LIVERMORE, Calif., July 31, 2018 (GLOBE NEWSWIRE) -- McGrath RentCorp (NASDAQ: MGRC) (the “Company”), a diversified business-to-business rental company, today announced total revenues for the quarter ended June 30, 2018 of $117.0 million, an increase of 7%, compared to the second quarter of 2017.  The Company reported net income of $15.9 million, or $0.65 per diluted share for the second quarter of 2018, compared to net income of $11.5 million, or $0.48 per diluted share, in the second quarter of 2017. 

SECOND QUARTER 2018 COMPANY HIGHLIGHTS:

• Income from operations increased 12% year-over-year to $24.4 million.
• Rental revenues increased 10% year-over-year to $77.3 million.
• Adjusted EBITDA¹ increased 8% year-over-year to $45.4 million.   
• Dividend rate increased 31% year-over-year to $0.34 per share for the second quarter of 2018.  On an annualized basis, this dividend represents a 2.3% yield on the July 30, 2018 close price of $58.19 per share.

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

“Our second quarter results reflect continued positive momentum in all of our divisions as we finished the quarter with a 12% improvement in operating profit.  Rental gross profits improved by $3.7 million and sales gross profits improved $1.0 million.  We were pleased to see that second quarter demand for our rental solutions was strong, contributing to solid results for the first half of 2018, and setting the stage for the remainder of the year.

Mobile Modular rental revenues for the quarter increased 9% from a year ago, driven by 8% improvement in average rental rates and 1% improvement in average utilization.  Rental revenue growth continued to be healthy across commercial and education markets.  Despite a dip in sales this quarter, sales bookings are healthy and reflect continued strong demand.  Portable Storage rental revenues continue to grow nicely on broad based activity in all regions. 

TRS-RenTelco rental revenues for the quarter increased 12%, primarily driven by 11% higher average rental equipment and improved utilization.  We continued to see broad-based needs for both communications and general purpose test equipment and we expect this trend to continue for the remainder of the year.

Adler Tank Rentals rental revenues for the quarter increased 12% from a year ago.  Rental revenue growth occurred across a wide mix of vertical markets across the country, including upstream oil and natural gas, which increased from 9% to 10% of total rental revenues. Utilization continues to progress as average equipment on rent increased 9%.  Rental rates also rose by 2% as we focused on increasing rental rates coupled with better demand, particularly for 21K tanks.

With the benefit of an overall healthy demand environment, these results reflect our continued commitment to drive value from our invested capital base.  Each of our divisions has been executing this important work with conviction and we have made good progress.”   

________________________

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 June 30, 2018 to the quarter ended June 30, 2017 unless otherwise indicated.

MOBILE MODULAR

For the second quarter of 2018, the Company’s Mobile Modular division reported income from operations of $11.8 million, an increase of $0.5 million, or 4%.  Rental revenues increased 9% to $38.2 million, depreciation expense decreased 1% to $5.3 million and other direct costs increased 22% to $12.5 million, which resulted in an increase in gross profit on rental revenues of 5% to $20.5 million.  Rental related services revenues increased 4% to $12.4 million, with associated gross profit decreasing 7% to $2.8 million.  Sales revenues decreased 6% to $9.0 million.  Gross margin on sales increased to 35% from 26% in 2017 primarily due to higher margins on used equipment sales, resulting in a 24% increase in gross profit on sales revenues to $3.1 million.  Selling and administrative expenses increased 8% to $14.9 million, primarily due to increased salaries and employee benefit costs.

TRS-RENTELCO

For the second quarter of 2018, the Company’s TRS-RenTelco division reported income from operations of $8.5 million, an increase of $1.3 million, or 19%.  Rental revenues increased 12% to $22.2 million, depreciation expense increased 11% to $8.9 million and other direct costs increased 9% to $3.6 million, which resulted in an increase in gross profit on rental revenues of 14% to $9.7 million.  Sales revenues increased 22% to $6.8 million.  Gross margin on sales decreased to 58% from 61% in 2017 primarily due to lower margins on used equipment sales, resulting in a 15% increase in gross profit on sales revenues to $4.0 million.  Selling and administrative expenses increased 11% to $5.9 million, primarily due to higher allocated corporate expenses.

ADLER TANKS

For the second quarter of 2018, the Company’s Adler Tanks division reported income from operations of $4.1 million, an increase of $1.0 million, or 34%.  Rental revenues increased 12% to $16.9 million, depreciation expense increased 1% to $4.0 million and other direct costs increased 8% to $2.7 million, which resulted in an increase in gross profit on rental revenues of 18% to $10.2 million.  Rental related services revenues decreased 3% to $6.0 million, with gross profit on rental related services decreasing 20% to $1.2 million.  Selling and administrative expenses increased 3% to $7.5 million primarily, due to higher allocated corporate expenses.

FINANCIAL OUTLOOK:

The Company reconfirms its expectation that total Company operating profit will increase 11% to 15% above 2017 results.

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.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 July 2, 2018, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on July 31, 2018 to discuss the second 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 2476588.  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 comment that the second quarter demand for the Company’s rental solutions have established a good foundation for the remainder of 2018, mobile modular sales bookings are healthy and reflect continued strong demand and that the Company expects broad-based needs for communications and general purpose test equipment for the remainder of the year, as well as 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; 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 June 30,								Six Months Ended June 30,
(in thousands, except per share amounts)		2018				2017				2018				2017
Revenues
Rental		$	77,267			$	69,953			$	151,528			$	137,931
Rental related services			19,086				18,796				36,917				36,731
Rental operations			96,353				88,749				188,445				174,662
Sales			19,546				20,187				31,637				28,482
Other			1,084				646				1,986				1,275
Total revenues			116,983				109,582				222,068				204,419
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment			18,103				17,242				35,880				34,621
Rental related services			15,018				14,312				28,786				28,145
Other			18,753				16,039				35,022				31,398
Total direct costs of rental operations			51,874				47,593				99,688				94,164
Costs of sales			11,181				12,778				18,282				17,374
Total costs of revenues			63,055				60,371				117,970				111,538
Gross profit			53,928				49,211				104,098				92,881
Selling and administrative expenses			29,479				27,365				57,607				55,213
Income from operations			24,449				21,846				46,491				37,668
Other income (expense):
Interest expense			(2,999	)			(2,949	)			(5,991	)			(5,738	)
Foreign currency exchange gain (loss)			(344	)			11				(376	)			237
Income before provision for income taxes			21,106				18,908				40,124				32,167
Provision for income taxes			5,194				7,447				9,746				12,733
Net income		$	15,912			$	11,461			$	30,378			$	19,434
Earnings per share:
Basic		$	0.66			$	0.48			$	1.26			$	0.81
Diluted		$	0.65			$	0.48			$	1.24			$	0.80
Shares used in per share calculation:
Basic			24,145				23,985				24,106				23,968
Diluted			24,584				24,092				24,549				24,164
Cash dividends declared per share		$	0.340			$	0.260			$	0.680			$	0.520

MCGRATH RENTCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

		June 30,				December 31,
(in thousands)		2018				2017
Assets
Cash		$	4,484			$	2,501
Accounts receivable, net of allowance for doubtful accounts of $1,883 in 2018 and $1,920 in 2017			105,095				105,872
Rental equipment, at cost:
Relocatable modular buildings			789,158				775,400
Electronic test equipment			278,253				262,325
Liquid and solid containment tanks and boxes			312,168				309,808
			1,379,579				1,347,533
Less accumulated depreciation			(503,057	)			(485,213	)
Rental equipment, net			876,522				862,320
Property, plant and equipment, net			121,614				119,170
Prepaid expenses and other assets			37,397				22,459
Intangible assets, net			7,289				7,724
Goodwill			27,808				27,808
Total assets		$	1,180,209			$	1,147,854
Liabilities and Shareholders' Equity
Liabilities:
Notes payable		$	314,860			$	303,414
Accounts payable and accrued liabilities			89,064				86,408
Deferred income			44,073				39,219
Deferred income taxes, net			195,017				194,629
Total liabilities			643,014				623,670
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,170 shares as of June 30, 2018 and 24,052 shares as of December 31, 2017			101,983				102,947
Retained earnings			435,279				421,405
Accumulated other comprehensive loss			(67	)			(168	)
Total shareholders’ equity			537,195				524,184
Total liabilities and shareholders’ equity		$	1,180,209			$	1,147,854

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

		Six Months Ended June 30,
(in thousands)		2018				2017
Cash Flows from Operating Activities:
Net income		$	30,378			$	19,434
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			40,288				38,752
Impairment of rental assets			39				—
Provision for doubtful accounts			181				597
Share-based compensation			1,828				1,538
Gain on sale of used rental equipment			(9,875	)			(7,914	)
Foreign currency exchange (gain) loss			376				(237	)
Amortization of debt issuance costs			15				25
Change in:
Accounts receivable			596				(259	)
Prepaid expenses and other assets			(14,938	)			(8,839	)
Accounts payable and accrued liabilities			(365	)			680
Deferred income			4,854				5,034
Deferred income taxes			388				587
Net cash provided by operating activities			53,765				49,398
Cash Flows from Investing Activities:
Purchases of rental equipment			(58,662	)			(46,118	)
Purchases of property, plant and equipment			(6,417	)			(9,623	)
Proceeds from sales of used rental equipment			19,212				16,057
Net cash used in investing activities			(45,867	)			(39,684	)
Cash Flows from Financing Activities:
Net borrowings under bank lines of credit			31,431				23,996
Principal payments on Series A senior notes			(20,000	)			(20,000	)
Taxes paid related to net share settlement of stock awards			(2,792	)			(319	)
Payment of dividends			(14,501	)			(12,390	)
Net cash used in financing activities			(5,862	)			(8,713	)
Effect of foreign currency exchange rate changes on cash			(53	)			18
Net increase in cash			1,983				1,019
Cash balance, beginning of period			2,501				852
Cash balance, end of period		$	4,484			$	1,871
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period		$	6,123			$	5,817
Net income taxes paid, during the period		$	11,675			$	18,141
Dividends accrued during the period, not yet paid		$	8,267			$	6,214
Rental equipment acquisitions, not yet paid		$	7,201			$	6,359

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended June 30, 2018
(dollar amounts in thousands)		Mobile  Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	38,204			$	22,165			$	16,898			$	—			$	77,267
Rental related services			12,388				707				5,991				—				19,086
Rental operations			50,592				22,872				22,889				—				96,353
Sales			8,961				6,844				30				3,711				19,546
Other			318				636				130				—				1,084
Total revenues			59,871				30,352				23,049				3,711				116,983
Costs and Expenses
Direct costs of rental operations:
Depreciation			5,273				8,866				3,964				—				18,103
Rental related services			9,555				638				4,825				—				15,018
Other			12,467				3,563				2,723				—				18,753
Total direct costs of rental operations			27,295				13,067				11,512				—				51,874
Costs of sales			5,847				2,891				21				2,422				11,181
Total costs of revenues			33,142				15,958				11,533				2,422				63,055
Gross Profit
Rental			20,463				9,736				10,212				—				40,411
Rental related services			2,833				69				1,166				—				4,068
Rental operations			23,296				9,805				11,378				—				44,479
Sales			3,115				3,953				8				1,289				8,365
Other			318				636				130				—				1,084
Total gross profit			26,729				14,394				11,516				1,289				53,928
Selling and administrative expenses			14,918				5,942				7,460				1,159				29,479
Income from operations		$	11,811			$	8,452			$	4,056			$	130				24,449
Interest expense																			(2,999	)
Foreign currency exchange loss																			(344	)
Provision for income taxes																			(5,194	)
Net income																		$	15,912
Other Information
Average rental equipment 1		$	748,689			$	274,317			$	309,853
Average monthly total yield 2			1.70	%			2.69	%			1.82	%
Average utilization 3			77.1	%			63.2	%			59.1	%
Average monthly rental rate 4			2.21	%			4.26	%			3.08	%

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 June 30, 2017
(dollar amounts in thousands)		Mobile  Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	35,030			$	19,805			$	15,118			$	—			$	69,953
Rental related services			11,966				654				6,176				—				18,796
Rental operations			46,996				20,459				21,294				—				88,749
Sales			9,504				5,605				926				4,152				20,187
Other			138				475				33				—				646
Total revenues			56,638				26,539				22,253				4,152				109,582
Costs and Expenses
Direct costs of rental operations:
Depreciation			5,333				7,980				3,929				—				17,242
Rental related services			8,930				657				4,725				—				14,312
Other			10,247				3,272				2,520				—				16,039
Total direct costs of rental operations			24,510				11,909				11,174				—				47,593
Costs of sales			6,994				2,176				802				2,806				12,778
Total costs of revenues			31,504				14,085				11,976				2,806				60,371
Gross Profit (Loss)
Rental			19,451				8,553				8,669				—				36,673
Rental related services			3,036				(3	)			1,450				—				4,483
Rental operations			22,487				8,550				10,119				—				41,156
Sales			2,509				3,429				125				1,346				7,409
Other			138				475				33				—				646
Total gross profit			25,134				12,454				10,277				1,346				49,211
Selling and administrative expenses			13,817				5,330				7,261				957				27,365
Income from operations		$	11,317			$	7,124			$	3,016			$	389				21,846
Interest expense																			(2,949	)
Foreign currency exchange gain																			11
Provision for income taxes																			(7,447	)
Net income																		$	11,461
Other Information
Average rental equipment 1		$	746,358			$	248,117			$	307,263
Average monthly total yield 2			1.56	%			2.66	%			1.64	%
Average utilization 3			76.5	%			62.4	%			54.4	%
Average monthly rental rate 4			2.05	%			4.27	%			3.01	%

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)
Six months ended June 30, 2018
(dollar amounts in thousands)		Mobile  Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	75,231			$	43,694			$	32,603			$	—			$	151,528
Rental related services			24,322				1,514				11,081				—				36,917
Rental operations			99,553				45,208				43,684				—				188,445
Sales			13,554				12,019				335				5,729				31,637
Other			615				1,163				208				—				1,986
Total revenues			113,722				58,390				44,227				5,729				222,068
Costs and Expenses
Direct costs of rental operations:
Depreciation			10,521				17,443				7,916				—				35,880
Rental related services			18,574				1,259				8,953				—				28,786
Other			22,798				7,067				5,157				—				35,022
Total direct costs of rental operations			51,893				25,769				22,026				—				99,688
Costs of sales			8,779				5,379				289				3,835				18,282
Total costs of revenues			60,672				31,148				22,315				3,835				117,970
Gross Profit
Rental			41,911				19,184				19,531				—				80,626
Rental related services			5,748				255				2,128				—				8,131
Rental operations			47,659				19,439				21,659				—				88,757
Sales			4,776				6,640				45				1,894				13,355
Other			615				1,163				208				—				1,986
Total gross profit			53,050				27,242				21,912				1,894				104,098
Selling and administrative expenses			28,930				11,560				14,658				2,459				57,607
Income (loss) from operations		$	24,120			$	15,682			$	7,254			$	(565	)			46,491
Interest expense																			(5,991	)
Foreign currency exchange loss																			(376	)
Provision for income taxes																			(9,746	)
Net income																		$	30,378
Other Information
Average rental equipment 1		$	747,614			$	269,455			$	309,411
Average monthly total yield 2			1.68	%			2.70	%			1.76	%
Average utilization 3			77.3	%			62.8	%			58.5	%
Average monthly rental rate 4			2.17	%			4.30	%			3.00	%

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)
Six months ended June 30, 2017
(dollar amounts in thousands)		Mobile  Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	68,684			$	39,551			$	29,696			$	—			$	137,931
Rental related services			23,554				1,312				11,865				—				36,731
Rental operations			92,238				40,863				41,561				—				174,662
Sales			12,468				9,988				1,115				4,911				28,482
Other			235				1,002				38				—				1,275
Total revenues			104,941				51,853				42,714				4,147				203,655
Costs and Expenses
Direct costs of rental operations:
Depreciation			10,666				16,071				7,884				—				34,621
Rental related services			17,727				1,254				9,164				—				28,145
Other			19,894				6,605				4,899				—				31,398
Total direct costs of rental operations			48,287				23,930				21,947				—				94,164
Costs of sales			9,076				4,076				935				3,287				17,374
Total costs of revenues			57,363				28,006				22,882				3,287				111,538
Gross Profit
Rental			38,125				16,875				16,913				—				71,913
Rental related services			5,827				58				2,700				—				8,585
Rental operations			43,952				16,933				19,613				—				80,498
Sales			3,391				5,912				181				1,624				11,108
Other			235				1,002				38				—				1,275
Total gross profit			47,578				23,847				19,832				1,624				92,881
Selling and administrative expenses			27,617				11,019				14,528				2,049				55,213
Income (loss) from operations		$	19,961			$	12,828			$	5,304			$	(425	)			37,668
Interest expense																			(5,738	)
Foreign currency exchange gain																			237
Provision for income taxes																			(12,733	)
Net income																		$	19,434
Other Information
Average rental equipment 1		$	745,508			$	247,099			$	307,048
Average monthly total yield 2			1.54	%			2.67	%			1.61	%
Average utilization 3			76.7	%			62.3	%			53.4	%
Average monthly rental rate 4			2.00	%			4.28	%			3.02	%

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  June 30,								Six Months Ended  June 30,								Twelve Months Ended  June 30,
	2018				2017				2018				2017				2018				2017
Net income	$	15,912			$	11,461			$	30,378			$	19,434			$	164,864			$	42,040
Provision (benefit) for income taxes		5,194				7,447				9,746				12,733				(73,455	)			31,199
Interest		2,999				2,949				5,991				5,738				11,875				11,399
Depreciation and amortization		20,360				19,348				40,288				38,752				79,952				78,514
EBITDA		44,465				41,205				86,403				76,657				183,236				163,152
Impairment of rental assets		—				—				39				—				1,678				—
Share-based compensation		964				732				1,828				1,538				3,488				3,043
Adjusted EBITDA 1	$	45,429			$	41,937			$	88,270			$	78,195			$	188,402			$	166,195
Adjusted EBITDA margin 2		39	%			38	%			40	%			38	%			39	%			38	%

Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities

(dollar amounts in thousands)	Three Months Ended  June 30,								Six Months Ended  June 30,								Twelve Months Ended  June 30,
	2018				2017				2018				2017				2018				2017
Adjusted EBITDA 1	$	45,429			$	41,937			$	88,270			$	78,195			$	188,402			$	166,195
Interest paid		(3,586	)			(3,397	)			(6,123	)			(5,817	)			(12,131	)			(11,607	)
Income taxes paid, net of refunds received		(10,103	)			(12,576	)			(11,675	)			(18,141	)			(23,038	)			(28,017	)
Gain on sale of used rental equipment		(6,027	)			(4,971	)			(9,875	)			(7,914	)			(19,694	)			(15,371	)
Foreign currency exchange loss (gain)		344				(11	)			376				(237	)			279				(42	)
Amortization of debt financing cost		2				12				15				25				40				51
Change in certain assets and liabilities:
Accounts receivable, net		(7,003	)			(3,987	)			777				338				(8,556	)			(925	)
Prepaid expenses and other assets		(11,635	)			(7,303	)			(14,938	)			(8,839	)			(2,975	)			(4,027	)
Accounts payable and other liabilities		9,621				11,218				2,084				6,754				2,905				7,943
Deferred income		5,571				2,646				4,854				5,034				1,540				3,509
Net cash provided by operating activities	$	22,613			$	23,568			$	53,765			$	49,398			$	126,772			$	117,709

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