LIVERMORE, Calif.--(BUSINESS WIRE)--Oct. 26, 2023-- McGrath RentCorp (“McGrath” or the “Company”) (Nasdaq: MGRC), a leading business-to-business rental company in North America, today announced total revenues from continuing operations for the quarter ended September 30, 2023 of $243.5 million, an increase of 40% compared to the third quarter of 2022. The Company reported net income from continuing operations of $40.4 million, or $1.65 per diluted share, for the third quarter of 2023, compared to net income from continuing operations of $27.1 million, or $1.11 per diluted share, for the third quarter of 2022.

THIRD QUARTER 2023 YEAR-OVER-YEAR COMPANY HIGHLIGHTS (FROM CONTINUING OPERATIONS):

• Rental revenues increased 22% to $122.7 million.
• Total revenues increased 40% to $243.5 million.
• Other income for the third quarter 2023 includes a $3.6 million net gain on sale of two properties, which increased earnings per diluted share by $0.11.
• Adjusted EBITDA¹ increased 47% to $95.3 million.
• Dividend rate of $0.465 per share for the third quarter of 2023. On an annualized basis, this dividend represents a 1.9% yield on the October 25, 2023 close price of $97.06 per share.

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

“We were very pleased with our third quarter results. Our 22% increase in companywide rental revenues was driven by strong modular segment performance. Modular rental revenues grew 36%, with over half of the growth attributable to our Vesta Modular and several smaller Portable Storage acquisitions completed earlier this year. Before acquisitions, the modular segment rental revenues grew organically by a robust 13%.

Our modular business saw broad based rental strength across commercial, education and portable storage customer bases. We maintained our focus on pricing optimization, rental fleet utilization, and value-added services for our modular customers. Our initiatives to grow modular sales also showed progress as sales revenues doubled compared to a year ago.

TRS-RenTelco experienced continued softness in semiconductor related demand, resulting in 10% lower rental revenues for the quarter, compared to a year ago. During the quarter we reduced new equipment capital spending, made progress with sales of underutilized equipment, and improved rental fleet utilization to above 60% at quarter-end.

We made good progress with the Vesta integration. Our organization work is complete and the Vesta team is fully integrated into the McGrath organization. I am very pleased with the team collaboration and commercial successes that have been achieved.

We are very pleased with our year-to-date performance, and we are fully focused on solid execution for the remainder of the year.”

DIVISION HIGHLIGHTS:

All comparisons presented below are for the quarter ended September 30, 2023 to the quarter ended September 30, 2022 unless otherwise indicated.

MOBILE MODULAR

For the third quarter of 2023, the Company’s Mobile Modular division reported Adjusted EBITDA of $73.0 million, an increase of $33.1 million, or 83%.

• Rental revenues increased 36% to $94.0 million, depreciation expense increased 30% to $10.0 million, and other direct costs increased 2% to $23.4 million, which resulted in an increase in gross profit on rental revenues of 57% to $60.6 million. Vesta Modular contributed $14.8 million and $10.2 million in rental revenues and gross profit during the quarter, respectively.
• Rental related services revenues increased 45% to $39.7 million, primarily attributable to higher delivery and pick up activities and higher site related services, with associated gross profit increasing 60% to $11.8 million. Vesta Modular contributed $4.0 million and $1.8 million in rental related services revenues and gross profit during the quarter, respectively.
• Sales revenues increased $29.9 million to $58.9 million, primarily from higher new equipment sales. Gross margin on sales was 32% compared to 35% in 2022, resulting in a 86% increase in gross profit on sales revenues to $19.0 million. Vesta Modular contributed $16.2 million and $5.1 million in sales revenues and gross profit during the quarter, respectively.
• Selling and administrative expenses increased $11.0 million to $39.8 million. The addition of Vesta Modular increased selling and administrative expenses by $6.0 million, which included $1.2 million higher amortization of intangibles. In addition, allocated corporate expenses increased $2.7 million.

TRS-RENTELCO

For the third quarter of 2023, the Company’s TRS-RenTelco division reported Adjusted EBITDA of $21.9 million, a decrease of 9%, when compared to the same quarter in 2022.

• Rental revenues decreased 10% to $28.7 million, depreciation expense decreased 3%, and other direct costs decreased 4%, resulting in a 18% decrease in gross profit on rental revenues to $11.5 million. The rental revenue decrease was primarily the result of lower average rental equipment on rent compared to the prior year and comparable average monthly rental rates.
• Sales revenues increased 58% to $8.7 million and gross profit on sales revenues decreased 9% to $3.1 million. The higher sales revenues and lower gross profit on sales can be attributed to the mix of equipment sold, which can fluctuate quarterly depending on customer requirements, equipment availability and funding.
• Selling and administrative expenses increased $0.3 million, or 4%, to $7.0 million, primarily due to higher allocated corporate expenses.

FINANCIAL OUTLOOK:

Based upon the Company's year-to-date results and current outlook for the remainder of the year, the Company is revising its financial outlook. For the full-year 2023, the Company expects:

		Previous (Continuing Operations)	Current (Continuing Operations)
•	Total revenue:	$805 to $830 million	$820 to $830 million
•	Adjusted EBITDA1, 2:	$306 to $320 million	$312 to $320 million
•	Gross rental equipment capital expenditures:	$190 to $200 million	$190 to $200 million

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs. 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. Adjusted EBITDA from continuing operations for the quarter ended September 30, 2023, excludes the income from discontinued operations from the divestiture of Adler Tanks.
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. 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.

McGrath is 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 28, 2023, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on October 26, 2023 to discuss the third quarter 2023 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 1-800-839-5685 (in the U.S.), or 1-402-220-2567 (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 (i) progress with sales of underutilized TRS equipment, (ii) focus on solid execution for the remainder of the year, and (iii) statements regarding the full year 2023 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: health of the education and commercial markets in our modular building division; unforeseen liabilities and integration challenges associated with the Vesta, Brekke Storage, Dixie Storage and Inland Storage acquisitions; competition within the modular business; the activity levels in the semiconductor and general purpose and communications test equipment markets at TRS-RenTelco; 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 other 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)		2023				2022				2023				2022
Revenues
Rental		$	122,686			$	100,871			$	350,773			$	285,588
Rental related services			40,492				28,198				101,481				69,276
Rental operations			163,178				129,069				452,254				354,864
Sales			77,115				44,414				148,576				95,503
Other			3,213				860				9,424				2,397
Total revenues			243,506				174,343				610,254				452,764
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment			22,069				20,174				66,499				60,118
Rental related services			28,532				20,576				71,625				50,116
Other			28,493				28,203				90,188				82,573
Total direct costs of rental operations			79,094				68,953				228,312				192,807
Costs of sales			52,878				28,548				98,431				58,124
Total costs of revenues			131,972				97,501				326,743				250,931
Gross profit			111,534				76,842				283,511				201,833
Selling and administrative expenses			48,508				36,954				153,032				103,368
Other income			(3,559	)			—				(3,559	)			—
Income from operations			66,585				39,888				134,038				98,465
Interest expense			(11,025	)			(3,355	)			(28,434	)			(8,057	)
Foreign currency exchange (loss) gain			(42	)			(236	)			166				(404	)
Income from continuing operations before provision for income taxes			55,518				36,297				105,770				90,004
Provision for income taxes from continuing operations			15,152				9,182				25,934				21,687
Income from continuing operations			40,366				27,115				79,836				68,317
Discontinued operations:
Income from discontinued operations before provision for income taxes			—				4,635				1,709				9,350
Provision for income taxes from discontinued operations			—				1,183				453				2,170
Gain on sale of discontinued operations, net of tax			—				—				61,513				—
Income from discontinued operations			—				3,452				62,769				7,180
Net income		$	40,366			$	30,567			$	142,605			$	75,497
Earnings per share from continuing operations:
Basic		$	1.65			$	1.11			$	3.26			$	2.81
Diluted		$	1.65			$	1.11			$	3.26			$	2.79
Earnings per share from discontinued operations:
Basic		$	—			$	0.14			$	2.57			$	0.29
Diluted		$	—			$	0.14			$	2.56			$	0.29
Earnings per share:
Basic		$	1.65			$	1.25			$	5.83			$	3.10
Diluted		$	1.65			$	1.25			$	5.81			$	3.08
Shares used in per share calculation:
Basic			24,487				24,379				24,461				24,342
Diluted			24,525				24,504				24,527				24,516
Cash dividends declared per share		$	0.465			$	0.455			$	1.395			$	1.365

MCGRATH RENTCORP CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
		September 30,				December 31,
(in thousands)		2023				2022
Assets
Cash		$	1,946			$	957
Accounts receivable, net of allowance for credit losses of $2,683 in 2023 and $2,300 in 2022			224,269				169,937
Rental equipment, at cost:
Relocatable modular buildings			1,474,359				1,123,268
Electronic test equipment			383,006				398,267
			1,857,365				1,521,535
Less: accumulated depreciation			(565,497	)			(531,218	)
Rental equipment, net			1,291,868				990,317
Property, plant and equipment, net			146,484				138,713
Prepaid expenses and other assets			80,853				69,837
Intangible assets, net			67,480				35,431
Goodwill			323,771				106,403
Assets of discontinued operations			—				196,249
Total assets		$	2,136,671			$	1,707,844
Liabilities and Shareholders' Equity
Liabilities:
Notes payable		$	667,640			$	413,742
Accounts payable and accrued liabilities			223,010				151,208
Deferred income			105,534				82,417
Deferred income taxes, net			229,115				203,361
Liabilities of discontinued operations			—				53,171
Total liabilities			1,225,299				903,899
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,489 shares as of September 30, 2023 and 24,388 shares as of December 31, 2022			109,253				110,080
Retained earnings			802,161				693,943
Accumulated other comprehensive loss			(42	)			(78	)
Total shareholders’ equity			911,372				803,945
Total liabilities and shareholders’ equity		$	2,136,671			$	1,707,844

MCGRATH RENTCORP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
		Nine Months Ended September 30,
(in thousands)		2023				2022
Cash Flows from Operating Activities:
Net income		$	142,605			$	75,497
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			81,842				83,272
Deferred income taxes			(30,018	)			(4,299	)
Provision for credit losses			1,794				307
Share-based compensation			5,273				5,106
Gain on sale of property, plant and equipment			(3,559	)			—
Gain on sale of discontinued operations			(61,513	)			—
Gain on sale of used rental equipment			(22,964	)			(26,705	)
Foreign currency exchange (gain) loss			(166	)			404
Amortization of debt issuance costs			6				13
Change in:
Accounts receivable			(27,733	)			(30,767	)
Prepaid expenses and other assets			(7,390	)			(17,313	)
Accounts payable and accrued liabilities			32,818				14,384
Deferred income			7,908				33,399
Net cash provided by operating activities			118,903				133,298
Cash Flows from Investing Activities:
Proceeds from sale of discontinued operations			268,012				—
Purchases of rental equipment			(171,322	)			(130,395	)
Purchases of property, plant and equipment			(16,448	)			(10,594	)
Cash paid for acquisition of businesses			(458,315	)			—
Cash paid for acquisition of business assets			(3,474	)			—
Proceeds from sales of used rental equipment			49,405				54,193
Proceeds from sales of property, plant and equipment			595				—
Net cash used in investing activities			(331,547	)			(86,796	)
Cash Flows from Financing Activities:
Net borrowings (payments) under bank lines of credit			178,892				(7,000	)
Borrowings under note purchase agreement			75,000				—
Taxes paid related to net share settlement of stock awards			(6,100	)			(6,253	)
Payment of dividends			(34,168	)			(33,175	)
Net cash provided by (used in) financing activities			213,624				(46,428	)
Effect of foreign currency exchange rate changes on cash			9				(4	)
Net increase in cash			989				70
Cash balance, beginning of period			957				1,491
Cash balance, end of period		$	1,946			$	1,561
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period		$	27,818			$	8,982
Net income taxes paid, during the period		$	9,547			$	24,885
Dividends accrued during the period, not yet paid		$	12,014			$	11,167
Rental equipment acquisitions, not yet paid		$	5,765			$	9,555
Proceeds to be received on the sale of property, plant and equipment		$	6,370			$	—
Business acquisition payments withheld		$	293			$	—

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended September 30, 2023
(dollar amounts in thousands)		Mobile Modular				TRS-RenTelco				Enviroplex				Adler Tanks (Discontinued)				Consolidated
Revenues
Rental		$	94,028			$	28,658			$	—			$	—			$	122,686
Rental related services			39,716				776				—				—				40,492
Rental operations			133,744				29,434				—				—				163,178
Sales			58,867				8,733				9,515				—				77,115
Other			2,271				942				—				—				3,213
Total revenues			194,882				39,109				9,515				—				243,506
Costs and Expenses
Direct costs of rental operations:
Depreciation			10,037				12,032				—				—				22,069
Rental related services			27,927				605				—				—				28,532
Other			23,353				5,140				—				—				28,493
Total direct costs of rental operations			61,317				17,777				—				—				79,094
Costs of sales			39,821				5,651				7,406				—				52,878
Total costs of revenues			101,138				23,428				7,406				—				131,972
Gross Profit
Rental			60,638				11,486				—				—				72,124
Rental related services			11,789				171				—				—				11,960
Rental operations			72,427				11,657				—				—				84,084
Sales			19,046				3,082				2,109				—				24,237
Other			2,271				942				—				—				3,213
Total gross profit			93,744				15,681				2,109				—				111,534
Selling and administrative expenses			39,832				6,999				1,677				—				48,508
Other income			(2,740	)			(819	)			—				—				(3,559	)
Income from operations		$	56,652			$	9,501			$	432			$	—				66,585
Interest expense																			(11,025	)
Foreign currency exchange loss																			(42	)
Provision for income taxes																			(15,152	)
Net income																		$	40,366
Other Information
Adjusted EBITDA 1		$	72,953			$	21,858			$	517			$	—			$	95,328
Average rental equipment 2		$	1,350,562			$	385,353
Average monthly total yield 3			2.32	%			2.46	%
Average utilization 4			79.4	%			59.4	%
Average monthly rental rate 5			2.92	%			4.17	%

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs. Adjusted EBITDA for the quarter ended September 30, 2023, excludes the gain on sale of discontinued operations from the divestiture of Adler Tanks.
2. Average rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.
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, 2022
(dollar amounts in thousands)		Mobile Modular				TRS-RenTelco				Enviroplex				Adler Tanks (Discontinued)				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				9,978				977				45,391
Other			452				408				—				563				1,423
Total revenues			125,838				38,527				9,978				26,193				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				7,719				693				29,241
Total costs of revenues			69,253				20,529				7,719				13,595				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				2,259				284				16,150
Other			452				408				—				563				1,423
Total gross profit			56,585				17,998				2,259				12,598				89,440
Selling and administrative expenses			28,798				6,726				1,430				7,141				44,095
Other income			—				—				—				—				—
Income from operations		$	27,787			$	11,272			$	829			$	5,457				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		$	39,901			$	23,894			$	900			$	10,192			$	74,887
Average rental equipment 2		$	1,030,792			$	389,675
Average monthly total yield 3			2.23	%			2.71	%
Average utilization 4			80.1	%			65.3	%
Average monthly rental rate 5			2.79	%			4.16	%

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs.
2. Average rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.
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, 2023
(dollar amounts in thousands)		Mobile Modular				TRS-RenTelco				Enviroplex				Adler Tanks (Discontinued)				Consolidated
Revenues
Rental		$	264,398			$	86,375			$	—			$	6,520			$	357,293
Rental related services			99,158				2,323				—				2,584				104,065
Rental operations			363,556				88,698				—				9,104				461,358
Sales			115,829				21,368				11,379				269				148,845
Other			6,416				3,008				—				65				9,489
Total revenues			485,801				113,074				11,379				9,438				619,692
Costs and Expenses
Direct costs of rental operations:
Depreciation			29,766				36,733				—				1,325				67,824
Rental related services			69,618				2,007				—				2,020				73,645
Other			74,345				15,843				—				1,270				91,458
Total direct costs of rental operations			173,729				54,583				—				4,614				232,926
Costs of sales			78,102				11,307				9,022				159				98,590
Total costs of revenues			251,831				65,890				9,022				4,773				331,516
Gross Profit
Rental			160,287				33,799				—				3,926				198,012
Rental related services			29,540				316				—				564				30,420
Rental operations			189,827				34,115				—				4,490				228,432
Sales			37,727				10,061				2,357				110				50,255
Other			6,416				3,008				—				65				9,489
Total gross profit			233,970				47,184				2,357				4,665				288,176
Selling and administrative expenses			124,642				23,576				4,814				2,582				155,614
Other income			(2,740	)			(819	)			—				—				(3,559	)
Income (loss) from operations		$	112,068			$	24,427			$	(2,457	)		$	2,083				136,121
Interest expense																			(28,808	)
Foreign currency exchange loss																			166
Provision for income taxes																			(26,387	)
Net income																		$	81,092
Other Information
Adjusted EBITDA 1		$	172,222			$	64,031			$	(2,207	)		$	3,682			$	237,728
Average rental equipment 2		$	1,275,330			$	391,993
Average monthly total yield 3			2.30	%			2.43	%
Average utilization 4			79.5	%			59.0	%
Average monthly rental rate 5			2.90	%			4.15	%

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs. Adjusted EBITDA for the nine months ended September 30, 2023, excludes the gain on sale of discontinued operations from the divestiture of Adler Tanks.
2. Average rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.
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				Enviroplex				Adler Tanks (Discontinued)				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				15,545				2,235				97,738
Other			1,202				1,195				—				1,082				3,479
Total revenues			327,860				109,359				15,545				70,176				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				11,941				1,613				59,737
Total costs of revenues			178,455				60,535				11,941				38,243				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				3,604				622				38,001
Other			1,202				1,195				—				1,082				3,479
Total gross profit			149,405				48,824				3,604				31,933				233,766
Selling and administrative expenses			79,245				19,930				4,193				20,642				124,010
Other income			—				—				—				—				—
Income (loss) from operations		$	70,160			$	28,894			$	(589	)		$	11,291				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		$	106,156			$	66,675			$	(377	)		$	25,443			$	197,897
Average rental equipment 2		$	1,019,105			$	379,181
Average monthly total yield 3			2.13	%			2.63	%
Average utilization 4			78.5	%			64.8	%
Average monthly rental rate 5			2.72	%			4.07	%

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs.
2. Average rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.
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, share-based compensation and transaction costs. 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 and transaction costs, 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 and transaction costs. 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 Income from Continuing Operations to Adjusted EBITDA

(dollar amounts in thousands)	Three Months Ended September 30,								Nine Months Ended September 30,								Twelve Months Ended September 30,
	2023				2022				2023				2022				2023				2022
Income from continuing operations	$	40,366			$	27,115			$	79,836			$	68,317			$	114,828			$	95,182
Provision for income taxes from continuing operations		15,152				9,182				25,934				21,687				35,624				32,331
Interest expense		11,025				3,355				28,434				8,057				32,607				10,653
Depreciation and amortization		26,884				23,491				80,385				69,982				104,043				93,065
EBITDA		93,427				63,143				214,589				168,043				287,102				231,231
Share-based compensation		1,891				1,461				5,155				4,244				7,658				6,278
Transaction costs 3		10				167				14,302				167				18,188				899
Adjusted EBITDA 1	$	95,328			$	64,771			$	234,046			$	172,454			$	312,948			$	238,408
Adjusted EBITDA margin 2		39	%			37	%			38	%			38	%			39	%			39	%

Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities

(dollar amounts in thousands)	Three Months Ended September 30,								Nine Months Ended September 30,								Twelve Months Ended September 30,
	2023				2022				2023				2022				2023				2022
Adjusted EBITDA 1	$	95,328			$	74,887			$	237,728			$	197,897			$	328,697			$	271,589
Interest paid		(11,016	)			(3,161	)			(27,818	)			(8,982	)			(33,611	)			(12,831	)
Income taxes paid, net of refunds received		(2,616	)			(7,807	)			(9,547	)			(24,885	)			(12,024	)			(25,898	)
Gain on sale of used rental equipment		(8,714	)			(10,612	)			(22,964	)			(26,705	)			(34,238	)			(34,358	)
Foreign currency exchange loss		42				236				(166	)			404				(192	)			429
Amortization of debt issuance costs		2				4				6				13				9				17
Change in certain assets and liabilities:
Accounts receivable, net		(26,223	)			(22,630	)			(25,939	)			(30,460	)			(26,003	)			(21,128	)
Prepaid expenses and other assets		1,114				(6,458	)			(7,390	)			(17,313	)			(6,561	)			(12,720	)
Accounts payable and other liabilities		917				12,232				(32,915	)			9,930				(34,250	)			5,302
Deferred income		(1,382	)			14,564				7,908				33,399				(1,790	)			22,353
Net cash provided by operating activities	$	47,452			$	51,255			$	118,903			$	133,298			$	180,037			$	192,755

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs. Adjusted EBITDA for the nine months ended September 30, 2023, excludes the gain on sale of discontinued operations from the divestiture of Adler Tanks. Total Adjusted EBITDA attributed to discontinued operations for the nine months ended September 30, 2023 and 2022, was $3,682 and $25,443, respectively.
2. Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by total revenues for the period.
3. Transaction costs include acquisition and divestiture related legal and professional fees and other costs specific to these transactions.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20231026163496/en/

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

Source: McGrath RentCorp