs of revenues     115,696       62,820       46,421       14,976       239,913  
                                         
Gross Profit (Loss)                                        
Rental     71,143       32,730       32,518             136,391  
Rental related services     14,484       206       4,795             19,485  
  Rental operations     85,627       32,936       37,313             155,876  
Sales     7,772       10,979       (28 )     7,145       25,868  
Other     417       1,882       124             2,423  
    Total gross profit     93,816       45,797       37,409       7,145       184,167  
Selling and administrative expenses     51,432       21,896       27,610       3,970       104,908  
Income from operations   $ 42,384     $ 23,901     $ 9,799     $ 3,175       79,259  
Interest expense                                     (12,207 )
Foreign currency exchange loss                                     (121 )
Provision for income taxes                                     (28,680 )
    Net income                                   $ 38,251  
                                         
Other Information                                        
Average rental equipment 1   $ 724,333     $ 254,019     $ 307,416                  
Average monthly total yield 2     1.50 %     2.70 %     1.59 %                
Average utilization 3     76.6 %     60.6 %     50.1 %                
Average monthly rental rate 4     1.96 %     4.45 %     3.17 %                
                                         
  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)                                        
Twelve months ended December 31, 2015                                        
(dollar amounts in thousands)   Mobile
Modular
    TRS-
RenTelco
    Adler
Tanks
    Enviroplex     Consolidated  
                                         
Revenues                                        
Rental   $ 115,986     $ 89,208     $ 68,502     $     $ 273,696  
Rental related services     45,616       3,055       24,643             73,314  
  Rental operations     161,602       92,263       93,145             347,010  
Sales     22,248       21,137       1,388       10,612       55,385  
Other     434       1,617       98             2,149  
    Total revenues     184,284       115,017       94,631       10,612       404,544  
                                         
Costs and Expenses                                        
Direct costs of rental operations:                                        
  Depreciation     19,246       39,974       15,993             75,213  
  Rental related services     32,576       2,722       19,421             54,719  
  Other     37,233       13,619       10,084             60,936  
    Total direct costs of rental operations     89,055       56,315       45,498             190,868  
Costs of sales     16,458       10,866       1,736       7,709       36,769  
    Total costs of revenues     105,513       67,181       47,234       7,709       227,637  
                                         
Gross Profit (Loss)                                        
Rental     59,507       35,615       42,425             137,547  
Rental related services     13,040       333       5,222             18,595  
  Rental operations     72,547       35,948       47,647             156,142  
Sales     5,790       10,271       (348 )     2,903       18,616  
Other     434       1,617       98             2,149  
    Total gross profit     78,771       47,836       47,397       2,903       176,907  
Selling and administrative expenses     46,496       22,930       27,494       3,030       99,950  
Income (loss) from operations   $ 32,275     $ 24,906     $ 19,903     $ (127 )     76,957  
Interest expense                                     (10,092 )
Foreign currency exchange loss                                     (488 )
Provision for income taxes                                     (25,907 )
    Net income                                   $ 40,470  
                                         
Other Information                                        
Average rental equipment 1   $ 667,953     $ 265,832     $ 304,001                  
Average monthly total yield 2     1.45 %     2.80 %     1.88 %                
Average utilization 3     75.8 %     60.5 %     58.3 %                
Average monthly rental rate 4     1.91 %     4.62 %     3.22 %                
                                         
  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
December 31,
   Twelve Months Ended
December 31,
    2016       2015         2016       2015  
Net income $    9,734     $   11,518       $     38,251     $     40,470  
  Provision for income taxes     10,061         7,005           28,680         25,907  
  Interest     2,721         2,910           12,207         10,092  
  Depreciation and amortization     19,651         20,977           81,179         84,280  
EBITDA       42,167           42,410           160,317         160,749  
  Share-based compensation     764         536           3,091         3,399  
Adjusted EBITDA 1 $   42,931     $   42,946       $   163,408     $   164,148  
                 
Adjusted EBITDA margin 2     41 %       41 %         39 %       41 %
                                 


       
Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities
(dollar amounts in thousands) Three Months Ended
December 31,
  Twelve Months Ended
December 31,
    2016       2015         2016       2015  
Adjusted EBITDA 1 $     42,931     $     42,946       $    163,408     $     164,148  
Interest paid        (3,394 )          (2,817 )         (12,436 )        (10,041 )
Net income taxes paid       (7,804 )         (258 )         (15,555 )        (2,498 )
Gain on sale of rental equipment        (2,941 )          (2,836 )         (13,739 )       (11,902 )
Foreign currency exchange loss     180         34             121           488  
Amortization of debt issuance cost     13         13           51         52  
Change in certain assets and liabilities:                
  Accounts receivable, net       6,881           12,043             (1,860 )         5,777  
  Income taxes receivable     —         (11,000 )         11,000           (11,000 )
  Prepaid expenses and other assets       1,845           5             3,219           12,910  
  Accounts payable and other liabilities     1,761         9,664              6,341            (10,531 )
  Deferred income       (3,980 )         (3,885 )         1,211         7,149  
Net cash provided by operating activities $     35,492     $     43,909       $   141,761     $   144,552  
                 
  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