LIVERMORE, Calif., Feb. 27, 2018 (GLOBE NEWSWIRE) -- McGrath RentCorp (NASDAQ:MGRC) (the “Company”), a diversified business to business rental company, today announced total revenues for the quarter ended December 31, 2017 of $122.2 million, an increase of 16%, compared to the fourth quarter of 2016.  The Company reported net income of $117.7 million, or $4.82 per diluted share for the fourth quarter of 2017, compared to net income of $9.7 million, or $0.40 per diluted share, in the fourth quarter of 2016.  The fourth quarter of 2017 includes a net income benefit of $102.5 million, or $4.20 per diluted share, associated with the enactment of the Tax Cut and Jobs Act discussed below.

FOURTH QUARTER 2017 COMPANY HIGHLIGHTS:

• Income from operations increased 18% year-over-year to $26.8 million.
• Rental revenues increased 10% year-over-year to $77.7 million.
• Adjusted EBITDA¹ increased 15% to $49.4 million for the fourth quarter of 2017.   
• Dividend rate increased 2% year-over-year to $0.26 per share for the fourth quarter of 2017.  On an annualized basis, this dividend represents a 2.1% yield on the February 26, 2018 close price of $48.52 per share.
• United States Tax Reform – On December 22, 2017, the U.S. government enacted the Tax Cut and Jobs Act (“the Tax Act”), which among other things, reduces the federal income tax rate from 35% to 21% effective January 1, 2018, and requires mandatory repatriation of foreign earnings. As a result of the Tax Act, the Company re-measured its net deferred tax liabilities and recognized a net benefit of $102.8 million.  In addition, a one-time transition income tax estimated at $0.3 million related to repatriation of foreign earnings was recorded.  The Company’s 2018 effective tax rate is estimated to be approximately 27%. 

The Company also announced that the board of directors declared a quarterly cash dividend of $0.34 per share for the quarter ending March 31, 2018, an increase of $0.08, or 31%, over the prior year period.  On an annualized basis, the 2018 dividend represents a 2.8% yield, based on the February 26, 2018 closing stock price.  The cash dividend will be payable on April 30, 2018 to all shareholders of record on April 16, 2018. This marks the 26th consecutive year the Company has increased its annual dividend.

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

“We were pleased with our fourth quarter performance.  The Company’s 18% operating profit increase was driven by a $2.6 million increase in gross profit from rental operations, and an additional $2.6 million increase in sales gross profit.

Mobile Modular rental revenues for the quarter increased 9% from a year ago, primarily driven by 7% improvement in average rental rates.  Rental revenue growth continued to be healthy across commercial and education markets, as well as in our Portable Storage business.  Modular sales revenues increased significantly year over year, primarily due to higher used equipment sales.

TRS-RenTelco rental revenues for the quarter increased 7%, primarily driven by 5% higher average rental equipment and improved utilization.  Test equipment rental revenues for general-purpose and communications increased by 8% and 7%, respectively. 

Adler Tank Rentals rental revenues for the quarter increased 18% from a year ago.  Rental revenue growth occurred across a broad mix of vertical markets, including upstream oil and natural gas, which increased from 8% to 10% of total rental revenues.  Average equipment on rent increased 18%, and average utilization increased to 60%. Despite ongoing competitive price pressure, average rental rates remained flat.

For the full year, the Company’s operating profit grew by 20% compared to a year ago.  Mobile Modular, TRS-RenTelco and Adler Tank Rentals delivered operating profit growth of 14%, 18% and 40%, respectively, compared to a year ago.  Our teams executed effectively throughout 2017, and our performance improvement initiatives delivered results, despite some challenging market conditions.  The improved Company performance and anticipated earnings and cash flow benefits from tax reform support the 31% dividend increase announced today.

Entering 2018, I believe that our businesses are well positioned and we will be working hard to build upon our solid 2017 performance.”

__________________________

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 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 December 31, 2017 to the quarter ended December 31, 2016 unless otherwise indicated.

MOBILE MODULAR

For the fourth quarter of 2017, the Company’s Mobile Modular division reported income from operations of $12.6 million, a decrease of $0.6 million, or 5%.  Rental revenues increased 9% to $37.7 million, depreciation expense decreased $0.1 million to $5.3 million and other direct costs increased $4.8 million to $12.0 million, which resulted in a decrease in gross profit on rental revenues of 7% to $20.4 million.  The increased other direct costs in 2017 was partly attributable to a $1.6 million impairment of rental assets, deemed beyond economic repair in the Southern California region. Rental related services revenues were flat at $12.2 million, with associated gross profit increasing 2% to $3.2 million.  Sales revenues increased 74% to $7.4 million and gross margin on sales increased to 30% compared to 29% in 2016, resulting in increased gross profit on sales revenues of $1.0 million, or 79%.  Selling and administrative expenses increased 1% to $13.4 million, primarily due to increased salaries and employee benefit costs and higher allocated corporate expenses. 

TRS-RENTELCO

For the fourth quarter of 2017, the Company’s TRS-RenTelco division reported income from operations of $8.2 million, an increase of $1.9 million, or 29%.  Rental revenues increased 7% to $22.2 million, depreciation expense increased 3% to $8.6 million and other direct costs decreased 7% to $3.5 million, which resulted in an increase in gross profit on rental revenues of 18% to $10.1 million.  Sales revenues increased 20% to $5.4 million.  Gross margin on sales decreased to 58% from 60% in 2016 primarily due to lower margins on used equipment sales, resulting in an 18% increase in gross profit on sales revenues to $3.2 million.  Selling and administrative expenses increased 4% to $5.7 million, primarily due to increased salaries and employee benefit costs.

ADLER TANKS

For the fourth quarter of 2017, the Company’s Adler Tanks division reported income from operations of $4.1 million, an increase of $1.9 million, or 86%.  Rental revenues increased 18% to $17.8 million, depreciation expense was flat at $3.9 million and other direct costs were flat at $3.1 million, which resulted in an increase in gross profit on rental revenues of 33% to $10.7 million.  Rental related services revenues increased 10% to $6.6 million, with gross profit on rental related services decreasing 16% to $0.9 million.  Selling and administrative expenses increased 13% to $7.7 million, primarily due to increased salaries and employee benefit costs.

FINANCIAL OUTLOOK:

For the full-year 2018, the Company expects:

• Rental revenues to increase between 3% and 5% over 2017. 
• Sales revenues to be between flat and 10% lower compared to 2017. 
• Rental equipment depreciation expense to be between $70 and $72 million. 
• “Other” direct costs of rental operations, primarily for rental equipment maintenance and repair, to be between $64 and $66 million. 
• Selling and administrative costs to be between $113 and $115 million. 
• Operating profit to increase between 8% and 12% over 2017. 
• Full year interest expense to be approximately $12 million. 
• Effective tax rate to be approximately 27%.
• Diluted share count to be between 24.4 and 24.6 million shares. 

             
These forward-looking statements reflect McGrath RentCorp’s expectations as of February 27, 2018.  Actual 2018 results may be materially different and affected by many factors, including those factors outlined in the “forward-looking statements” paragraph at the end of this press release.

ABOUT MCGRATH RENTCORP:

Founded in 1979, McGrath RentCorp is a diversified business-to-business rental company 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.comto 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 January 25, 2018, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on February 27, 2018 to discuss the fourth 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 6597128.  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://www.mgrc.com/investors#events-archives.

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 “believes,” “expects,” “will,” or “anticipates” or the negative of these terms or other comparable terminology.  In particular, Mr. Hanna’s comment that the Company’s businesses are well-positioned for 2018, and the full year 2018 outlook 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 extent of the recovery underway in our modular building division; the state of the wireless communications network upgrade environment; the utilization levels and rental rates 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; 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 December 31,								Twelve Months Ended December 31,
(in thousands, except per share amounts)	2017				2016				2017				2016
Revenues
Rental	$	77,705			$	70,352			$	289,417			$	271,388
Rental related services		19,481				18,831				78,068				75,859
Rental operations		97,186				89,183				367,485				347,247
Sales		24,334				15,494				91,500				74,410
Other		707				606				3,049				2,423
Total revenues		122,227				105,283				462,034				424,080
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment		17,795				17,607				69,908				72,197
Rental related services		15,273				13,970				60,029				59,044
Other		18,678				14,785				65,472				60,130
Total direct costs of rental operations		51,746				46,362				195,409				191,371
Costs of sales		15,792				9,598				60,280				48,542
Total costs of revenues		67,538				55,960				255,689				239,913
Gross profit		54,689				49,323				206,345				184,167
Selling and administrative expenses		27,903				26,627				111,605				104,908
Income from operations		26,786				22,696				94,740				79,259
Other income (expense):
Interest expense		(2,898	)			(2,721	)			(11,622	)			(12,207	)
Foreign currency exchange gain (loss)		61				(180	)			334				(121	)
Income before (benefit) provision for income taxes		23,949				19,795				83,452				66,931
(Benefit) provision for income taxes		(93,775	)			10,061				(70,468	)			28,680
Net income	$	117,724			$	9,734			$	153,920			$	38,251
Earnings per share:
Basic	$	4.90			$	0.41			$	6.41			$	1.60
Diluted	$	4.82			$	0.40			$	6.34			$	1.60
Shares used in per share calculation:
Basic		24,044				23,927				23,999				23,900
Diluted		24,410				24,123				24,269				23,976
Cash dividends declared per share	$	0.260			$	0.255			$	1.04			$	1.02

 

MCGRATH RENTCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

		December 31,				December 31,
(in thousands)		2017				2016
Assets
Cash		$	2,501			$	852
Accounts receivable, net of allowance for doubtful accounts of $1,920 in 2017			105,872				96,877
and $2,087 in 2016
Rental equipment, at cost:
Relocatable modular buildings			775,400				769,190
Electronic test equipment			262,325				246,325
Liquid and solid containment tanks and boxes			309,808				308,542
			1,347,533				1,324,057
Less accumulated depreciation			(485,213	)			(467,686	)
Rental equipment, net			862,320				856,371
Property, plant and equipment, net			119,170				112,190
Prepaid expenses and other assets			22,459				25,583
Intangible assets, net			7,724				8,595
Goodwill			27,808				27,808
Total assets		$	1,147,854			$	1,128,276
Liabilities and Shareholders' Equity
Liabilities:
Notes payable		$	303,414			$	326,266
Accounts payable and accrued liabilities			86,408				78,205
Deferred income			39,219				37,499
Deferred income taxes, net			194,629				292,019
Total liabilities			623,670				733,989
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,052 shares as of December 31, 2017 and 23,948  shares as of December 31, 2016			102,947				101,821
Retained earnings			421,405				292,521
Accumulated other comprehensive loss			(168	)			(55	)
Total shareholders’ equity			524,184				394,287
Total liabilities and shareholders’ equity		$	1,147,854			$	1,128,276

 

 

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

		Year Ended December 31,
(in thousands)		2017				2016
Cash Flows from Operating Activities :
Net income		$	153,920			$	38,251
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization			78,416				81,179
Impairment of rental assets			1,639				—
Provision for doubtful accounts			1,480				1,892
Share-based compensation			3,198				3,091
Gain on sale of used rental equipment			(17,733	)			(13,739	)
Foreign currency exchanges (gain) loss			(334	)			121
Amortization of debt issuance costs			50				51
Change in:
Accounts receivable			(10,475	)			(3,752	)
Income taxes receivable			—				11,000
Prepaid expenses and other assets			3,124				3,219
Accounts payable and accrued liabilities			4,015				10,426
Deferred income			1,720				1,211
Deferred income taxes			(96,631	)			7,745
Net cash provided by operating activities			122,389				140,695
Cash Flows from Investing Activities:
Purchases of rental equipment			(94,579	)			(79,038	)
Purchases of property, plant and equipment			(14,617	)			(10,548	)
Proceeds from sales of used rental equipment			38,344				29,406
Net cash used in investing activities			(70,852	)			(60,180	)
Cash Flows from Financing Activities:
Net repayments under bank lines of credit			(2,902	)			(35,066	)
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			(2,072	)			(1,287	)
Payment of dividends			(24,876	)			(24,448	)
Net cash used in financing activities			(49,850	)			(80,764	)
Effect of foreign currency exchange rate changes on cash			(38	)			(2	)
Net increase (decrease) in cash			1,649				(251	)
Cash balance, beginning of period			852				1,103
Cash balance, end of period		$	2,501			$	852
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period		$	11,825			$	12,436
Net income taxes paid, during the period		$	29,504			$	15,555
Dividends accrued during the period, not yet paid		$	6,260			$	6,147
Rental equipment acquisitions, not yet paid		$	6,405			$	2,876

 

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended December 31, 2017
(dollar amounts in thousands)		Mobile Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	37,661			$	22,243			$	17,801			$	—			$	77,705
Rental related services			12,165				763				6,553				—				19,481
Rental operations			49,826				23,006				24,354				—				97,186
Sales			7,434				5,437				786				10,677				24,334
Other			178				444				85				—				707
Total revenues			57,438				28,887				25,225				10,677				122,227
Costs and Expenses
Direct costs of rental operations:
Depreciation			5,296				8,556				3,943				—				17,795
Rental related services			8,953				652				5,668				—				15,273
Other			12,000				3,546				3,132				—				18,678
Total direct costs of rental operations			26,249				12,754				12,743				—				51,746
Costs of  sales			5,193				2,264				671				7,664				15,792
Total costs of revenues			31,442				15,018				13,414				7,664				67,538
Gross Profit
Rental			20,365				10,141				10,726				—				41,232
Rental related services			3,212				111				885				—				4,208
Rental operations			23,577				10,252				11,611				—				45,440
Sales			2,241				3,173				115				3,013				8,542
Other			178				444				85				—				707
Total gross profit			25,996				13,869				11,811				3,013				54,689
Selling and administrative expenses			13,426				5,696				7,687				1,094				27,903
Income from operations		$	12,570			$	8,173			$	4,124			$	1,919				26,786
Interest expense																			(2,898	)
Foreign currency exchange gain																			61
Benefit for income taxes																			93,775
Net income																		$	117,724
Other Information
Average rental equipment 1		$	750,424			$	260,324			$	308,258
Average monthly total yield 2			1.67	%			2.85	%			1.92	%
Average utilization 3			77.3	%			63.6	%			60.2	%
Average monthly rental rate 4			2.16	%			4.48	%			3.20	%
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. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period. 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. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.

 

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended December 31, 2016
(dollar amounts in thousands)		Mobile Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	34,494			$	20,745			$	15,113			$	—			$	70,352
Rental related services			12,172				690				5,969				—				18,831
Rental operations			46,666				21,435				21,082				—				89,183
Sales			4,261				4,532				367				6,334				15,494
Other			133				441				32				—				606
Total revenues			51,060				26,408				21,481				6,334				105,283
Costs and Expenses
Direct costs of rental operations:
Depreciation			5,359				8,317				3,931				—				17,607
Rental related services			9,022				675				4,919				—				14,616
Other			7,182				3,820				3,137				—				14,139
Total direct costs of rental operations			21,563				12,812				11,987				—				46,362
Costs of  sales			3,010				1,832				447				4,309				9,598
Total costs of revenues			24,573				14,644				12,434				4,309				55,960
Gross Profit
Rental			21,953				8,608				8,045				—				38,606
Rental related services			3,150				15				1,050				—				4,215
Rental operations			25,103				8,623				9,095				—				42,821
Sales			1,251				2,700				(80	)			2,025				5,896
Other			133				441				32				—				606
Total gross profit			26,487				11,764				9,047				2,025				49,323
Selling and administrative expenses			13,270				5,452				6,824				1,081				26,627
Income from operations		$	13,217			$	6,312			$	2,223			$	944				22,696
Interest expense																			(2,721	)
Foreign currency exchange loss																			(180	)
Provision for income taxes																			(10,061	)
Net income																		$	9,734
Other Information
Average rental equipment 1		$	739,728			$	248,841			$	306,681
Average monthly total yield 2			1.55	%			2.78	%			1.64	%
Average utilization 3			77.5	%			62.3	%			51.3	%
Average monthly rental rate 4			2.01	%			4.46	%			3.20	%
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. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period. 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. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.

 

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Twelve months ended December 31, 2017
(dollar amounts in thousands)		Mobile Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	142,584			$	82,812			$	64,021			$	—			$	289,417
Rental related services			50,448				2,858				24,762				—				78,068
Rental operations			193,032				85,670				88,783				—				367,485
Sales			37,435				20,334				2,362				31,369				91,500
Other			799				2,040				210				—				3,049
Total revenues			231,266				108,044				91,355				31,369				462,034
Costs and Expenses
Direct costs of rental operations:
Depreciation			21,247				32,891				15,770				—				69,908
Rental related services			37,755				2,589				19,685				—				60,029
Other			41,290				13,503				10,679				—				65,472
Total direct costs of rental operations			100,292				48,983				46,134				—				195,409
Costs of  sales			27,039				8,772				2,003				22,466				60,280
Total costs of revenues			127,331				57,755				48,137				22,466				255,689
Gross Profit
Rental			80,048				36,418				37,572				—				154,038
Rental related services			12,693				269				5,076				—				18,038
Rental operations			92,741				36,687				42,648				—				172,076
Sales			10,395				11,562				360				8,903				31,220
Other			799				2,040				210				—				3,049
Total gross profit			103,935				50,289				43,218				8,903				206,345
Selling and administrative expenses			55,583				22,171				29,542				4,309				111,605
Income from operations		$	48,352			$	28,118			$	13,676			$	4,594				94,740
Interest expense																			(11,622	)
Foreign currency exchange gain																			334
Benefit for income taxes																			70,468
Net income																		$	153,920
Other Information
Average rental equipment 1		$	747,478			$	252,332			$	307,558
Average monthly total yield 2			1.59	%			2.74	%			1.73	%
Average utilization 3			76.8	%			62.9	%			56.0	%
Average monthly rental rate 4			2.07	%			4.35	%			3.10	%
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. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period. 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. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.

 

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Twelve months ended December 31, 2016
(dollar amounts in thousands)		Mobile Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	130,496			$	82,307			$	58,585			$	—			$	271,388
Rental related services			49,206				2,846				23,807				—				75,859
Rental operations			179,702				85,153				82,392				—				347,247
Sales			29,393				21,582				1,314				22,121				74,410
Other			417				1,882				124				—				2,423
Total revenues			209,512				108,617				83,830				22,121				424,080
Costs and Expenses
Direct costs of rental operations:
Depreciation			21,001				35,256				15,940				—				72,197
Rental related services			37,392				2,640				19,012				—				59,044
Other			35,683				14,320				10,127				—				60,130
Total direct costs of rental operations			94,076				52,216				45,079				—				191,371
Costs of  sales			21,620				10,604				1,342				14,976				48,542
Total costs of revenues			115,696				62,820				46,421				14,976				239,913
Gross Profit (Loss)
Rental			71,143				32,730				32,518				—				136,391
Rental related services			14,484				206				4,795				—				19,485
Rental operations			85,627				32,936				37,313				—				155,876
Sales			7,772				10,979				(28	)			7,145				25,868
Other			417				1,882				124				—				2,423
Total gross profit			93,816				45,797				37,409				7,145				184,167
Selling and administrative expenses			51,432				21,896				27,610				3,970				104,908
Income from operations		$	42,384			$	23,901			$	9,799			$	3,175				79,259
Interest expense																			(12,207	)
Foreign currency exchange loss																			(121	)
Provision for income taxes																			(28,680	)
Net income																		$	38,251
Other Information
Average rental equipment 1		$	724,333			$	254,019			$	307,416
Average monthly total yield 2			1.50	%			2.70	%			1.59	%
Average utilization 3			76.6	%			60.6	%			50.1	%
Average monthly rental rate 4			1.96	%			4.45	%			3.17	%
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. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period. 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. 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, non-cash impairment costs 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								Twelve Months Ended
		December 31,								December 31,
		2017				2016				2017				2016
Net income		$	117,724			$	9,734			$	153,920			$	38,251
(Benefit) provision for income taxes			(93,775	)			10,061				(70,468	)			28,680
Interest			2,898				2,721				11,622				12,207
Depreciation and amortization			19,991				19,651				78,416				81,179
EBITDA			46,838				42,167				173,490				160,317
Impairment of rental assets			1,639			—					1,639			—
Share-based compensation			953				764				3,198				3,091
Adjusted EBITDA 1		$	49,430			$	42,931			$	178,327			$	163,408
Adjusted EBITDA margin 2			40	%			41	%			39	%			39	%

 

Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities
(dollar amounts in thousands)		Three Months Ended								Twelve Months Ended
		December 31,								December 31,
		2017				2016				2017				2016
Adjusted EBITDA 1		$	49,430			$	42,931			$	178,327			$	163,408
Interest paid			(3,262	)			(3,394	)			(11,825	)			(12,436	)
Income taxes paid, net of refunds received			(5,994	)			(7,804	)			(29,504	)			(15,555	)
Gain on sale of used rental equipment			(4,727	)			(2,941	)			(17,733	)			(13,739	)
Foreign currency exchange loss (gain)			(61	)			180				(334	)			121
Amortization of debt financing cost			12				13				50				51
Change in certain assets and liabilities:
Accounts receivable, net			1,541				6,881				(8,995	)			(1,860	)
Income taxes receivable		—				—				—					11,000
Prepaid expenses and other assets			4,385				575				3,124				1,949
Accounts payable and other liabilities			2,893				3,633				7,559				7,220
Deferred income			(2,969	)			(4,655	)			1,720				536
Net cash provided by operating activities		$	41,248			$	35,419			$	122,389			$	140,695
Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs and share-based compensation. 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

 

McGrath RentCorp