McGrath RentCorp Announces Results for Fourth Quarter 2018

February 26, 2019 at 4:01 PM EST

LIVERMORE, Calif., Feb. 26, 2019 (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, 2018 of $133.1 million, an increase of 9%, compared to the fourth quarter of 2017. The Company reported net income of $24.2 million, or $0.99 per diluted share for the fourth quarter of 2018, compared to net income of $117.7 million, or $4.82 per diluted share, in the fourth quarter of 2017. The fourth quarter of 2017 included 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.

Total revenues for the year ended December 31, 2018 increased to $498.3 million from $462.0 million in 2017, with income from operations increasing 24% to $117.5 million. Net income for the year ended December 31, 2018 decreased to $79.4 million, or $3.24 per diluted share, from $153.9 million, or $6.34 per diluted share, in 2017. As discussed above, 2017 included 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.

FOURTH QUARTER 2018 COMPANY HIGHLIGHTS:

Income from operations increased 31% year-over-year to $35.2 million.
Rental revenues increased 10% year-over-year to $85.1 million.
Adjusted EBITDA¹ increased 16% year-over-year to $57.6 million.
Dividend rate increased 31% year-over-year to $0.34 per share for the fourth quarter of 2018. On an annualized basis, this dividend represents a 2.6% yield on the February 25, 2019 close price of $53.23 per share.

The Company also announced that the board of directors declared a quarterly cash dividend of $0.375 per share for the quarter ending March 31, 2019, an increase of $0.035, or 10%, over the prior year period. On an annualized basis, the 2019 dividend represents a 2.8% yield, based on the February 25, 2019 closing stock price. The cash dividend will be payable on April 30, 2019 to all shareholders of record on April 15, 2019. This marks the 28^th 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 finished our fourth quarter on a very good note with the business delivering impressive rental revenue and profit growth. The Company’s 31% operating profit increase was driven by an overall increase in rental revenues of 10% and a 22% increase in rental gross profit.

Mobile Modular rental revenues for the quarter increased 13% from a year ago, primarily driven by an 8% 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. Average equipment on rent increased 5% and average utilization for the fleet was 79%.

TRS-RenTelco rental revenues for the quarter increased 8%, primarily driven by demand for general purpose equipment as well as communications equipment. Test equipment rental revenues for general-purpose and communications increased by 9% and 4%, respectively.

Adler Tank Rentals rental revenues for the quarter increased 3% from a year ago. Rental revenue growth occurred across four of our six vertical markets, including upstream oil and natural gas. Average equipment on rent increased 2%, and average utilization increased to 61%. Rates also improved for the quarter by 1%.

For the full year, our operating profit grew by 24% compared to a year ago. Mobile Modular, TRS-RenTelco and Adler Tank Rentals delivered operating profit growth of 30%, 14% and 32%, respectively, compared to a year ago. Our strategy to focus on performance improvement initiatives coupled with solid execution from our teams helped deliver these strong results for the year. We are pleased to announce today a dividend increase of 10%, our 28^th consecutive annual dividend increase, and reflecting our overall favorable performance.

We ended the year well positioned to continue serving our broad customer base and I believe that our businesses will continue to perform well in 2019.”

______________________________
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, 2018 to the quarter ended December 31, 2017 unless otherwise indicated.

MOBILE MODULAR

For the fourth quarter of 2018, the Company’s Mobile Modular division reported income from operations of $19.4 million, an increase of $6.8 million, or 54%. Rental revenues increased 13% to $42.7 million, depreciation expense increased 1% to $5.4 million and other direct costs decreased 22% to $9.4 million, which resulted in an increase in gross profit on rental revenues of 37% to $28.0 million. The decreased other direct costs was partly attributable to a $1.6 million impairment of rental assets, deemed beyond economic repair in the Southern California region in 2017. Rental related services revenues increased 17% to $14.2 million, with associated gross profit increasing 9% to $3.5 million. Sales revenues increased 18% to $8.8 million. Gross margin on sales decreased to 28% from 30% primarily due to lower margins on used equipment sales, resulting in an 8% increase in gross profit on sales revenues to $2.4 million. Selling and administrative expenses increased 10% to $14.8 million, primarily due to higher salaries and benefit costs and higher allocated corporate expenses.

TRS-RENTELCO

For the fourth quarter of 2018, the Company’s TRS-RenTelco division reported income from operations of $8.6 million, an increase of $0.4 million, or 5%. Rental revenues increased 8% to $24.0 million, depreciation expense increased 11% to $9.5 million and other direct costs increased 9% to $3.9 million, which resulted in a 5% increase in gross profit on rental revenues to $10.7 million. Sales revenues increased 19% to $6.5 million. Gross margin on sales decreased to 47% from 58% primarily due to lower margins on new and used equipment sales, resulting in a 4% decrease in gross profit on sales revenues to $3.1 million. Selling and administrative expenses increased 6% to $6.0 million, primarily due to higher allocated corporate expenses.

ADLER TANKS

For the fourth quarter of 2018, the Company’s Adler Tanks division reported income from operations of $5.2 million, an increase of $1.1 million, or 27%. Rental revenues increased 3% to $18.4 million, depreciation expense increased 2% to $4.0 million and other direct costs decreased 12% to $2.8 million, which resulted in an increase in gross profit on rental revenues of 8% to $11.6 million. Rental related services revenues increased 5% to $6.9 million, with gross profit on rental related services increasing 61% to $1.4 million. Selling and administrative expenses increased 1% to $7.8 million.

FINANCIAL OUTLOOK:

For the full-year 2019, the Company expects:

Rental revenues to increase between 6% and 9% over 2018.
Sales revenues to be comparable to 2018.
Rental equipment depreciation expense to be between $75 and $78 million.
“Other” direct costs of rental operations, primarily for rental equipment maintenance and repair, to be between $72 and $75 million.
Selling and administrative costs to be between $123 and $126 million.
Operating profit to increase between 5% and 10% over 2018.
Full year interest expense to be between $12.1 and $12.5 million.
Effective tax rate to be approximately 27%.
Diluted share count to be between 24.6 and 24.7 million shares.

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, Louisiana, Florida, and the Mid-Atlantic from Washington D.C. to Georgia. TRS-RenTelco rents and sells electronic test equipment and is one of the leading rental providers of general purpose and communications test equipment in the Americas. Adler Tank Rentals rents and sells containment solutions for hazardous and nonhazardous liquids and solids with operations serving key markets throughout the United States. Mobile Modular Portable Storage provides portable storage solutions in the California, Texas, Florida, Northern Illinois, New Jersey, North Carolina and Georgia markets. For more information on McGrath RentCorp and its operating units, please visit our websites:

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

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

CONFERENCE CALL NOTE:

As previously announced in its press release of February 1, 2019, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on February 26, 2019 to discuss the fourth quarter 2018 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 https://investors.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 3293253. 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 “believes,” “expects,” “will,” or “anticipates” or the negative of these terms or other comparable terminology. In particular, Mr. Hanna’s comments on the belief that the Company’s business will continue to perform well in 2019, as well as the full year 2019 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; continued execution of our performance improvement initiatives; 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)	2018			2017			2018			2017
Revenues
Rental	$	85,091		$	77,705		$	318,774		$	289,417
Rental related services		22,110			19,481			82,907			78,068
Rental operations		107,201			97,186			401,681			367,485
Sales		24,896			24,334			92,618			91,500
Other		1,018			707			4,031			3,049
Total revenues		133,115			122,227			498,330			462,034
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment		18,852			17,795			73,139			69,908
Rental related services		16,894			15,273			64,298			60,029
Other		15,982			18,678			68,678			65,472
Total direct costs of rental operations		51,728			51,746			206,115			195,409
Costs of sales		16,284			15,792			58,964			60,280
Total costs of revenues		68,012			67,538			265,079			255,689
Gross profit		65,103			54,689			233,251			206,345
Selling and administrative expenses		29,937			27,903			115,770			111,605
Income from operations		35,166			26,786			117,481			94,740
Other income (expense):
Interest expense		(3,164	)		(2,898	)		(12,297	)		(11,622	)
Foreign currency exchange gain (loss)		16			61			(489	)		334
Income before provision (benefit) for income taxes		32,018			23,949			104,695			83,452
Provision (benefit) for income taxes		7,769			(93,775	)		25,289			(70,468	)
Net income	$	24,249		$	117,724		$	79,406		$	153,920
Earnings per share:
Basic	$	1.00		$	4.90		$	3.29		$	6.41
Diluted	$	0.99		$	4.82		$	3.24		$	6.34
Shares used in per share calculation:
Basic		24,179			24,044			24,141			23,999
Diluted		24,514			24,410			24,540			24,269
Cash dividends declared per share	$	0.34		$	0.26		$	1.36		$	1.04

MCGRATH RENTCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

	December 31,			December 31,
(in thousands)	2018			2017
Assets
Cash	$	1,508		$	2,501
Accounts receivable, net of allowance for doubtful accounts of $1,883 in 2018 and $1,920 in 2017		121,016			105,872
Rental equipment, at cost:
Relocatable modular buildings		817,375			775,400
Electronic test equipment		285,052			262,325
Liquid and solid containment tanks and boxes		313,573			309,808
		1,416,000			1,347,533
Less accumulated depreciation		(514,985	)		(485,213	)
Rental equipment, net		901,015			862,320
Property, plant and equipment, net		126,899			119,170
Prepaid expenses and other assets		31,816			22,459
Intangible assets, net		7,254			7,724
Goodwill		27,808			27,808
Total assets	$	1,217,316		$	1,147,854
Liabilities and Shareholders' Equity
Liabilities:
Notes payable	$	298,564		$	303,414
Accounts payable and accrued liabilities		90,844			86,408
Deferred income		49,709			39,219
Deferred income taxes, net		206,664			194,629
Total liabilities		645,781			623,670
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,182 shares as of December 31, 2018 and 24,052 shares as of December 31, 2017		103,801			102,947
Retained earnings		467,783			421,405
Accumulated other comprehensive income (loss)		(49	)		(168	)
Total shareholders’ equity		571,535			524,184
Total liabilities and shareholders’ equity	$	1,217,316		$	1,147,854

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Year Ended December 31,
(in thousands)	2018			2017
Cash Flows from Operating Activities:
Net income	$	79,406		$	153,920
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		81,975			78,416
Impairment of rental assets		39			1,639
Provision for doubtful accounts		581			1,480
Share-based compensation		4,111			3,198
Gain on sale of used rental equipment		(19,559	)		(17,733	)
Foreign currency exchange (gain) loss		489			(334	)
Amortization of debt issuance costs		20			50
Change in:
Accounts receivable		(15,725	)		(10,475	)
Prepaid expenses and other assets		(9,351	)		3,124
Accounts payable and accrued liabilities		(1,612	)		4,015
Deferred income		10,258			1,720
Deferred income taxes		12,035			(96,631	)
Net cash provided by operating activities		142,667			122,389
Cash Flows from Investing Activities:
Purchases of rental equipment		(123,071	)		(94,579	)
Purchases of property, plant and equipment		(15,664	)		(14,617	)
Cash paid for acquisition of business assets		(7,543	)		—
Proceeds from sales of used rental equipment		41,786			38,344
Net cash used in investing activities		(104,492	)		(70,852	)
Cash Flows from Financing Activities:
Net borrowings (repayments) under bank lines of credit		15,130			(2,902	)
Principal payments on Series A senior notes		(20,000	)		(20,000	)
Taxes paid related to net share settlement of stock awards		(3,257	)		(2,072	)
Payment of dividends		(30,939	)		(24,876	)
Net cash used in financing activities		(39,066	)		(49,850	)
Effect of foreign currency exchange rate changes on cash		(102	)		(38	)
Net increase (decrease) in cash		(993	)		1,649
Cash balance, beginning of period		2,501			852
Cash balance, end of period	$	1,508		$	2,501
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period	$	12,598		$	11,825
Net income taxes paid, during the period	$	18,157		$	29,504
Dividends accrued during the period, not yet paid	$	8,388		$	6,260
Rental equipment acquisitions, not yet paid	$	9,695		$	6,405

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended December 31, 2018
(dollar amounts in thousands)	Mobile Modular			TRS- RenTelco			Adler Tanks			Enviroplex		Consolidated

Revenues
Rental	$	42,700		$	24,018		$	18,373		$	—	$	85,091
Rental related services		14,186			1,013			6,911			—		22,110
Rental operations		56,886			25,031			25,284			—		107,201
Sales		8,773			6,493			415			9,215		24,896
Other		302			606			110			—		1,018
Total revenues		65,961			32,130			25,809			9,215		133,115

Costs and Expenses
Direct costs of rental operations:
Depreciation		5,359			9,475			4,018			—		18,852
Rental related services		10,670			742			5,482			—		16,894
Other		9,352			3,865			2,765			—		15,982
Total direct costs of rental operations		25,381			14,082			12,265			—		51,728
Costs of sales		6,345			3,430			520			5,989		16,284
Total costs of revenues		31,726			17,512			12,785			5,989		68,012

Gross Profit (Loss)
Rental		27,989			10,678			11,590			—		50,257
Rental related services		3,516			271			1,429			—		5,216
Rental operations		31,505			10,949			13,019			—		55,473
Sales		2,428			3,063			(105	)		3,226		8,612
Other		302			606			110			—		1,018
Total gross profit		34,235			14,618			13,024			3,226		65,103
Selling and administrative expenses		14,826			6,043			7,781			1,287		29,937
Income from operations	$	19,409		$	8,575		$	5,243		$	1,939	$	35,166
Interest expense													(3,164	)
Foreign currency exchange gain													16
Provision for income taxes													(7,769	)
Net income												$	24,249

Other Information
Average rental equipment ¹	$	770,355		$	284,959		$	311,815
Average monthly total yield ²		1.85	%		2.81	%		1.96	%
Average utilization ³		79.2	%		63.1	%		61.0	%
Average monthly rental rate ⁴		2.33	%		4.45	%		3.22	%

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, 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)
Twelve months ended December 31, 2018
(dollar amounts in thousands)	Mobile Modular			TRS- RenTelco			Adler Tanks			Enviroplex		Consolidated

Revenues
Rental	$	159,136		$	89,937		$	69,701		$	—	$	318,774
Rental related services		54,696			3,300			24,911			—		82,907
Rental operations		213,832			93,237			94,612			—		401,681
Sales		39,467			23,061			1,044			29,046		92,618
Other		1,275			2,359			397			—		4,031
Total revenues		254,574			118,657			96,053			29,046		498,330

Costs and Expenses
Direct costs of rental operations:
Depreciation		21,200			36,011			15,928			—		73,139
Rental related services		41,701			2,698			19,899			—		64,298
Other		42,812			14,699			11,167			—		68,678
Total direct costs of rental operations		105,713			53,408			46,994			—		206,115
Costs of sales		28,111			10,476			1,004			19,373		58,964
Total costs of revenues		133,824			63,884			47,998			19,373		265,079

Gross Profit
Rental		95,123			39,227			42,607			—		176,957
Rental related services		12,995			602			5,012			—		18,609
Rental operations		108,118			39,829			47,619			—		195,566
Sales		11,357			12,585			39			9,673		33,654
Other		1,275			2,359			397			—		4,031
Total gross profit		120,750			54,773			48,055			9,673		233,251
Selling and administrative expenses		58,017			22,823			30,026			4,904		115,770
Income from operations	$	62,733		$	31,950		$	18,029		$	4,769	$	117,481
Interest expense													(12,297	)
Foreign currency exchange loss													(489	)
Provision for income taxes													(25,289	)
Net income												$	79,406

Other Information
Average rental equipment ¹	$	756,513		$	275,891		$	310,401
Average monthly total yield ²		1.75	%		2.72	%		1.87	%
Average utilization ³		78.2	%		62.7	%		59.9	%
Average monthly rental rate ⁴		2.24	%		4.33	%		3.13	%

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 (Loss)
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.

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 December 31,						Twelve Months Ended December 31,
	2018			2017			2018			2017
Net income	$	24,249		$	117,724		$	79,406		$	153,903
Provision (benefit) for income taxes		7,769			(93,775	)		25,289			(70,451	)
Interest		3,164			2,898			12,297			11,622
Depreciation and amortization		21,079			19,991			81,975			78,416
EBITDA		56,261			46,838			198,967			173,490
Impairment of rental assets		—			1,639			39			1,639
Share-based compensation		1,301			953			4,111			3,198
Adjusted EBITDA ¹	$	57,562		$	49,430		$	203,117		$	178,327
Adjusted EBITDA margin ²		43	%		40	%		41	%		39	%

Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities

(dollar amounts in thousands)	Three Months Ended December 31,						Twelve Months Ended December 31,
	2018			2017			2018			2017
Adjusted EBITDA ¹	$	57,562		$	49,430		$	203,117		$	178,327
Interest paid		(3,405	)		(3,262	)		(12,598	)		(11,825	)
Income taxes paid, net of refunds received		(2,102	)		(5,994	)		(18,157	)		(29,504	)
Gain on sale of used rental equipment		(4,515	)		(4,727	)		(19,559	)		(17,733	)
Foreign currency exchange loss (gain)		(16	)		(61	)		489			(334	)
Amortization of debt financing cost		2			12			20			50
Change in certain assets and liabilities:
Accounts receivable, net		(5,927	)		1,541			(15,144	)		(8,995	)
Prepaid expenses and other assets		844			4,385			(9,351	)		3,124
Accounts payable and other liabilities		1,867			2,893			3,592			7,559
Deferred income		1,517			(2,969	)		10,258			1,720
Net cash provided by operating activities	$	45,827		$	41,248		$	142,667		$	122,389

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

Source: McGrath RentCorp

Release Details

McGrath RentCorp Announces Results for Fourth Quarter 2018