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McGrath RentCorp Announces Results for Second Quarter 2017

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

SECOND QUARTER 2017 COMPANY HIGHLIGHTS:

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

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

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

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

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

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

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

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

________________________________

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

DIVISION HIGHLIGHTS:

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

MOBILE MODULAR

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

TRS-RENTELCO

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

ADLER TANKS

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

FINANCIAL OUTLOOK:

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

ABOUT MCGRATH RENTCORP:

Founded in 1979, McGrath RentCorp is a diversified business-to-business rental company with four rental divisions.  Mobile Modular rents and sells modular buildings to fulfill customers' temporary and permanent classroom and office space needs in California, Texas, Florida, and the Mid-Atlantic from Washington D.C. to Georgia.  TRS-RenTelco rents and sells electronic test equipment and is one of the leading rental providers of general purpose and communications test equipment in the Americas.  Adler Tank Rentals rents and sells containment solutions for hazardous and nonhazardous liquids and solids with operations serving key markets throughout the United States.  Mobile Modular Portable Storage provides portable storage solutions in the California, Texas, Florida, Northern Illinois, New Jersey, North Carolina and Georgia markets.  For more information on McGrath RentCorp and its operating units, please visit our websites:

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

You should read this press release in conjunction with the financial statements and notes thereto included in the Company’s latest Forms 10-K, 10-Q and other SEC filings.  You can visit the Company’s web site at www.mgrc.com to access information on McGrath RentCorp, including the latest Forms 10-K, 10-Q and other SEC filings.

CONFERENCE CALL NOTE:

As previously announced in its press release of July 6, 2017, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on August 2, 2017 to discuss the second quarter 2017 results.  To participate in the teleconference, dial 1-844-707-0666 (in the U.S.), or 1-703-639-1220 (outside the U.S.), or to listen only, access the simultaneous webcast at the investor relations section of the Company’s website at www.mgrc.com.  A 7-day replay will be available following the call by dialing 1-855-859-2056 (in the U.S.), or 1-404-537-3406 (outside the U.S.).  The pass code for the call replay is 51612343.  In addition, a live audio webcast and replay of the call may be found in the investor relations section of the Company’s website at http://mgrc.com/Investor/EventsAndArchive

FORWARD-LOOKING STATEMENTS:

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

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

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

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


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


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


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


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


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


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


Reconciliation of Adjusted EBITDA to the most directly comparable GAAP measures

To supplement the Company’s financial data presented on a basis consistent with accounting principles generally accepted in the United States of America (“GAAP”), the Company presents “Adjusted EBITDA”, which is defined by the Company as net income before interest expense, provision for income taxes, depreciation, amortization, and share-based compensation.  The Company presents Adjusted EBITDA as a financial measure as management believes it provides useful information to investors regarding the Company’s liquidity and financial condition and because management, as well as the Company’s lenders, use this measure in evaluating the performance of the Company. 

Management uses Adjusted EBITDA as a supplement to GAAP measures to further evaluate the Company’s period-to-period operating performance, compliance with financial covenants in the Company’s revolving lines of credit and senior notes and the Company’s ability to meet future capital expenditure and working capital requirements.  Management believes the exclusion of non-cash charges, including share-based compensation, is useful in measuring the Company’s cash available for operations and performance of the Company.  Because management finds Adjusted EBITDA useful, the Company believes its investors will also find Adjusted EBITDA useful in evaluating the Company’s performance.  

Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows, or other consolidated income or cash flow data prepared in accordance with GAAP or as a measure of the Company’s profitability or liquidity. Adjusted EBITDA is not in accordance with or an alternative for GAAP, and may be different from non-GAAP measures used by other companies. Unlike EBITDA, which may be used by other companies or investors, Adjusted EBITDA does not include share-based compensation charges.  The Company believes that Adjusted EBITDA is of limited use in that it does not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP and does not accurately reflect real cash flow.  In addition, other companies may not use Adjusted EBITDA or may use other non-GAAP measures, limiting the usefulness of Adjusted EBITDA for purposes of comparison. The Company’s presentation of Adjusted EBITDA should not be construed as an inference that the Company will not incur expenses that are the same as or similar to the adjustments in this presentation. Therefore, Adjusted EBITDA should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures. The Company compensates for the limitations of Adjusted EBITDA by relying upon GAAP results to gain a complete picture of the Company’s performance.  Because Adjusted EBITDA is a non-GAAP financial measure as defined by the SEC, the Company includes in the tables below reconciliations of Adjusted EBITDA to the most directly comparable financial measures calculated and presented in accordance with GAAP. 

Reconciliation of Net Income to Adjusted EBITDA

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


Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities

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

Keith E. Pratt
EVP & Chief Financial Officer                        
925-606-9200    

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McGrath RentCorp