LIVERMORE, Calif., July 30, 2019 (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, 2019 of $127.4 million, an increase of 9%, compared to the second quarter of 2018.  The Company reported net income of $19.5 million, or $0.79 per diluted share, for the second quarter of 2019, compared to net income of $15.9 million, or $0.65 per diluted share, for the second quarter of 2018. 

SECOND QUARTER 2019 COMPANY HIGHLIGHTS:

• Income from operations increased 19% year-over-year to $29.1 million.
  
  
• Rental revenues increased 14% year-over-year to $88.1 million.
  
  
• Adjusted EBITDA¹ increased 15% year-over-year to $52.4 million.   
  
  
• Dividend rate increased 10% year-over-year to $0.375 per share for the second quarter of 2019.  On an annualized basis, this dividend represents a 2.3% yield on the July 29, 2019 close price of $64.80 per share.

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

“For the second quarter, each of our divisions continued to perform well as companywide rental revenues increased 14% and operating profit increased 19%.  Our $4.6 million operating profit growth was driven by a $6.2 million rental gross profit increase, that fully offset a $2.6 million sales gross profit decrease. We are pleased with the positive momentum in our business as we take advantage of favorable economic conditions and continue to implement our strategy of performance improvement. 

Mobile Modular rental revenues for the quarter increased 17% from a year ago, driven by improvement in average rental rates, a larger fleet and improved utilization.  Activity in each of our operating geographies was healthy in both commercial and education markets.  Portable Storage rental revenues grew by 16%.  Sales revenues decreased year over year, due primarily to project timing.

TRS-RenTelco rental revenues for the quarter increased 15%, primarily driven by higher average rental equipment and improved utilization.  Demand for both communications and general purpose test equipment has been healthy, including some increased initial activity related to 5G.

Adler Tank Rentals rental revenues for the quarter increased 6% from a year ago driven primarily by higher rental rates, partly offset by lower utilization.  Five of six industry vertical markets increased year-over-year on broad-based demand. 

The first half of the year is complete and we are pleased with the execution of our strategy.   At this time, our order backlogs and activity levels remain healthy. We enter the second half of 2019 on a positive note and upwardly revised financial outlook.  Our focus on performance improvement and prudent capital allocation continues.”

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, 2019 to the quarter ended June 30, 2018 unless otherwise indicated.

MOBILE MODULAR

For the second quarter of 2019, the Company’s Mobile Modular division reported income from operations of $16.3 million, an increase of $4.5 million, or 38%.  Rental revenues increased 17% to $44.7 million, depreciation expense increased 4% to $5.5 million and other direct costs increased 15% to $14.3 million, which resulted in an increase in gross profit on rental revenues of 22% to $25.0 million.   Rental related services revenues increased 28% to $15.9 million, with associated gross profit increasing 47% to $4.2 million.  Sales revenues decreased 25% to $6.7 million while gross margin on sales increased to 37% from 35%, resulting in a 21% decrease in gross profit on sales revenues to $2.5 million.  Selling and administrative expenses increased 5% to $15.7 million, primarily due to higher allocated corporate expenses.

TRS-RENTELCO

For the second quarter of 2019, the Company’s TRS-RenTelco division reported income from operations of $8.7 million, an increase of $0.3 million, or 3%.  Rental revenues increased 15% to $25.5 million, depreciation expense increased 15% to $10.2 million and other direct costs increased 13% to $4.0 million, which resulted in a 16% increase in gross profit on rental revenues to $11.3 million.  Sales revenues decreased 22% to $5.3 million.  Gross margin on sales decreased to 51% from 58%, resulting in a 32% decrease in gross profit on sales revenues to $2.7 million.  Selling and administrative expenses increased 3% to $6.1 million, primarily due to increased salaries and employee benefit costs.

ADLER TANKS

For the second quarter of 2019, the Company’s Adler Tanks division reported income from operations of $4.8 million, an increase of $0.8 million, or 20%.  Rental revenues increased 6% to $17.9 million, depreciation expense increased 3% to $4.1 million and other direct costs increased 26% to $3.4 million, which resulted in an increase in gross profit on rental revenues of 1% to $10.3 million.  Rental related services revenues increased 29% to $7.7 million, with gross profit on rental related services increasing 71% to $2.0 million.  Selling and administrative expenses increased 5% to $7.8 million, primarily due to increased salaries and employee benefit costs.

FINANCIAL OUTLOOK:

Based upon the Company’s year-to-date results and current outlook for the remainder of the year, the Company is raising its financial outlook and expects its 2019 total operating profit to increase 9% to 14% above 2018 results, as compared to our prior expectation of a 5% to 10% increase.

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 July 1, 2019, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on July 30, 2019 to discuss the second 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 7257099.  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 positive momentum in the business as the Company takes advantage of favorable economic conditions, increased initial activity related to 5G at TRS-RenTelco, order backlogs and activity levels remain healthy, the focus on continuing performance improvement and prudent capital allocation, 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 and capital allocation 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)	2019				2018				2019				2018
Revenues
Rental	$	88,105			$	77,267			$	170,801			$	151,528
Rental related services		24,467				19,086				45,922				36,917
Rental operations		112,572				96,353				216,723				188,445
Sales		13,707				19,546				30,532				31,637
Other		1,160				1,084				2,192				1,986
Total revenues		127,439				116,983				249,447				222,068
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment		19,726				18,103				38,687				35,880
Rental related services		18,137				15,018				34,500				28,786
Other		21,741				18,753				41,474				35,022
Total direct costs of rental operations		59,604				51,874				114,661				99,688
Costs of sales		7,954				11,181				17,900				18,282
Total costs of revenues		67,558				63,055				132,561				117,970
Gross profit		59,881				53,928				116,886				104,098
Selling and administrative expenses		30,815				29,479				60,510				57,607
Income from operations		29,066				24,449				56,376				46,491
Other income (expense):
Interest expense		(3,138	)			(2,999	)			(6,246	)			(5,991	)
Foreign currency exchange gain (loss)		37				(344	)			86				(376	)
Income before provision for income taxes		25,965				21,106				50,216				40,124
Provision for income taxes		6,477				5,194				12,279				9,746
Net income	$	19,488			$	15,912			$	37,937			$	30,378
Earnings per share:
Basic	$	0.80			$	0.66			$	1.57			$	1.26
Diluted	$	0.79			$	0.65			$	1.54			$	1.24
Shares used in per share calculation:
Basic		24,246				24,145				24,221				24,106
Diluted		24,579				24,584				24,561				24,549
Cash dividends declared per share	$	0.375			$	0.340			$	0.750			$	0.680

MCGRATH RENTCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

	June 30,				December 31,
(in thousands)	2019				2018
Assets
Cash	$	1,496			$	1,508
Accounts receivable, net of allowance for doubtful accounts of $1,883 in 2019 and 2018		121,018				121,016
Rental equipment, at cost:
Relocatable modular buildings		854,076				817,375
Electronic test equipment		307,639				285,052
Liquid and solid containment tanks and boxes		315,571				313,573
		1,477,286				1,416,000
Less accumulated depreciation		(534,134	)			(514,985	)
Rental equipment, net		943,152				901,015
Property, plant and equipment, net		126,906				126,899
Prepaid expenses and other assets		53,062				31,816
Intangible assets, net		6,807				7,254
Goodwill		27,808				27,808
Total assets	$	1,280,249			$	1,217,316
Liabilities and Shareholders' Equity
Liabilities:
Notes payable	$	301,878			$	298,564
Accounts payable and accrued liabilities		109,443				90,844
Deferred income		66,618				49,709
Deferred income taxes, net		210,001				206,664
Total liabilities		687,940				645,781
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,253 shares as of June 30, 2019 and 24,182 shares as of December 31, 2018		104,984				103,801
Retained earnings		487,407				467,783
Accumulated other comprehensive loss		(82	)			(49	)
Total shareholders’ equity		592,309				571,535
Total liabilities and shareholders’ equity	$	1,280,249			$	1,217,316

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Six Months Ended June 30,
(in thousands)	2019				2018
Cash Flows from Operating Activities:
Net income	$	37,937			$	30,378
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		43,087				40,288
Impairment of rental assets		—				39
Provision for doubtful accounts		371				181
Share-based compensation		2,746				1,828
Gain on sale of used rental equipment		(9,168	)			(9,875	)
Foreign currency exchange (gain) loss		(86	)			376
Amortization of debt issuance costs		5				15
Change in:
Accounts receivable		(373	)			596
Prepaid expenses and other assets		(21,246	)			(14,938	)
Accounts payable and accrued liabilities		18,468				(365	)
Deferred income		16,909				4,854
Deferred income taxes		3,337				388
Net cash provided by operating activities		91,987				53,765
Cash Flows from Investing Activities:
Purchases of rental equipment		(90,701	)			(58,662	)
Purchases of property, plant and equipment		(3,961	)			(6,417	)
Proceeds from sales of used rental equipment		18,280				19,212
Net cash used in investing activities		(76,382	)			(45,867	)
Cash Flows from Financing Activities:
Net borrowings under bank lines of credit		3,309				31,431
Principal payments on Series A senior notes		—				(20,000	)
Taxes paid related to net share settlement of stock awards		(1,563	)			(2,792	)
Payment of dividends		(17,337	)			(14,501	)
Net cash used in financing activities		(15,591	)			(5,862	)
Effect of foreign currency exchange rate changes on cash		(26	)			(53	)
Net increase (decrease) in cash		(12	)			1,983
Cash balance, beginning of period		1,508				2,501
Cash balance, end of period	$	1,496			$	4,484
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period	$	6,210			$	6,123
Net income taxes paid, during the period	$	6,173			$	11,675
Dividends accrued during the period, not yet paid	$	9,163			$	8,267
Rental equipment acquisitions, not yet paid	$	8,930			$	7,201

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended June 30, 2019
(dollar amounts in thousands)	Mobile Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental	$	44,737			$	25,489			$	17,879			$	—			$	88,105
Rental related services		15,901				854				7,712				—				24,467
Rental operations		60,638				26,343				25,591				—				112,572
Sales		6,725				5,317				593				1,072				13,707
Other		359				650				151				—				1,160
Total revenues		67,722				32,310				26,335				1,072				127,439
Costs and Expenses
Direct costs of rental operations:
Depreciation		5,469				10,164				4,093				—				19,726
Rental related services		11,728				686				5,723				—				18,137
Other		14,282				4,018				3,441				—				21,741
Total direct costs of rental operations		31,479				14,868				13,257				—				59,604
Costs of  sales		4,257				2,617				415				665				7,954
Total costs of revenues		35,736				17,485				13,672				665				67,558
Gross Profit
Rental		24,986				11,307				10,345				—				46,638
Rental related services		4,173				168				1,989				—				6,330
Rental operations		29,159				11,475				12,334				—				52,968
Sales		2,468				2,700				178				407				5,753
Other		359				650				151				—				1,160
Total gross profit		31,986				14,825				12,663				407				59,881
Selling and administrative expenses		15,677				6,093				7,814				1,231				30,815
Income from operations	$	16,309			$	8,732			$	4,849			$	(824	)			29,066
Interest expense																		(3,138	)
Foreign currency exchange gain																		37
Provision for income taxes																		(6,477	)
Net income																	$	19,488
Other Information
Average rental equipment 1	$	786,512			$	297,379			$	313,552
Average monthly total yield 2		1.90	%			2.86	%			1.90	%
Average utilization 3		79.2	%			67.2	%			57.5	%
Average monthly rental rate 4		2.39	%			4.25	%			3.31	%

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, 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)
Six months ended June 30, 2019
(dollar amounts in thousands)	Mobile Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental	$	86,998			$	49,112			$	34,691			$	—			$	170,801
Rental related services		30,372				1,562				13,988				—				45,922
Rental operations		117,370				50,674				48,679				—				216,723
Sales		14,725				11,067				863				3,877				30,532
Other		719				1,245				228				—				2,192
Total revenues		132,814				62,986				49,770				3,877				249,447
Costs and Expenses
Direct costs of rental operations:
Depreciation		10,877				19,684				8,126				—				38,687
Rental related services		22,655				1,313				10,532				—				34,500
Other		26,917				8,118				6,439				—				41,474
Total direct costs of rental operations		60,449				29,115				25,097				—				114,661
Costs of  sales		9,500				5,379				587				2,434				17,900
Total costs of revenues		69,949				34,494				25,684				2,434				132,561
Gross Profit
Rental		49,204				21,310				20,126				—				90,640
Rental related services		7,717				249				3,456				—				11,422
Rental operations		56,921				21,559				23,582				—				102,062
Sales		5,225				5,688				276				1,443				12,632
Other		719				1,245				228				—				2,192
Total gross profit		62,865				28,492				24,086				1,443				116,886
Selling and administrative expenses		31,047				12,063				14,894				2,506				60,510
Income (loss) from operations	$	31,818			$	16,429			$	9,192			$	(1,063	)			56,376
Interest expense																		(6,246	)
Foreign currency exchange gain																		86
Provision for income taxes																		(12,279	)
Net income																	$	37,937
Other Information
Average rental equipment 1	$	782,562			$	291,590			$	313,032
Average monthly total yield 2		1.85	%			2.81	%			1.85	%
Average utilization 3		79.1	%			65.7	%			57.1	%
Average monthly rental rate 4		2.34	%			4.27	%			3.23	%

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 gain																		(376	)
Provision for income taxes																		(9,746	)
Net income																	$	30,378
Other Information
Average rental equipment 1	$	747,614			$	269,455			$	308,171
Average monthly total yield 2		1.68	%			2.70	%			1.76	%
Average utilization 3		77.3	%			62.8	%			56.8	%
Average monthly rental rate 4		2.17	%			4.30	%			3.10	%

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,
	2019				2018				2019				2018				2019				2018
Net income	$	19,488			$	15,912			$	37,937			$	30,378			$	86,965			$	164,864
Provision (benefit) for income taxes		6,477				5,194				12,279				9,746				27,822				(73,455	)
Interest expense		3,138				2,999				6,246				5,991				12,552				11,875
Depreciation and amortization		21,987				20,360				43,087				40,288				84,774				79,952
EBITDA		51,090				44,465				99,549				86,403				212,113				183,236
Impairment of rental assets		—				—				—				39				—				1,678
Share-based compensation		1,354				964				2,746				1,828				5,029				3,488
Adjusted EBITDA 1	$	52,444			$	45,429			$	102,295			$	88,270			$	217,142			$	188,402
Adjusted EBITDA margin 2		41	%			39	%			41	%			40	%			41	%			39	%

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,
	2019				2018				2019				2018				2019				2018
Adjusted EBITDA 1	$	52,444			$	45,429			$	102,295			$	88,270			$	217,142			$	188,402
Interest paid		(3,382	)			(3,586	)			(6,210	)			(6,123	)			(12,685	)			(12,131	)
Income taxes paid, net of refunds received		(5,463	)			(10,103	)			(6,173	)			(11,675	)			(12,655	)			(23,038	)
Gain on sale of used rental equipment		(4,553	)			(6,027	)			(9,168	)			(9,875	)			(18,852	)			(19,694	)
Foreign currency exchange (gain) loss		(37	)			344				(86	)			376				27				279
Amortization of debt issuance cost		2				2				5				15				10				40
Change in certain assets and liabilities:
Accounts receivable, net		(1,615	)			(7,003	)			(2	)			777				(15,923	)			(8,556	)
Prepaid expenses and other assets		(9,726	)			(11,635	)			(21,246	)			(14,938	)			(15,659	)			(2,975	)
Accounts payable and other liabilities		9,380				9,621				15,663				2,084				17,171				2,905
Deferred income		8,431				5,571				16,909				4,854				22,313				1,540
Net cash provided by operating activities	$	45,481			$	22,613			$	91,987			$	53,765			$	180,889			$	126,772

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