Company Announces 12% Dividend Increase; 29th Consecutive Year Increase

LIVERMORE, Calif., Feb. 25, 2020 (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, 2019 of $147.2 million, an increase of 11%, compared to the fourth quarter of 2018.  The Company reported net income of $26.4 million, or $1.07 per diluted share, for the fourth quarter of 2019, compared to net income of $24.2 million, or $0.99 per diluted share, for the fourth quarter of 2018. 

Total revenues for the year ended December 31, 2019 increased to $570.2 million from $498.3 million in 2018, with income from operations increasing 20% to $141.4 million.  Net income for the year ended December 31, 2019 increased to $96.8 million, or $3.93 per diluted share, from $79.4 million, or $3.24 per diluted share, in 2018. 

The Company also announced that the board of directors declared a quarterly cash dividend of $0.42 per share for the quarter ending March 31, 2020, an increase of $0.045, or 12%, over the prior year period.  The cash dividend will be payable on April 30, 2020 to all shareholders of record on April 15, 2020.  This marks the 29^th consecutive year the Company has increased its annual dividend.

FOURTH QUARTER 2019 COMPANY HIGHLIGHTS:

• Income from operations increased 9% year-over-year to $38.2 million.
• Rental revenues increased 8% year-over-year to $92.2 million.
• Adjusted EBITDA¹ increased 11% year-over-year to $63.7 million.   
• Dividend rate increased 10% year-over-year to $0.375 per share for the fourth quarter of 2019.  On an annualized basis, this dividend represents a 1.9% yield on the February 24, 2020 close price of $78.54 per share.

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

“We were pleased with our fourth quarter 2019 results as our teams delivered impressive revenue and operating profit growth over the strong fourth quarter results of 2018.  The positive trends seen earlier in the year at Mobile Modular and TRS-RenTelco continued into the fourth quarter, more than offsetting weaker market demand conditions for Adler Tank Rentals. 

Full year results reflected overall healthy demand for the markets we serve, coupled with continued focus on performance improvement and disciplined capital allocation.  Our 20% growth in income from operations was driven by strong rental operations revenue growth of 13% and a notably strong year for equipment sales revenues, which grew by 19%.

Looking ahead we expect overall business conditions to support further growth for the Company in 2020, despite softer demand conditions for Adler Tank Rentals.  We will maintain our focus on performance improvement and execution, and I believe that we will continue to build upon 2019’s successes.”

DIVISION HIGHLIGHTS:

All comparisons presented below are for the quarter ended December 31, 2019 to the quarter ended December 31, 2018 unless otherwise indicated.

MOBILE MODULAR

For the fourth quarter of 2019, the Company’s Mobile Modular division reported income from operations of $23.9 million, an increase of $4.5 million, or 23%.  Rental revenues increased 14% to $48.6 million, depreciation expense increased 5% to $5.6 million and other direct costs increased 22% to $11.4 million, which resulted in an increase in gross profit on rental revenues of 13% to $31.5 million.  The rental revenue growth came from both commercial and education markets.   Rental related services revenues increased 16% to $16.4 million, with associated gross profit increasing 17% to $4.1 million.  Sales revenues increased 78% to $15.6 million and gross margin on sales increased to 30% from 28%, resulting in a 94% increase in gross profit on sales revenues to $4.7 million.  Selling and administrative expenses increased 19% to $17.7 million, primarily due to higher allocated corporate expenses and increased salaries and employee benefit costs.

TRS-RENTELCO

For the fourth quarter of 2019, the Company’s TRS-RenTelco division reported income from operations of $9.5 million, an increase of $1.0 million, or 11%.  Rental revenues increased 15% to $27.7 million, depreciation expense increased 20% to $11.4 million and other direct costs increased 6% to $4.1 million, which resulted in a 14% increase in gross profit on rental revenues to $12.1 million.  The rental revenue growth came from both general purpose and communications test equipment market.  Sales revenues decreased 17% to $5.4 million.  Gross margin on sales increased to 62% from 47%, resulting in a 9% increase in gross profit on sales revenues to $3.3 million.  Selling and administrative expenses increased 8% to $6.5 million, primarily due to higher allocated corporate expenses and increased salaries and employee benefit costs.

ADLER TANKS

For the fourth quarter of 2019, the Company’s Adler Tanks division reported income from operations of $3.4 million, a decrease of $1.9 million, or 36%.  Rental revenues decreased 13% to $16.0 million, depreciation expense increased 3% to $4.1 million and other direct costs decreased 1% to $2.7 million, which resulted in a decrease in gross profit on rental revenues of 21% to $9.1 million.  The rental revenue decrease was across all end markets.  Rental related services revenues increased 2% to $7.0 million, with gross profit on rental related services decreasing 2% to $1.4 million.  Selling and administrative expenses decreased 7% to $7.3 million, primarily due to decreased salaries and employee benefit costs.

FINANCIAL OUTLOOK:

For the full-year 2020, the Company expects:

• Total revenue: $575 million - $595 million, compared to $570 million in 2019.
• Adjusted EBITDA¹: $240 million - $248 million, compared to $237 million in 2019.
• Net capital expenditures²: $110 million to $120 million, compared to $135 million 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 actual net income to Adjusted EBITDA and Adjusted EBITDA to net cash provided by operating activities can be found at the end of this release.
2. Net capital expenditure is purchases of rental equipment and property, plant and equipment less proceeds from sales of used rental equipment

ABOUT MCGRATH RENTCORP:

Founded in 1979, McGrath RentCorp (Nasdaq: MGRC) is a diversified business-to-business rental company providing modular buildings, electronic test equipment, portable storage and tank containment solutions across the United States and other select North American regions.  The Company’s rental operations consist of four divisions: Mobile Modular rents and sells modular buildings to fulfill customers’ temporary and permanent classroom and office space needs; TRS-RenTelco rents and sells electronic test equipment; Adler Tank Rentals rents and sells containment solutions for hazardous and nonhazardous liquids and solids; and Mobile Modular Portable Storage provides portable storage rental solutions.  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 January 27, 2020, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on February 25, 2020 to discuss the fourth quarter 2019 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 replay will be available for 7 days 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 conference call replay is 1079158.  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 comments on the expectation of overall business conditions supporting further growth for the Company in 2020, despite softer demand conditions for Adler Tank Rentals, as well as the full year 2020 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 health of the education and commercial markets in our modular building division; the activity levels in the general purpose and communications test equipment markets at TRS-RenTelco; the utilization levels and rental rates of our Adler Tanks liquid and 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)		2019				2018				2019				2018
Revenues
Rental		$	92,231			$	85,091			$	353,889			$	318,774
Rental related services			24,300				22,110				101,038				82,907
Rental operations			116,531				107,201				454,927				401,681
Sales			28,842				24,896				110,229				92,618
Other			1,848				1,018				5,074				4,031
Total revenues			147,221				133,115				570,230				498,330
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment			21,169				18,852				80,391				73,139
Rental related services			18,734				16,894				76,241				64,298
Other			18,237				15,982				79,365				68,678
Total direct costs of rental operations			58,140				51,728				235,997				206,115
Costs of sales			18,084				16,284				68,068				58,964
Total costs of revenues			76,224				68,012				304,065				265,079
Gross profit			70,997				65,103				266,165				233,251
Selling and administrative expenses			32,749				29,937				124,793				115,770
Income from operations			38,248				35,166				141,372				117,481
Other income (expense):
Interest expense			(2,924	)			(3,164	)			(12,331	)			(12,297	)
Foreign currency exchange gain (loss)			130				16				84				(489	)
Income before provision for income taxes			35,454				32,018				129,125				104,695
Provision for income taxes			9,053				7,769				32,319				25,289
Net income		$	26,401			$	24,249			$	96,806			$	79,406
Earnings per share:
Basic		$	1.09			$	1.00			$	3.99			$	3.29
Diluted		$	1.07			$	0.99			$	3.93			$	3.24
Shares used in per share calculation:
Basic			24,290				24,179				24,250				24,141
Diluted			24,697				24,514				24,623				24,540
Cash dividends declared per share		$	0.375			$	0.340			$	1.50			$	1.36

MCGRATH RENTCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

		December 31,
(in thousands)		2019				2018
Assets
Cash		$	2,342			$	1,508
Accounts receivable, net of allowance for doubtful accounts of $1,883 in 2019 and 2018			128,099				121,016
Rental equipment, at cost:
Relocatable modular buildings			868,807				817,375
Electronic test equipment			335,343				285,052
Liquid and solid containment tanks and boxes			316,261				313,573
			1,520,411				1,416,000
Less accumulated depreciation			(552,911	)			(514,985	)
Rental equipment, net			967,500				901,015
Property, plant and equipment, net			131,047				126,899
Prepaid expenses and other assets			45,356				31,816
Intangible assets, net			7,334				7,254
Goodwill			28,197				27,808
Total assets		$	1,309,875			$	1,217,316
Liabilities and Shareholders' Equity
Liabilities:
Notes payable		$	293,431			$	298,564
Accounts payable and accrued liabilities			109,174				90,844
Deferred income			54,964				49,709
Deferred income taxes, net			218,270				206,664
Total liabilities			675,839				645,781
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,296 shares as of December 31, 2019 and 24,182 shares as of December 31, 2018			106,360				103,801
Retained earnings			527,746				467,783
Accumulated other comprehensive loss			(70	)			(49	)
Total shareholders’ equity			634,036				571,535
Total liabilities and shareholders’ equity		$	1,309,875			$	1,217,316

 

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

		Twelve Months Ended December 31,
(in thousands)		2019				2018
Cash Flows from Operating Activities:
Net income		$	96,806			$	79,406
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			89,476				81,975
Impairment of rental assets			—				39
Provision for doubtful accounts			1,013				581
Share-based compensation			5,892				4,111
Gain on sale of used rental equipment			(21,309	)			(19,559	)
Foreign currency exchange (gain) loss			(84	)			489
Amortization of debt issuance costs			11				20
Change in:
Accounts receivable			(7,323	)			(15,725	)
Prepaid expenses and other assets			(13,530	)			(9,351	)
Accounts payable and accrued liabilities			20,298				(1,612	)
Deferred income			5,138				10,258
Deferred income taxes			11,606				12,035
Net cash provided by operating activities			187,994				142,667
Cash Flows from Investing Activities:
Purchases of rental equipment			(167,703	)			(123,071	)
Purchases of property, plant and equipment			(12,080	)			(15,664	)
Cash paid for acquisition of business assets			(7,808	)			(7,543	)
Proceeds from sales of used rental equipment			44,447				41,786
Net cash used in investing activities			(143,144	)			(104,492	)
Cash Flows from Financing Activities:
Net borrowings (repayment) under bank lines of credit			(5,144	)			15,130
Principal payments on Series A senior notes			—				(20,000	)
Taxes paid related to net share settlement of stock awards			(3,333	)			(3,257)
Payment of dividends			(35,539	)			(30,939	)
Net cash used in financing activities			(44,016	)			(39,066	)
Effect of foreign currency exchange rate changes on cash			—				(102	)
Net increase (decrease) in cash			834				(993	)
Cash balance, beginning of period			1,508				2,501
Cash balance, end of period		$	2,342			$	1,508
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period		$	12,475			$	12,598
Net income taxes paid, during the period		$	17,528			$	18,157
Dividends accrued during the period, not yet paid		$	9,489			$	8,388
Rental equipment acquisitions, not yet paid		$	6,496			$	9,695

 

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended December 31, 2019
(dollar amounts in thousands)		Mobile Modular						TRS-RenTelco						Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	48,580					$	27,654					$	15,997			$	—			$	92,231
Rental related services			16,449						835						7,016				—				24,300
Rental operations			65,029						28,489						23,013				—				116,531
Sales			15,642						5,361						263				7,576				28,842
Other			1,223						557						68				—				1,848
Total revenues			81,894						34,407						23,344				7,576				147,221
Costs and Expenses
Direct costs of rental operations:
Depreciation			5,622						11,415						4,132				—				21,169
Rental related services			12,333						783						5,618				—				18,734
Other			11,415						4,097						2,725				—				18,237
Total direct costs of rental operations			29,370						16,295						12,475				—				58,140
Costs of sales			10,935						2,037						235				4,877				18,084
Total costs of revenues			40,305						18,332						12,710				4,877				76,224
Gross Profit
Rental			31,543						12,142						9,140				—				52,825
Rental related services			4,116						52						1,398				—				5,566
Rental operations			35,659						12,194						10,538				—				58,391
Sales			4,707						3,324						28				2,699				10,758
Other			1,223						557						68				—				1,848
Total gross profit			41,589						16,075						10,634				2,699				70,997
Selling and administrative expenses			17,686						6,544						7,267				1,252				32,749
Income from operations		$	23,903					$	9,531					$	3,367			$	1,447			$	38,248
Interest expense																							(2,924	)
Foreign currency exchange gain																							130
Provision for income taxes																							(9,053	)
Net income																						$	26,401
Other Information
Average rental equipment 1		$	813,535					$	328,038					$	314,906
Average monthly total yield 2			1.99	%					2.81	%					1.69	%
Average utilization 3			79.3	%					66.8	%					50	%
Average monthly rental rate 4			2.51	%					4.2	%					3.39	%

 

1. Average rental equipment represents the cost of rental equipment excluding accessory equipment.  For Mobile Modular and Adler Tanks, Average rental equipment also excludes new equipment inventory.
2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
3. Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment.
4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended 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	%
Average monthly rental rate 4			2.33	%			4.45	%			3.22	%

 

1. Average rental equipment represents the cost of rental equipment excluding accessory equipment.  For Mobile Modular and Adler Tanks, Average rental equipment also excludes new equipment inventory.
2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
3. Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment.
4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period. 

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Twelve months ended December 31, 2019
(dollar amounts in thousands)		Mobile Modular						TRS-RenTelco						Adler Tanks						Enviroplex						Consolidated
Revenues
Rental		$	182,316					$	103,704					$	67,869					$	—					$	353,889
Rental related services			69,395						3,260						28,383						—						101,038
Rental operations			251,711						106,964						96,252						—						454,927
Sales			47,043						22,106						1,266						39,814						110,229
Other			2,256						2,413						405						—						5,074
Total revenues			301,010						131,483						97,923						39,814						570,230
Costs and Expenses
Direct costs of rental operations:
Depreciation			22,071						41,948						16,372						—						80,391
Rental related services			51,787						2,791						21,663						—						76,241
Other			51,136						16,303						11,926						—						79,365
Total direct costs of rental operations			124,994						61,042						49,961						—						235,997
Costs of sales			32,398						9,693						948						25,029						68,068
Total costs of revenues			157,392						70,735						50,909						25,029						304,065
Gross Profit
Rental			109,109						45,453						39,571						—						194,133
Rental related services			17,608						469						6,720						—						24,797
Rental operations			126,717						45,922						46,291						—						218,930
Sales			14,645						12,413						318						14,785						42,161
Other			2,256						2,413						405						—						5,074
Total gross profit			143,618						60,748						47,014						14,785						266,165
Selling and administrative expenses			65,699						24,645						29,321						5,128						124,793
Income from operations		$	77,919					$	36,103					$	17,693					$	9,657					$	141,372
Interest expense																											(12,331	)
Foreign currency exchange gain																											84
Provision for income taxes																											(32,319	)
Net income																										$	96,806
Other Information
Average rental equipment 1		$	795,250					$	306,426					$	313,810
Average monthly total yield 2			1.9	%					2.82	%					1.8	%
Average utilization 3			79.2	%					66.2	%					54.7	%
Average monthly rental rate 4			2.41	%					4.26	%					3.29	%

 

1. Average rental equipment represents the cost of rental equipment excluding accessory equipment.  For Mobile Modular and Adler Tanks, Average rental equipment also excludes new equipment inventory.
2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
3. Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment.
4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period. 

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
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	%

 

1. Average rental equipment represents the cost of rental equipment excluding accessory equipment.  For Mobile Modular and Adler Tanks, Average rental equipment also excludes new equipment inventory.
2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
3. Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment.
4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.

Reconciliation of Adjusted EBITDA to the most directly comparable GAAP measures

To supplement the Company’s financial data presented on a basis consistent with accounting principles generally accepted in the United States of America (“GAAP”), the Company presents “Adjusted EBITDA”, which is defined by the Company as net income before interest expense, provision for income taxes, depreciation, amortization, 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,
		2019				2018				2019				2018
Net income		$	26,401			$	24,249			$	96,806			$	79,406
Provision for income taxes			9,053				7,769				32,319				25,289
Interest expense			2,924				3,164				12,331				12,297
Depreciation and amortization			23,516				21,079				89,476				81,975
EBITDA			61,894				56,261				230,932				198,967
Impairment of rental assets			—				—				—				39
Share-based compensation			1,796				1,301				5,892				4,111
Adjusted EBITDA 1		$	63,690			$	57,562			$	236,824			$	203,117
Adjusted EBITDA margin 2			43	%			43	%			42	%			41	%

 

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,
		2019				2018				2019				2018
Adjusted EBITDA 1		$	63,690			$	57,562			$	236,824			$	203,117
Interest paid			(3,116	)			(3,405	)			(12,475	)			(12,598	)
Income taxes paid, net of refunds received			(7,498	)			(2,102	)			(17,528	)			(18,157	)
Gain on sale of used rental equipment			(6,141	)			(4,515	)			(21,309	)			(19,559	)
Foreign currency exchange loss			(130	)			(16	)			(84	)			489
Amortization of debt issuance cost			3				2				11				20
Change in certain assets and liabilities:
Accounts receivable, net			9,964				(5,927	)			(6,310	)			(15,144	)
Prepaid expenses and other assets			(1,796	)			844				(13,530	)			(9,351	)
Accounts payable and other liabilities			1,957				1,867				17,257				3,592
Deferred income			(5,808	)			1,517				5,138				10,258
Net cash provided by operating activities		$	51,125			$	45,827			$	187,994			$	142,667

 

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs and share-based compensation.
2. 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