McGrath Announces Results for Third Quarter 2022

October 27, 2022 at 4:01 PM EDT

LIVERMORE, Calif.--(BUSINESS WIRE)--Oct. 27, 2022-- McGrath RentCorp (“McGrath” or the “Company”) (Nasdaq: MGRC), a leading business-to-business rental company in North America, today announced total revenues for the quarter ended September 30, 2022 of $200.5 million, an increase of 16%, compared to the third quarter of 2021. The Company reported net income of $30.6 million, or $1.25 per diluted share, for the third quarter of 2022, compared to net income of $23.3 million, or $0.95 per diluted share, for the third quarter of 2021.

THIRD QUARTER 2022 YEAR-OVER-YEAR COMPANY HIGHLIGHTS:

Rental revenues increased 15% to $118.4 million.
Total revenues increased 16% to $200.5 million.
Adjusted EBITDA¹ increased 13% to $74.7 million.
Dividend rate increased 5% to $0.455 per share for the third quarter of 2022. On an annualized basis, this dividend represents a 2.1% yield on the October 26, 2022 close price of $85.85 per share.

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

“We delivered strong third quarter results. Our 16% growth in total company revenues was a result of robust performance in both rental operations and sales revenues. Demand was healthy across each of our rental segments. Mobile Modular rental revenues grew 17%, reflecting strong organic growth from our modular operations. Rental revenue growth was also strong at TRS-RenTelco and Adler Tanks, which grew 9% and 18%, respectively.

Mobile Modular had an impressive quarter. We saw broad-based strength across our commercial, education and portable storage customer bases. Education rental revenues increased 9%, representing the highest growth since the first quarter of 2020 and demonstrating post-pandemic recovery in this important customer base. We addressed strong demand conditions with disciplined fleet management and achieved average fleet utilization of 80.1%, a level not seen since 2008, and ended the quarter at 81.2% utilization. This substantial utilization improvement was accomplished while growing our fleet and increasing average rental rates. Our initiatives to grow modular sales also showed progress as sales revenues increased by 10% compared to a year ago.

At TRS-RenTelco and Adler Tanks the positive trends we experienced in the first half of this year continued in the third quarter. TRS-RenTelco saw growth in both communications and general-purpose rentals. Adler Tanks continued to experience broad-based demand improvement across its regions and vertical markets, ending the quarter at 58.3% utilization, a level last achieved in 2018.

We are pleased with our year-to-date performance, and we have entered the fourth quarter with good momentum across the business. As a result, we are increasing our financial outlook for the full year.”

DIVISION HIGHLIGHTS:

All comparisons presented below are for the quarter ended September 30, 2022 to the quarter ended September 30, 2021 unless otherwise indicated.

MOBILE MODULAR

For the third quarter of 2022, the Company’s Mobile Modular division reported income from operations of $27.8 million, an increase of $4.3 million, or 18%, with Adjusted EBITDA increasing $3.6 million, or 10%, to $39.7 million. Rental revenues increased 17% to $69.1 million, depreciation expense increased 3% to $7.7 million and other direct costs increased 38% to $22.8 million, which resulted in an increase in gross profit on rental revenues of 10% to $38.5 million. The rental revenue increase was primarily attributed to higher average rental equipment on rent and higher average monthly rental rates. Rental related services revenues increased 12% to $27.4 million, primarily attributable to higher delivery and pick up activities for both modular buildings and portable storage containers with associated gross profit increasing 24% to $7.4 million. Sales revenues increased 10% to $28.9 million, primarily from higher used equipment sales. Gross margin on sales was 35% compared to 31% in 2021, resulting in a 24% increase in gross profit on sales revenues to $10.2 million. Selling and administrative expenses increased 10% to $28.8 million, primarily due to $1.6 million higher allocated corporate expenses and increased employee salaries and benefit costs totaling $1.2 million.

TRS-RENTELCO

For the third quarter of 2022, the Company’s TRS-RenTelco division reported income from operations of $11.3 million, an increase of $1.8 million, or 19%, with Adjusted EBITDA increasing $1.9 million, or 9%, to $23.9 million. Rental revenues increased 9% to $31.8 million, depreciation expense increased 2% to $12.4 million and other direct costs increased 7% to $5.4 million, which resulted in a 16% increase in gross profit on rental revenues to $14.0 million. The rental revenue increase was the result of higher average equipment on rent and higher average monthly rental rates compared to the prior year. Sales revenues increased 16% to $5.5 million and gross profit on sales revenues increased 12% to $3.4 million. Selling and administrative expenses increased 12% to $6.7 million, primarily due to higher allocated corporate expenses.

ADLER TANKS

For the third quarter of 2022, the Company’s Adler Tanks division reported income from operations of $5.5 million, an increase of $2.6 million, with Adjusted EBITDA increasing $2.5 million, or 32%, to $10.2 million. Rental revenues increased $2.6 million, or 18%, to $17.5 million, depreciation expense decreased 3% to $4.0 million and other direct costs increased 11% to $3.5 million, which resulted in an increased gross profit on rental revenues of 32%, to $10.0 million. The rental revenue increase was broad based across regions and vertical markets served. Rental related services revenues increased 13% to $7.2 million, with gross profit on rental related services increasing 52%, to $1.8 million. Selling and administrative expenses increased 13% to $7.1 million primarily due to higher allocated corporate expenses and higher employee salaries and benefit costs.

FINANCIAL OUTLOOK:

Based upon the Company’s year-to-date results and current outlook for the remainder of the year, the Company is raising its financial outlook. For the full-year 2022, the Company expects:

		Previous	Current
●	Total revenue:	$695 to $720 million	$720 to $735 million
●	Adjusted EBITDA^{1, 2}:	$266 to $276 million	$274 to $280 million
●	Gross rental equipment capital expenditures:	$145 to $155 million	$168 to $174 million

1.		Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs and share-based compensation. A reconciliation of actual net income to Adjusted EBITDA and Adjusted EBITDA to net cash provided by operating activities can be found at the end of this release.
2.		Information reconciling forward-looking Adjusted EBITDA to the comparable GAAP financial measures is unavailable to the Company without unreasonable effort because certain items required for such reconciliations are outside of the Company’s control and/or cannot be reasonably predicted, such as the provision for income taxes. Therefore, no reconciliation to the most comparable GAAP measures is provided. The Company provides Adjusted EBITDA guidance because it believes that Adjusted EBITDA, when viewed with the Company’s results under GAAP, provides useful information for the reasons noted in the reconciliation of actual Adjusted EBITDA to the most directly comparable GAAP measures at the end of this release.

ABOUT MCGRATH:

McGrath RentCorp (Nasdaq: MGRC) is a leading business-to-business rental company in North America with a strong record of profitable business growth. Founded in 1979, McGrath’s operations are centered on modular solutions through its Mobile Modular and Mobile Modular Portable Storage businesses. In addition, its TRS-RenTelco business offers electronic test equipment rental solutions, and its Adler Tank Rentals business provides environmental containment solutions for hazardous and nonhazardous liquids and solids. The Company’s rental product offerings and services are part of the circular supply economy, helping customers work more efficiently, and sustainably manage their environmental footprint. With over 40 years of experience, McGrath’s success is driven by a focus on exceptional customer experiences. This focus has underpinned the Company’s long-term financial success and supported over 30 consecutive years of annual dividend increases to shareholders, a rare distinction among publicly listed companies.

Headquartered in Livermore, California. Additional information about McGrath and its businesses is available at mgrc.com and investors.mgrc.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 September 29, 2022, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on October 27, 2022 to discuss the third quarter 2022 results. To participate in the teleconference, dial 1-800-245-3047 (in the U.S.), or 1-203-518-9765 (outside the U.S.), or to listen only, access the simultaneous webcast at the investor relations section of the Company’s website at https://investors.mgrc.com/. A replay will be available for 7 days following the call by dialing 1-800-839-6980 (in the U.S.), or 1-402-220-6062 (outside the U.S.). 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 https://investors.mgrc.com/events-and-presentations.

FORWARD-LOOKING STATEMENTS:

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, regarding McGrath RentCorp’s expectations, strategies, prospects or targets are forward looking statements. These forward-looking statements also can be identified by the use of forward-looking terminology such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plan,” “predict,” “project,” or “will,” or the negative of these terms or other comparable terminology. In particular, Mr. Hanna’s statements about healthy demand across each of our rental segments and the expectation of good momentum in the following quarter, as well as the statements regarding the full year 2022 in the “Financial Outlook” section, are forward-looking.

These forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties that could cause our actual results to differ materially from those projected including: the duration of the COVID-19 pandemic and its economic impact, the extent and length of any restrictions associated with COVID-19 pandemic, the health of the education and commercial markets in our modular building division; the activity levels in the general purpose and communications test equipment markets at TRS-RenTelco; the utilization levels and rental rates of our Adler Tanks liquid and solid containment tank and box rental assets; continued execution of our strategic performance improvement initiatives; our ability to successfully increase prices to offset cost increases; and our ability to effectively manage our rental assets, as well as the factors disclosed under “Risk Factors” in the Company’s Form 10-K and other SEC filings.

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

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share amounts)	2022			2021			2022			2021
Revenues
Rental	$	118,361		$	103,269		$	333,226		$	283,937
Rental related services		35,361			31,513			88,497			73,870
Rental operations		153,722			134,782			421,723			357,807
Sales		45,391			37,636			97,738			80,503
Other		1,423			874			3,479			2,612
Total revenues		200,536			173,292			522,940			440,922
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment		24,176			23,802			72,114			68,216
Rental related services		25,971			24,356			64,967			56,236
Other		31,708			24,711			92,356			67,696
Total direct costs of rental operations		81,855			72,869			229,437			192,148
Costs of sales		29,241			24,618			59,737			50,021
Total costs of revenues		111,096			97,487			289,174			242,169
Gross profit		89,440			75,805			233,766			198,753
Selling and administrative expenses		44,095			39,907			124,010			109,305
Income from operations		45,345			35,898			109,756			89,448
Other expense:
Interest expense		(4,177	)		(3,168	)		(9,998	)		(7,208	)
Foreign currency exchange loss		(236	)		(128	)		(404	)		(185	)
Income before provision for income taxes		40,932			32,602			99,354			82,055
Provision for income taxes		10,365			9,350			23,857			20,797
Net income	$	30,567		$	23,252		$	75,497		$	61,258
Earnings per share:
Basic	$	1.25		$	0.96		$	3.10		$	2.53
Diluted	$	1.25		$	0.95		$	3.08		$	2.50
Shares used in per share calculation:
Basic		24,379			24,245			24,342			24,209
Diluted		24,504			24,507			24,516			24,506
Cash dividends declared per share	$	0.455		$	0.435		$	1.365		$	1.305

MCGRATH RENTCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
	September 30,			December 31,
(in thousands)	2022			2021
Assets
Cash	$	1,561		$	1,491
Accounts receivable, net of allowance for credit losses of $2,125 in 2022 and 2021		189,959			159,499
Rental equipment, at cost:
Relocatable modular buildings		1,085,060			1,040,094
Electronic test equipment		396,068			361,391
Liquid and solid containment tanks and boxes		309,607			309,908
		1,790,735			1,711,393
Less: accumulated depreciation		(690,913	)		(646,169	)
Rental equipment, net		1,099,822			1,065,224
Property, plant and equipment, net		139,203			135,325
Prepaid expenses and other assets		72,258			54,945
Intangible assets, net		42,607			47,049
Goodwill		132,305			132,393
Total assets	$	1,677,715		$	1,595,926
Liabilities and Shareholders' Equity
Liabilities:
Notes payable	$	419,464		$	426,451
Accounts payable and accrued liabilities		154,942			136,313
Deferred income		92,115			58,716
Deferred income taxes, net		238,126			242,425
Total liabilities		904,647			863,905
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,382 shares as of September 30, 2022 and 24,260 shares as of December 31, 2021		107,463			108,610
Retained earnings		665,530			623,465
Accumulated other comprehensive income (loss)		75			(54	)
Total shareholders’ equity		773,068			732,021
Total liabilities and shareholders’ equity	$	1,677,715		$	1,595,926

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
	Nine Months Ended September 30,
(in thousands)	2022			2021
Cash Flows from Operating Activities:
Net income	$	75,497		$	61,258
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		83,272			79,047
Deferred income taxes		(4,299	)		15,403
Provision for doubtful accounts		307			193
Share-based compensation		5,106			5,302
Gain on sale of used rental equipment		(26,705	)		(17,788	)
Foreign currency exchange loss		404			185
Amortization of debt issuance costs		13			11
Change in:
Accounts receivable		(30,767	)		(33,471	)
Prepaid expenses and other assets		(17,313	)		(11,409	)
Accounts payable and accrued liabilities		14,384			17,428
Deferred income		33,399			20,128
Net cash provided by operating activities		133,298			136,287
Cash Flows from Investing Activities:
Purchases of rental equipment		(130,395	)		(90,379	)
Purchases of property, plant and equipment		(10,594	)		(969	)
Cash paid for acquisition of businesses		—			(285,624	)
Proceeds from sales of used rental equipment		54,193			41,556
Net cash used in investing activities		(86,796	)		(335,416	)
Cash Flows from Financing Activities:
Net (payments) borrowings under bank lines of credit		(7,000	)		176,758
Borrowings under note purchase agreement		—			100,000
Principal payment of Series B senior notes		—			(40,000	)
Taxes paid related to net share settlement of stock awards		(6,253	)		(4,847	)
Payment of dividends		(33,175	)		(31,635	)
Net cash (used in) provided by financing activities		(46,428	)		200,276
Effect of foreign currency exchange rate changes on cash		(4	)		(5	)
Net increase in cash		70			1,142
Cash balance, beginning of period		1,491			1,238
Cash balance, end of period	$	1,561		$	2,380
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period	$	8,982		$	6,477
Net income taxes paid, during the period	$	24,885		$	8,074
Dividends accrued during the period, not yet paid	$	11,167		$	10,002
Rental equipment acquisitions, not yet paid	$	9,555		$	2,199

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended September 30, 2022
(dollar amounts in thousands)	Mobile Modular			TRS- RenTelco			Adler Tanks			Enviroplex		Consolidated
Revenues
Rental	$	69,111		$	31,760		$	17,490		$	—	$	118,361
Rental related services		27,353			845			7,163			—		35,361
Rental operations		96,464			32,605			24,653			—		153,722
Sales		28,922			5,514			977			9,978		45,391
Other		452			408			563			—		1,423
Total revenues		125,838			38,527			26,193			9,978		200,536

Costs and Expenses
Direct costs of rental operations:
Depreciation		7,747			12,427			4,002			—		24,176
Rental related services		19,973			603			5,395			—		25,971
Other		22,837			5,366			3,505			—		31,708
Total direct costs of rental operations		50,557			18,396			12,902			—		81,855
Costs of sales		18,696			2,133			693			7,719		29,241
Total costs of revenues		69,253			20,529			13,595			7,719		111,096

Gross Profit
Rental		38,527			13,967			9,983			—		62,477
Rental related services		7,380			242			1,768			—		9,390
Rental operations		45,907			14,209			11,751			—		71,867
Sales		10,226			3,381			284			2,259		16,150
Other		452			408			563			—		1,423
Total gross profit		56,585			17,998			12,598			2,259		89,440
Selling and administrative expenses		28,798			6,726			7,141			1,430		44,095
Income from operations	$	27,787		$	11,272		$	5,457		$	829		45,345
Interest expense													(4,177	)
Foreign currency exchange loss													(236	)
Provision for income taxes													(10,365	)
Net income												$	30,567

Other Information
Adjusted EBITDA ¹	$	39,734		$	23,894		$	10,192		$	900	$	74,720
Average rental equipment ²	$	1,030,792		$	389,675		$	307,153
Average monthly total yield ³		2.23	%		2.71	%		1.90	%
Average utilization ⁴		80.1	%		65.3	%		54.9	%
Average monthly rental rate ⁵		2.79	%		4.16	%		3.46	%

1.		Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs and share-based compensation.
2.		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.
3.		Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
4.		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.
5.		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, 2021
(dollar amounts in thousands)	Mobile Modular			TRS- RenTelco			Adler Tanks			Enviroplex		Consolidated
Revenues
Rental	$	59,223		$	29,204		$	14,842		$	—	$	103,269
Rental related services		24,468			699			6,346			—		31,513
Rental operations		83,691			29,903			21,188			—		134,782
Sales		26,362			4,773			960			5,541		37,636
Other		341			398			135			—		874
Total revenues		110,394			35,074			22,283			5,541		173,292

Costs and Expenses
Direct costs of rental operations:
Depreciation		7,544			12,151			4,107			—		23,802
Rental related services		18,508			663			5,185			—		24,356
Other		16,533			5,015			3,163			—		24,711
Total direct costs of rental operations		42,585			17,829			12,455			—		72,869
Costs of sales		18,145			1,743			680			4,050		24,618
Total costs of revenues		60,730			19,572			13,135			4,050		97,487

Gross Profit
Rental		35,146			12,038			7,572			—		54,756
Rental related services		5,960			36			1,161			—		7,157
Rental operations		41,106			12,074			8,733			—		61,913
Sales		8,217			3,030			280			1,491		13,018
Other		341			398			135			—		874
Total gross profit		49,664			15,502			9,148			1,491		75,805
Selling and administrative expenses		26,138			6,010			6,333			1,426		39,907
Income from operations	$	23,526		$	9,492		$	2,815		$	65		35,898
Interest expense													(3,168	)
Foreign currency exchange loss													(128	)
Provision for income taxes													(9,350	)
Net income												$	23,252

Other Information
Adjusted EBITDA ¹	$	36,160		$	21,967		$	7,708		$	128	$	65,963
Average rental equipment ²	$	975,119		$	362,104		$	311,876
Average monthly total yield ³		2.02	%		2.69	%		1.59	%
Average utilization ⁴		76.5	%		66.9	%		48.1	%
Average monthly rental rate ⁵		2.65	%		4.02	%		3.30	%

1.		Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs and share-based compensation.
2.		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.
3.		Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
4.		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.
5.		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, 2022
(dollar amounts in thousands)	Mobile Modular			TRS- RenTelco			Adler Tanks			Enviroplex			Consolidated
Revenues
Rental	$	195,598		$	89,990		$	47,638		$	—		$	333,226
Rental related services		66,947			2,329			19,221			—			88,497
Rental operations		262,545			92,319			66,859			—			421,723
Sales		64,113			15,845			2,235			15,545			97,738
Other		1,202			1,195			1,082			—			3,479
Total revenues		327,860			109,359			70,176			15,545			522,940

Costs and Expenses
Direct costs of rental operations:
Depreciation		23,329			36,789			11,996			—			72,114
Rental related services		48,269			1,847			14,851			—			64,967
Other		67,072			15,501			9,783			—			92,356
Total direct costs of rental operations		138,670			54,137			36,630			—			229,437
Costs of sales		39,785			6,398			1,613			11,941			59,737
Total costs of revenues		178,455			60,535			38,243			11,941			289,174

Gross Profit
Rental		105,197			37,700			25,859			—			168,756
Rental related services		18,678			482			4,370			—			23,530
Rental operations		123,875			38,182			30,229			—			192,286
Sales		24,328			9,447			622			3,604			38,001
Other		1,202			1,195			1,082			—			3,479
Total gross profit		149,405			48,824			31,933			3,604			233,766
Selling and administrative expenses		79,245			19,930			20,642			4,193			124,010
Income (loss) from operations	$	70,160		$	28,894		$	11,291		$	(589	)		109,756
Interest expense														(9,998	)
Foreign currency exchange loss														(404	)
Provision for income taxes														(23,857	)
Net income													$	75,497

Other Information
Adjusted EBITDA ¹	$	105,912		$	66,675		$	25,520		$	(377	)	$	197,730
Average rental equipment²	$	1,019,105		$	379,181		$	307,731
Average monthly total yield ³		2.13	%		2.63	%		1.72	%
Average utilization ⁴		78.5	%		64.8	%		51.7	%
Average monthly rental rate ⁵		2.72	%		4.07	%		3.33	%

1.		Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs and share-based compensation.
2.		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.
3.		Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
4.		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.
5.		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, 2021
(dollar amounts in thousands)	Mobile Modular			TRS- RenTelco			Adler Tanks			Enviroplex		Consolidated
Revenues
Rental	$	159,118		$	84,340		$	40,479		$	—	$	283,937
Rental related services		54,726			2,149			16,995			—		73,870
Rental operations		213,844			86,489			57,474			—		357,807
Sales		48,766			14,679			2,161			14,897		80,503
Other		1,004			1,292			316			—		2,612
Total revenues		263,614			102,460			59,951			14,897		440,922

Costs and Expenses
Direct costs of rental operations:
Depreciation		20,437			35,429			12,350			—		68,216
Rental related services		40,384			2,061			13,791			—		56,236
Other		45,309			14,267			8,120			—		67,696
Total direct costs of rental operations		106,130			51,757			34,261			—		192,148
Costs of sales		32,127			5,836			1,523			10,535		50,021
Total costs of revenues		138,257			57,593			35,784			10,535		242,169

Gross Profit
Rental		93,373			34,643			20,009			—		148,025
Rental related services		14,340			90			3,204			—		17,634
Rental operations		107,713			34,733			23,213			—		165,659
Sales		16,640			8,842			638			4,362		30,482
Other		1,004			1,292			316			—		2,612
Total gross profit		125,357			44,867			24,167			4,362		198,753
Selling and administrative expenses		67,977			18,381			18,853			4,094		109,305
Income from operations	$	57,380		$	26,486		$	5,314		$	268		89,448
Interest expense													(7,208	)
Foreign currency exchange loss													(185	)
Provision for income taxes													(20,797	)
Net income												$	61,258

Other Information
Adjusted EBITDA ¹	$	89,634		$	63,378		$	20,144		$	456	$	173,612
Average rental equipment ²	$	906,633		$	348,749		$	312,928
Average monthly total yield ³		1.95	%		2.69	%		1.44	%
Average utilization ⁴		76.0	%		67.4	%		44.0	%
Average monthly rental rate ⁵		2.57	%		3.98	%		3.26	%

1.		Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs and share-based compensation.
2.		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.
3.		Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
4.		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.
5.		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,
	2022			2021			2022			2021			2022			2021
Net income	$	30,567		$	23,252		$	75,497		$	61,258		$	103,944		$	92,433
Provision for income taxes		10,365			9,350			23,857			20,797			35,111			28,931
Interest expense		4,177			3,168			9,998			7,208			13,245			9,191
Depreciation and amortization		27,917			28,488			83,272			79,047			110,920			102,441
EBITDA		73,026			64,258			192,624			168,310			263,220			232,996
Share-based compensation		1,694			1,705			5,106			5,302			7,470			5,957
Adjusted EBITDA ¹	$	74,720		$	65,963		$	197,730		$	173,612		$	270,690		$	238,953
Adjusted EBITDA margin ²		37	%		38	%		38	%		39	%		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,
	2022			2021			2022			2021			2022			2021
Adjusted EBITDA ¹	$	74,720		$	65,963		$	197,730		$	173,612		$	270,690		$	238,953
Interest paid		(3,161	)		(2,490	)		(8,982	)		(6,477	)		(12,831	)		(8,698	)
Income taxes paid, net of refunds received		(7,807	)		(1,084	)		(24,885	)		(8,074	)		(25,898	)		(18,273	)
Gain on sale of used rental equipment		(10,612	)		(5,918	)		(26,705	)		(17,788	)		(34,358	)		(23,007	)
Foreign currency exchange loss (gain)		236			128			404			185			429			(82	)
Amortization of debt issuance costs		4			5			13			11			17			14
Change in certain assets and liabilities:
Accounts receivable, net		(22,630	)		(27,922	)		(30,460	)		(33,278	)		(21,128	)		(27,161	)
Prepaid expenses and other assets		(6,458	)		(2,024	)		(17,313	)		(11,409	)		(12,720	)		(6,288	)
Accounts payable and other liabilities		12,399			(1,023	)		10,097			19,377			6,201			22,248
Deferred income		14,564			12,670			33,399			20,128			22,353			7,548
Net cash provided by operating activities	$	51,255		$	38,305		$	133,298		$	136,287		$	192,755		$	185,254

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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20221026006087/en/

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

Source: McGrath RentCorp

Release Details

McGrath Announces Results for Third Quarter 2022