LIVERMORE, Calif., July 29, 2020 (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, 2020 of $137.7 million, an increase of 8%, compared to the second quarter of 2019.  The Company reported net income of $22.5 million, or $0.92 per diluted share, for the second quarter of 2020, compared to net income of $19.5 million, or $0.79 per diluted share, for the second quarter of 2019. 

SECOND QUARTER 2020 COMPANY HIGHLIGHTS:

• Income from operations increased 12% year-over-year to $32.7 million.
• Rental revenues decreased 3% year-over-year to $85.6 million.
• Adjusted EBITDA¹ increased 11% year-over-year to $58.1 million.   
• Dividend rate increased 12% year-over-year to $0.42 per share for the second quarter of 2020.  On an annualized basis, this dividend represents a 3.0% yield on the July 28, 2020 close price of $55.36 per share.

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

“During the second quarter, we were pleased that we successfully navigated an uncertain economic environment due to the COVID-19 pandemic while delivering an Adjusted EBITDA increase of 11%.  Across the business, our teams adapted to new and challenging requirements to operate safely while serving our customers.  The teams across the Company did impressive work in the quarter and we were able to deliver solid results despite unusually challenging market conditions.

For the second quarter, rental revenue growth of 4% at Mobile Modular and 2% at TRS-RenTelco was offset by a decline at Adler of 27%, resulting in an overall 3% decrease for the Company.  We realized strong sales in the quarter at Mobile Modular and our classroom manufacturer Enviroplex, which accounted for the overall Company growth in gross profit for the quarter compared to a year ago.  Even though some customer projects were halted at the start of the quarter due to the various statewide shelter in place orders, towards the middle of the quarter many projects resumed as customer sites gradually re-opened.

Looking forward to the second half of 2020, overall business conditions appear to have stabilized compared to April, however, we still face uncertainty as the pandemic remains an issue.  While we will continue to closely monitor evolving regional conditions, we are very well positioned to provide rental solutions to our customers, which is what many are looking for in a more uncertain and capital constrained environment.  We made good progress through unprecedented economic disruption in the second quarter and we are hoping for conditions to improve slowly but steadily through the remainder of the year.”

DIVISION HIGHLIGHTS:

All comparisons presented below are for the quarter ended June 30, 2020 to the quarter ended June 30, 2019 unless otherwise indicated.

MOBILE MODULAR

For the second quarter of 2020, the Company’s Mobile Modular division reported income from operations of $20.6 million, an increase of $4.3 million, or 26%.  Rental revenues increased 4% to $46.6 million, depreciation expense increased 5% to $5.7 million and other direct costs decreased 13% to $12.4 million, which resulted in an increase in gross profit on rental revenues of 14% to $28.5 million.  The rental revenue growth came from both commercial and education markets.  Rental related services revenues decreased 9% to $14.5 million, with associated gross profit decreasing 2% to $4.1 million.  Sales revenues more than doubled to $15.3 million, primarily due to higher new equipment sales with gross margin on sales decreasing to 29% from 37%, resulting in an 81% increase in gross profit on sales revenues to $4.5 million.  Selling and administrative expenses increased 8% to $16.9 million, primarily due to higher allocated corporate expenses.

TRS-RENTELCO

For the second quarter of 2020, the Company’s TRS-RenTelco division reported income from operations of $8.3 million, a decrease of $0.4 million, or 5%.  Rental revenues increased 2% to $26.0 million, depreciation expense increased 16% to $11.8 million and other direct costs decreased 11% to $3.6 million, which resulted in a 5% decrease in gross profit on rental revenues to $10.7 million.  The rental revenue growth was due to increased demand from the general purpose test equipment customers.  Sales revenues increased 11% to $5.9 million.  Gross margin on sales was 49% in 2020 compared to 51% in 2019, resulting in a 6% increase in gross profit on sales revenues to $2.9 million.  Selling and administrative expenses decreased 4% to $5.9 million, primarily due to lower marketing and administrative expenses.

ADLER TANKS

For the second quarter of 2020, the Company’s Adler Tanks division reported income from operations of $1.7 million, a decrease of $3.1 million, or 65%.  Rental revenues decreased 27% to $13.0 million, depreciation expense was flat at $4.1 million and other direct costs decreased 35% to $2.2 million, which resulted in a 36% decrease in gross profit on rental revenues to $6.7 million.  The rental revenue decrease was primarily due to COVID-19 related business disruptions and a decrease in the price of oil and gas, which contributed to weaker activities in multiple geographic and market segments.  Rental related services revenues decreased 31% to $5.3 million, with gross profit on rental related services decreasing 33% to $1.3 million.  Selling and administrative expenses decreased 19% to $6.4 million, primarily due to decreased allocated corporate expenses, lower marketing and administrative costs and decreased salaries and employee benefit costs.

FINANCIAL OUTLOOK:

For the third quarter 2020, the Company expects:

• Total revenue: $140 million - $160 million
• Adjusted EBITDA^1,2: $54 million - $64 million
• Gross rental equipment capital expenditures: $10 million to $15 million 

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.

Information reconciling forward-looking Adjusted EBITDA to the comparable GAAP financial measures is unavailable to the Company without unreasonable effort because certain items required for such reconciliations are outside of the Company’s control and/or cannot be reasonably predicted, such as the provision for income taxes. Therefore, no reconciliation to the most comparable GAAP measures is provided. The Company provides Adjusted EBITDA guidance because it believes that Adjusted EBITDA, when viewed with the Company’s results under GAAP, provides useful information for the reasons noted in the reconciliation of actual Adjusted EBITDA to the most directly comparable GAAP measures at the end of this release.

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, 2020, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on July 29, 2020 to discuss the second quarter 2020 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 8995217.  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 about the Company being very well positioned to provide rental solutions to its customers which is what many are looking for in a more uncertain capital constrained environment and the Company hoping for conditions to improve slowly but steadily through the remainder of the year, as well as the statement regarding the third quarter of 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 duration of the COVID-19 pandemic and its economic impact, the extent and length of the shelter-in and other restrictions associated with COVID-19 pandemic, 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 solid 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, Form 10-Q 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)		2020				2019				2020				2019
Revenues
Rental		$	85,629			$	88,105			$	175,135			$	170,801
Rental related services			20,475				24,467				44,986				45,922
Rental operations			106,104				112,572				220,121				216,723
Sales			30,669				13,707				45,035				30,532
Other			900				1,160				1,970				2,192
Total revenues			137,673				127,439				267,126				249,447
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment			21,583				19,726				43,221				38,687
Rental related services			14,894				18,137				33,157				34,500
Other			18,165				21,741				37,618				41,474
Total direct costs of rental operations			54,642				59,604				113,996				114,661
Costs of sales			19,799				7,954				28,242				17,900
Total costs of revenues			74,441				67,558				142,238				132,561
Gross profit			63,232				59,881				124,888				116,886
Selling and administrative expenses			30,540				30,815				62,494				60,510
Income from operations			32,692				29,066				62,394				56,376
Other income (expense):
Interest expense			(2,184	)			(3,138	)			(4,836	)			(6,246	)
Foreign currency exchange gain (loss)			117				37				(319	)			86
Income before provision for income taxes			30,625				25,965				57,239				50,216
Provision for income taxes			8,076				6,477				14,531				12,279
Net income		$	22,549			$	19,488			$	42,708			$	37,937
Earnings per share:
Basic		$	0.93			$	0.8			$	1.76			$	1.57
Diluted		$	0.92			$	0.79			$	1.74			$	1.54
Shares used in per share calculation:
Basic			24,121				24,246				24,207				24,221
Diluted			24,471				24,579				24,612				24,561
Cash dividends declared per share		$	0.420			$	0.375			$	0.840			$	0.750

MCGRATH RENTCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

		June 30,				December 31,
(in thousands)		2020				2019
Assets
Cash		$	694			$	2,342
Accounts receivable, net of allowance for doubtful accounts of $2,200 in 2020 and $1,883 in 2019			125,940				128,099
Rental equipment, at cost:
Relocatable modular buildings			892,339				868,807
Electronic test equipment			337,987				335,343
Liquid and solid containment tanks and boxes			316,497				316,261
			1,546,823				1,520,411
Less accumulated depreciation			(577,142	)			(552,911	)
Rental equipment, net			969,681				967,500
Property, plant and equipment, net			133,610				131,047
Prepaid expenses and other assets			46,997				45,356
Intangible assets, net			7,223				7,334
Goodwill			28,197				28,197
Total assets		$	1,312,342			$	1,309,875
Liabilities and Shareholders' Equity
Liabilities:
Notes payable		$	272,149			$	293,431
Accounts payable and accrued liabilities			116,825				109,174
Deferred income			60,779				54,964
Deferred income taxes, net			218,753				218,270
Total liabilities			668,506				675,839
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,085 shares as of June 30, 2020 and 24,296 shares as of December 31, 2019			106,010				106,360
Retained earnings			537,775				527,746
Accumulated other comprehensive income (loss)			51				(70	)
Total shareholders’ equity			643,836				634,036
Total liabilities and shareholders’ equity		$	1,312,342			$	1,309,875

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

		Six Months Ended June 30,
(in thousands)		2020				2019
Cash Flows from Operating Activities:
Net income		$	42,708			$	37,937
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			47,663				43,087
Provision for doubtful accounts			833				371
Share-based compensation			3,224				2,746
Gain on sale of used rental equipment			(9,602	)			(9,168	)
Foreign currency exchange loss (gain)			319				(86	)
Amortization of debt issuance costs			5				5
Change in:
Accounts receivable			1,326				(373	)
Prepaid expenses and other assets			(1,641	)			(21,246	)
Accounts payable and accrued liabilities			6,389				18,468
Deferred income			5,815				16,909
Deferred income taxes			483				3,337
Net cash provided by operating activities			97,522				91,987
Cash Flows from Investing Activities:
Purchases of rental equipment			(57,564	)			(90,701	)
Purchases of property, plant and equipment			(6,893	)			(3,961	)
Proceeds from sales of used rental equipment			21,921				18,280
Net cash used in investing activities			(42,536	)			(76,382	)
Cash Flows from Financing Activities:
Net (repayment) borrowing under bank lines of credit			(21,288	)			3,309
Repurchase of common stock			(13,501	)			—
Taxes paid related to net share settlement of stock awards			(2,340	)			(1,563	)
Payment of dividends			(19,526	)			(17,337	)
Net cash used in financing activities			(56,655	)			(15,591	)
Effect of foreign currency exchange rate changes on cash			21				(26	)
Net decrease in cash			(1,648	)			(12	)
Cash balance, beginning of period			2,342				1,508
Cash balance, end of period		$	694			$	1,496
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period		$	5,031			$	6,210
Net income taxes paid, during the period		$	2,153			$	6,173
Dividends accrued during the period, not yet paid		$	10,255			$	9,163
Rental equipment acquisitions, not yet paid		$	6,654			$	8,930

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended June 30, 2020
(dollar amounts in thousands)		Mobile				TRS-				Adler				Enviroplex				Consolidated
		Modular				RenTelco				Tanks
Revenues
Rental		$	46,628			$	26,012			$	12,989			$	—			$	85,629
Rental related services			14,463				670				5,342				—				20,475
Rental operations			61,091				26,682				18,331				—				106,104
Sales			15,316				5,922				232				9,199				30,669
Other			355				475				70				—				900
Total revenues			76,762				33,079				18,633				9,199				137,673
Costs and Expenses
Direct costs of rental operations:
Depreciation			5,737				11,750				4,096				—				21,583
Rental related services			10,362				517				4,015				—				14,894
Other			12,376				3,562				2,227				—				18,165
Total direct costs of rental operations			28,475				15,829				10,338				—				54,642
Costs of sales			10,845				3,049				228				5,677				19,799
Total costs of revenues			39,320				18,878				10,566				5,677				74,441
Gross Profit
Rental			28,514				10,700				6,666				—				45,880
Rental related services			4,101				153				1,327				—				5,581
Rental operations			32,615				10,853				7,993				—				51,461
Sales			4,471				2,873				4				3,522				10,870
Other			356				475				70				—				901
Total gross profit			37,442				14,201				8,067				3,522				63,232
Selling and administrative expenses			16,857				5,875				6,353				1,455				30,540
Income from operations		$	20,585			$	8,326			$	1,714			$	2,067				32,692
Interest expense																			(2,184	)
Foreign currency exchange gain																			117
Provision for income taxes																			(8,076	)
Net income																		$	22,549
Other Information
Average rental equipment 1		$	822,743			$	338,919			$	314,780
Average monthly total yield 2			1.89	%			2.56	%			1.38	%
Average utilization 3			77.7	%			63.9	%			44.3	%
Average monthly rental rate 4			2.43	%			4.00	%			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.

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended June 30, 2019
(dollar amounts in thousands)		Mobile				TRS-				Adler				Enviroplex				Consolidated
		Modular				RenTelco				Tanks
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 (loss) 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)
Six months ended June 30, 2020
(dollar amounts in thousands)		Mobile				TRS-				Adler				Enviroplex				Consolidated
		Modular				RenTelco				Tanks
Revenues
Rental		$	94,038			$	53,548			$	27,549			$	—			$	175,135
Rental related services			32,607				1,496				10,883				—				44,986
Rental operations			126,645				55,044				38,432				—				220,121
Sales			22,572				11,031				730				10,702				45,035
Other			743				1,067				160				—				1,970
Total revenues			149,960				67,142				39,322				10,702				267,126
Costs and Expenses
Direct costs of rental operations:
Depreciation			11,406				23,582				8,233				—				43,221
Rental related services			23,712				1,163				8,282				—				33,157
Other			24,993				7,942				4,683				—				37,618
Total direct costs of rental operations			60,111				32,687				21,198				—				113,996
Costs of sales			15,548				5,497				548				6,649				28,242
Total costs of revenues			75,659				38,184				21,746				6,649				142,238
Gross Profit
Rental			57,638				22,024				14,633				—				94,295
Rental related services			8,895				333				2,601				—				11,829
Rental operations			66,533				22,357				17,234				—				106,124
Sales			7,024				5,534				182				4,053				16,793
Other			744				1,067				160				—				1,971
Total gross profit			74,301				28,958				17,576				4,053				124,888
Selling and administrative expenses			34,275				12,236				13,177				2,806				62,494
Income from operations		$	40,026			$	16,722			$	4,399			$	1,247				62,394
Interest expense																			(4,836	)
Foreign currency exchange loss																			(319	)
Provision for income taxes																			(14,531	)
Net income																		$	42,708
Other Information
Average rental equipment 1		$	819,212			$	338,066			$	314,823
Average monthly total yield 2			1.90	%			2.64	%			1.46	%
Average utilization 3			78.2	%			64.7	%			45.9	%
Average monthly rental rate 4			2.45	%			4.08	%			3.18	%

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				TRS-				Adler				Enviroplex				Consolidated
		Modular				RenTelco				Tanks
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.

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 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								Six Months Ended								Twelve Months Ended
		June 30,								June 30,								June 30,
		2020				2019				2020				2019				2020				2019
Net income		$	22,549			$	19,488			$	42,708			$	37,937			$	101,577			$	86,965
Provision for income taxes			8,076				6,477				14,531				12,279				34,571				27,822
Interest expense			2,184				3,138				4,836				6,246				10,921				12,552
Depreciation and amortization			23,801				21,987				47,663				43,087				94,052				84,774
EBITDA			56,610				51,090				109,738				99,549				241,121				212,113
Share-based compensation			1,501				1,354				3,224				2,746				6,370				5,029
Adjusted EBITDA 1		$	58,111			$	52,444			$	112,962			$	102,295			$	247,491			$	217,142
Adjusted EBITDA margin 2			42	%			41	%			42	%			41	%			42	%			41	%

Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities

(dollar amounts in thousands)		Three Months Ended								Six Months Ended								Twelve Months Ended
		June 30,								June 30,								June 30,
		2020				2019				2020				2019				2020				2019
Adjusted EBITDA 1		$	58,111			$	52,444			$	112,962			$	102,295			$	247,491			$	217,142
Interest paid			(2,172	)			(3,382	)			(5,031	)			(6,210	)			(11,296	)			(12,685	)
Income taxes paid, net of refunds received			(1,790	)			(5,463	)			(2,153	)			(6,173	)			(13,508	)			(12,655	)
Gain on sale of used rental equipment			(4,814	)			(4,553	)			(9,602	)			(9,168	)			(21,743	)			(18,852	)
Foreign currency exchange loss (gain)			(117	)			(37	)			319				(86	)			321				27
Amortization of debt issuance cost			2				2				5				5				11				10
Change in certain assets and liabilities:
Accounts receivable, net			(106	)			(1,615	)			2,159				(2	)			(4,149	)			(15,923	)
Prepaid expenses and other assets			(2,004	)			(9,726	)			(1,641	)			(21,246	)			6,075				(15,659	)
Accounts payable and other liabilities			5,858				9,380				(5,311	)			15,663				(3,717	)			17,171
Deferred income			(1,128	)			8,431				5,815				16,909				(5,956	)			22,313
Net cash provided by operating activities		$	51,840			$	45,481			$	97,522			$	91,987			$	193,529			$	180,889

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization 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