McGrath RentCorp Announces Results for Third Quarter 2008
McGrath RentCorp (NASDAQ:MGRC) today announced revenues for the quarter ended September 30, 2008, of $86.3 million, an increase of 7%, compared to $80.8 million in the third quarter 2007. The Company reported net income for the third quarter 2008 of $11.6 million, or $0.48 per diluted share, compared to net income of $11.9 million, or $0.46 per diluted share, in the third quarter 2007.
For the third quarter of 2008, the Company's Mobile Modular division reported a 1% increase in rental revenues to $26.1 million from $25.9 million in the third quarter 2007, with gross profit on rental revenues decreasing 5% to $15.7 million from $16.6 million in the third quarter 2007. Sales revenues decreased 4% from $13.3 million in the third quarter 2007 to $12.8 million, and gross profit on sales decreased 3% to $2.9 million in the third quarter 2008. Total gross profit decreased 8% from $23.0 million in the third quarter 2007 to $21.2 million in the third quarter 2008. Selling and administrative expenses increased $0.6 million to $7.7 million in the third quarter 2008. As a result, Mobile Modular's pre-tax income decreased 15% from $14.0 million to $11.8 million in the third quarter 2008.
For the third quarter of 2008, the Company's TRS-RenTelco division reported a 10% increase in rental revenues to $23.9 million from $21.7 million in the third quarter of 2007, with gross profit on rental revenues increasing 8% to $9.6 million from $8.9 million in the third quarter 2007. Sales revenues increased 73% from $3.7 million to $6.4 million in the third quarter 2008, with gross profit on sales increasing $1.7 million to $3.0 million from $1.3 million in the third quarter 2007. Total gross profit increased 22% from $10.7 million in the third quarter 2007 to $13.1 million in the third quarter 2008. Selling and administrative expenses increased $1.4 million to $6.3 million in the third quarter 2008. As a result, TRS-RenTelco's pre-tax income increased 20% from $4.9 million to $5.9 million in the third quarter 2008.
Dennis Kakures, President and CEO of McGrath RentCorp, made the following comments regarding these results:
"Although sound overall, our third quarter numbers reflect mixed results with continued favorable rental revenue growth in our electronics business, and various market challenges in our modulars division.
TRS-RenTelco had a solid third quarter with a 10% increase in rental revenues over last year's results. We continued to see favorable market conditions across a fairly broad base of customer segments, including communications network, aerospace and defense applications, and semiconductor and consumer electronics product development and manufacturing. Divisional pre-tax profit increasing approximately 20% for the quarter from a year ago reflects both higher rental and sale activity, offset by increased SG&A expenses, chiefly for personnel to support the organic launch of our new environmental test equipment business.
Mobile Modular's 1% increase in rental revenues over the third quarter of last year reflects growth in our Florida and Texas markets, offset by challenging commercial and educational markets in California. Divisional pre-tax profit decreasing approximately 15% for the quarter over last year was chiefly due to significantly lower residential construction business levels, a more competitive educational rental environment in California, lower rental related services activity, and increased SG&A expenses, mainly for personnel to support our modular expansion into North Carolina and Georgia.
The challenging overall business conditions have caused us to lower the profit forecast for our modular business in the fourth quarter. As a result we are revising our full year guidance to $1.70 to $1.75 per diluted share.
Looking ahead, while we have not yet completed our detailed plans for 2009 we currently expect the slowing economy will make it difficult for our existing operations to achieve growth in earnings per share next year. We believe that our rental divisions have solid market positions, generate significant cash flows and will weather an economic slowdown better than many businesses. In addition, we are continuing to invest in our strategic initiatives to add to our long-term growth opportunity."
THIRD QUARTER 2008 HIGHLIGHTS (AS COMPARED TO THIRD QUARTER 2007)
-- Rental revenues increased 5% to $50.0 million. Within rental revenues, Mobile Modular increased 1% from $25.9 million to $26.1 million; TRS-RenTelco increased 10% from $21.7 million to $23.9 million.
-- Sales revenues increased 17% to $26.3 million, resulting from higher sales volume in TRS-RenTelco and Enviroplex, partly offset by lower sales volume in Mobile Modular. The higher sales volume and higher gross margin percentage of 30.5% compared with 26.7% in 2007, resulted in a gross profit increase of $2.0 million. Sales revenues and related gross margins can fluctuate from quarter to quarter depending on customer requirements, equipment availability and funding.
-- Depreciation of rental equipment increased 9% to $14.6 million, with Mobile Modular increasing 6% to $3.4 million from $3.2 million in 2007, and TRS-RenTelco increasing 11% to $11.3 million from $10.2 million in 2007.
-- Debt decreased $12.4 million during the quarter to $222.3 million, with the Company's funded debt (notes payable) to equity ratio decreasing from 1.00 to 1 at June 30, 2008 to 0.91 to 1 as of September 30, 2008. As of September 30, 2008, the Company had capacity to borrow an additional $168.7 million under its lines of credit.
-- Dividend rate increased 11% to $0.20 per share for the third quarter 2008, as compared to $0.18 per share for the third quarter of 2007. On an annualized basis, this dividend represents a 3.5% yield on the November 5, 2008 close price of $22.88.
-- Adjusted EBITDA increased 2% to $37.9 million for the third quarter of 2008 compared to $37.2 million for the third quarter of 2007. At September 30, 2008, the Company's ratio of funded debt to the last twelve months Adjusted EBITDA was 1.54 compared to 1.63 at June 30, 2008. Adjusted EBITDA is defined as net income before minority interest in income of subsidiary, interest expense, provision for income taxes, depreciation, amortization and other non-cash stock-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.
You should read this press release in conjunction with the financial statements and notes thereto included in the Company's latest Form 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 Form 10-K, 10-Q and other SEC filings.
FINANCIAL GUIDANCE
The Company is revising its previous full-year 2008 earnings guidance range of $1.72 to $1.82 to an updated range of $1.70 to $1.75 per diluted share. Such a forward-looking statement reflects McGrath RentCorp's expectations as of November 6, 2008. Actual 2008 full-year earnings per share results may be materially different and affected by many factors, including those factors outlined in the "forward-looking statements" paragraph at the end of this press release.
About McGrath RentCorp
Founded in 1979, McGrath RentCorp is a diversified rental company. Under the trade name Mobile Modular Management Corporation (Mobile Modular), it rents and sells modular buildings to fulfill customers' temporary and permanent classroom and office space needs in California, Texas, Florida, North Carolina and Georgia. In 2008, under the Mobile Modular Portable Storage trade name, the Company entered the portable storage rental business in Northern California. The Company's TRS-RenTelco division rents and sells electronic test equipment and is one of the leading rental providers of general purpose and communications test equipment in the Americas. In 2008, under the trade name TRS-Environmental, the Company entered the environmental test equipment rental business serving the Americas.
CONFERENCE CALL NOTE: As previously announced in its press release of October 8, 2008, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on November 6, 2008 to discuss the third quarter 2008 results. To participate in the teleconference, dial 1-800-257-7063 (in the U.S.), or 1-303-262-2161 (outside the US), or visit the investor relations section of the Company's website at www.mgrc.com. Telephone replay of the call will be available for 48 hours following the call by dialing 1-800-405-2236 (in the U.S.), or 1-303-590-3000 (outside the U.S.). The pass code for the call replay is 11120726.
This press release contains statements, which constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to a number of risks and uncertainties. These statements appear in a number of places. Such statements can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "estimates", "will", "should", "plans" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. These forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties. Actual results may vary materially from those in the forward-looking statements as a result of various factors. Important factors that could cause actual results to differ materially from the Company's expectations are disclosed under "Risk Factors" and elsewhere in the Company's 10-K, 10-Q and other SEC filings, including the following: the effectiveness of management's strategies and decisions, general economic, stock market and business conditions, including in the states and countries where we sell or rent our products; continuing demand for our products; hiring, retention and motivation of key personnel; failure by third parties to manufacture our products in a timely manner and to our specifications; our ability to successfully implement information system upgrades; our ability to finance expansion and to locate and consummate acquisitions; fluctuations in interest rates and the Company's ability to manage credit risk; our ability to effectively manage our rental assets; the risk that we may be subject to litigation and claims from employees, vendors and other third parties; fluctuations in the Company's effective tax rate; changes in financial accounting standards; our failure to comply with internal control requirements; catastrophic loss to our facilities; state funding for education; new or modified statutory or regulatory requirements; success of the Company's strategic growth initiatives; risks associated with doing business with government entities; seasonality of our educational and electronics business; intense industry competition; our ability to timely deliver, install and redeploy our modular products; significant increases in raw materials, labor, and other costs; and risks associated with operating internationally. There may be other factors not listed above that could cause actual results to vary materially from the forward-looking statements described in this press release. The Company assumes no obligation to update any forward-looking statements contained in this press release as a result of new information, future events, or developments.
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Nine Months
Ended Ended
September 30, September 30,
(in thousands, except per share amounts) 2008 2007 2008 2007
REVENUES
Rental $ 50,023 $ 47,659 $ 147,105 $ 135,962
Rental Related Services 9,354 9,968 24,186 25,988
Rental Operations 59,377 57,627 171,291 161,950
Sales 26,344 22,503 52,518 45,070
Other 594 621 1,874 1,931
Total Revenues 86,315 80,751 225,683 208,951
COSTS AND EXPENSES
Direct Costs of Rental Operations
Depreciation of Rental Equipment 14,648 13,427 42,110 38,176
Rental Related Services 6,805 6,660 17,556 17,919
Other 10,110 8,772 27,791 25,366
Total Direct Costs of Rental Operations 31,563 28,859 87,457 81,461
Costs of Sales 18,298 16,501 35,763 32,230
Total Costs of Revenues 49,861 45,360 123,220 113,691
Gross Profit 36,454 35,391 102,463 95,260
Selling and Administrative Expenses 14,903 13,108 42,677 37,363
Income from Operations 21,551 22,283 59,786 57,897
Interest Expense 2,525 2,662 7,283 8,115
Income Before Provision for Income Taxes 19,026 19,621 52,503 49,782
Provision for Income Taxes 7,458 7,652 20,581 19,415
Income Before Minority Interest 11,568 11,969 31,922 30,367
Minority Interest in Income of Subsidiary -- 92 -- 77
Net Income $ 11,568 $ 11,877 $ 31,922 $ 30,290
Earnings Per Share:
Basic $ 0.49 $ 0.47 $ 1.34 $ 1.20
Diluted $ 0.48 $ 0.46 $ 1.33 $ 1.19
Shares Used in Per Share Calculation:
Basic 23,663 25,342 23,761 25,230
Diluted 23,996 25,607 23,997 25,482
Cash Dividends Declared Per Share $ 0.20 $ 0.18 $ 0.60 $ 0.54
MCGRATH RENTCORP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
(in thousands) 2008 2007
ASSETS
Cash $ 410 $ 5,090
Accounts Receivable, net of allowance for doubtful accounts of 75,917 67,061
$1,100 in 2008 and $1,400 in 2007
Rental Equipment, at cost:
Relocatable Modular Buildings 498,164 475,077
Electronic Test Equipment 262,853 232,349
761,017 707,426
Less Accumulated Depreciation (248,876 ) (221,412 )
Rental Equipment, net 512,141 486,014
Property, Plant and Equipment, net 77,168 66,480
Prepaid Expenses and Other Assets 21,284 17,591
Total Assets $ 686,920 $ 642,236
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities:
Notes Payable $ 222,350 $ 197,729
Accounts Payable and Accrued Liabilities 54,237 55,642
Deferred Income 33,713 28,948
Deferred Income Taxes, net 132,530 115,886
Total Liabilities 442,830 398,205
Shareholders' Equity:
Common Stock, no par value -
Authorized -- 40,000 shares
Issued and Outstanding -- 23,668 shares in 2008 and 24,578 shares 44,504 41,917
in 2007
Retained Earnings 199,586 202,114
Total Shareholders' Equity 244,090 244,031
Total Liabilities and Shareholders' Equity $ 686,920 $ 642,236
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
(in thousands) 2008 2007
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $ 31,922 $ 30,290
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation 44,143 39,934
Provision for Doubtful Accounts 1,428 928
Non-Cash Stock-Based Compensation 2,831 2,578
Gain on Sale of Rental Equipment (8,790 ) (7,242 )
Change In:
Accounts Receivable (10,284 ) (20,125 )
Prepaid Expenses and Other Assets (3,693 ) (2,998 )
Accounts Payable and Accrued Liabilities 2,305 (2,957 )
Deferred Income 4,765 5,462
Deferred Income Taxes 16,644 8,320
Net Cash Provided by Operating Activities 81,271 54,190
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of Rental Equipment (82,557 ) (78,384 )
Purchase of Property, Plant and Equipment (12,723 ) (4,080 )
Proceeds from Sale of Rental Equipment 21,541 19,037
Net Cash Used in Investing Activities (73,739 ) (63,427 )
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net Borrowings Under Bank Lines of Credit 24,621 18,943
Proceeds from the Exercise of Stock Options 894 3,979
Excess Tax Benefit from Exercise and Disqualifying Disposition of 526 1,682
Stock Options
Repurchase of Common Stock (24,418 ) --
Payment of Dividends (13,835 ) (13,108 )
Net Cash (Used in) Provided by Financing Activities (12,212 ) 11,496
Net (Decrease) Increase in Cash (4,680 ) 2,259
Cash Balance, beginning of period 5,090 349
Cash Balance, end of period $ 410 $ 2,608
Interest Paid, during the period $ 6,927 $ 7,371
Income Taxes Paid, during the period $ 3,412 $ 9,413
Dividends Declared, not yet paid $ 4,734 $ 4,565
Rental Equipment Acquisitions, not yet paid $ 5,833 $ 11,011
Mobile Modular -- Q3 2008 compared
to Q3 2007 (Unaudited)
(dollar amounts in thousands) Three Months Ended Increase (Decrease)
September 30,
2008 2007 $ %
Revenues
Rental $ 26,125 $ 25,935 $ 190 1 %
Rental Related Services 8,761 9,505 (744 ) -8 %
Rental Operations 34,886 35,440 (554 ) -2 %
Sales 12,782 13,304 (522 ) -4 %
Other 129 162 (33 ) -20 %
Total Revenues $ 47,797 $ 48,906 $ (1,109 ) -2 %
Gross Profit
Rental $ 15,706 $ 16,596 $ (890 ) -5 %
Rental Related Services 2,474 3,241 (767 ) -24 %
Rental Operations 18,180 19,837 (1,657 ) -8 %
Sales 2,925 3,001 (76 ) -3 %
Other 129 162 (33 ) -20 %
Total Gross Profit $ 21,234 $ 23,000 $ (1,766 ) -8 %
Pre-tax Income $ 11,804 $ 13,962 $ (2,158 ) -15 %
Other Information
Depreciation of Rental Equipment $ 3,388 $ 3,188 $ 200 6 %
Interest Expense Allocation $ 1,715 $ 1,874 $ (159 ) -8 %
Average Rental Equipment (1) $ 465,965 $ 434,740 $ 31,225 7 %
Average Rental Equipment on Rent (1) $ 377,969 $ 361,352 $ 16,617 5 %
Average Monthly Total Yield (2) 1.87 % 1.99 % -6 %
Average Utilization (3) 81.1 % 83.1 % -2 %
Average Monthly Rental Rate (4) 2.30 % 2.39 % -4 %
Period End Rental Equipment (1) $ 473,336 $ 443,508 $ 29,828 7 %
Period End Utilization (3) 80.8 % 82.9 % -3 %
Period End Floors (1) 27,344 26,144 1,200 5 %
1 Average and Period End Rental Equipment represents the cost of
rental equipment excluding new equipment inventory and accessory
equipment. Period End Floors 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 Period End Utilization is calculated by dividing the cost of
rental equipment on rent by the total cost of rental equipment
excluding new equipment inventory and accessory equipment. Average
Utilization for the period is calculated using the average costs
of the 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.
TRS-RenTelco -- Q3 2008 compared to
Q3 2007 (Unaudited)
(dollar amounts in thousands) Three Months Ended Increase (Decrease)
September 30,
2008 2007 $ %
Revenues
Rental $ 23,898 $ 21,724 $ 2,174 10 %
Rental Related Services 593 463 130 28 %
Rental Operations 24,491 22,187 2,304 10 %
Sales 6,402 3,710 2,692 73 %
Other 465 459 6 1 %
Total Revenues $ 31,358 $ 26,356 $ 5,002 19 %
Gross Profit
Rental $ 9,559 $ 8,864 $ 695 8 %
Rental Related Services 75 67 8 12 %
Rental Operations 9,634 8,931 703 8 %
Sales 2,989 1,335 1,654 124 %
Other 465 459 6 1 %
Total Gross Profit $ 13,088 $ 10,725 2,363 22 %
Pre-tax Income $ 5,870 $ 4,903 $ 967 20 %
Other Information
Depreciation of Rental Equipment $ 11,260 $ 10,239 $ 1,021 10 %
Interest Expense Allocation $ 944 $ 915 $ 29 3 %
Average Rental Equipment (1) $ 257,874 $ 214,733 $ 43,141 20 %
Average Rental Equipment on Rent (1) $ 176,847 $ 146,814 $ 30,033 20 %
Average Monthly Total Yield (2) 3.09 % 3.37 % -8 %
Average Utilization (3) 68.6 % 68.4 % 0 %
Average Monthly Rental Rate (4) 4.50 % 4.93 % -9 %
Period End Rental Equipment (1) $ 262,054 $ 221,752 $ 40,302 18 %
Period End Utilization (3) 68.0 % 69.9 % -3 %
1 Average and Period End Rental Equipment represents the cost of
rental equipment excluding accessory equipment.
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 Period End Utilization is calculated by dividing the cost of
rental equipment on rent by the total cost of rental equipment
excluding accessory equipment. Average Utilization for the period
is calculated using the average costs of the 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.
Mobile Modular -- Nine Months Ended
9/30/08 compared to Nine Months Ended 9/30/07 (Unaudited)
(dollar amounts in thousands) Nine Months Ended Increase (Decrease)
September 30,
2008 2007 $ %
Revenues
Rental $ 77,317 $ 74,501 $ 2,816 4 %
Rental Related Services 22,691 24,670 (1,979 ) -8 %
Rental Operations 100,008 99,171 837 1 %
Sales 20,515 23,555 (3,040 ) -13 %
Other 433 481 (48 ) -10 %
Total Revenues $ 120,956 $ 123,207 $ (2,251 ) -2 %
Gross Profit
Rental $ 48,382 $ 47,666 716 2 %
Rental Related Services 6,513 8,009 (1,496 ) -19 %
Rental Operations 54,895 55,675 (780 ) -1 %
Sales 5,182 6,075 (893 ) -15 %
Other 433 481 (48 ) -10 %
Total Gross Profit $ 60,510 $ 62,231 $ (1,721 ) -3 %
Pre-tax Income $ 33,796 $ 36,125 $ (2,329 ) -6 %
Other Information
Depreciation of Rental Equipment $ 9,876 $ 9,136 $ 740 8 %
Interest Expense Allocation $ 4,935 $ 5,767 $ (832 ) -14 %
Average Rental Equipment (1) $ 457,707 $ 422,266 $ 35,441 8 %
Average Rental Equipment on Rent (1) $ 374,465 $ 347,068 $ 27,397 8 %
Average Monthly Total Yield (2) 1.88 % 1.96 % -4 %
Average Utilization (3) 81.8 % 82.2 % 0 %
Average Monthly Rental Rate (4) 2.29 % 2.39 % -4 %
Period End Rental Equipment (1) $ 473,336 $ 443,508 $ 29,828 7 %
Period End Utilization (3) 80.8 % 82.9 % -3 %
Period End Floors (1) 27,344 26,144 1,200 5 %
1 Average and Period End Rental Equipment represents the cost of
rental equipment excluding new equipment inventory and accessory
equipment. Period End Floors 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 Period End Utilization is calculated by dividing the cost of
rental equipment on rent by the total cost of rental equipment
excluding new equipment inventory and accessory equipment. Average
Utilization for the period is calculated using the average costs
of the 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.
TRS-RenTelco -- Nine Months Ended
9/30/08 compared to Nine Months Ended 9/30/07 (Unaudited)
(dollar amounts in thousands) Nine Months Ended Increase (Decrease)
September 30,
2008 2007 $ %
Revenues
Rental $ 69,788 $ 61,461 $ 8,327 14 %
Rental Related Services 1,495 1,318 177 13 %
Rental Operations 71,283 62,779 8,504 14 %
Sales 18,371 13,437 4,934 37 %
Other 1,441 1,450 (9 ) -1 %
Total Revenues $ 91,095 $ 77,666 $ 13,429 17 %
Gross Profit
Rental $ 28,822 $ 24,754 $ 4,068 16 %
Rental Related Services 117 60 57 95 %
Rental Operations 28,939 24,814 4,125 17 %
Sales 7,004 4,475 2,529 57 %
Other 1,441 1,450 (9 ) -1 %
Total Gross Profit $ 37,384 $ 30,739 $ 6,645 22 %
Pre-tax Income $ 16,090 $ 13,021 $ 3,069 24 %
Other Information
Depreciation of Rental Equipment $ 32,234 $ 29,040 $ 3,194 11 %
Interest Expense Allocation $ 2,690 $ 2,752 $ (62 ) -2 %
Average Rental Equipment (1) $ 247,178 $ 203,407 $ 43,771 22 %
Average Rental Equipment on Rent (1) $ 170,161 $ 136,691 $ 33,470 24 %
Average Monthly Total Yield (2) 3.14 % 3.36 % -7 %
Average Utilization (3) 68.8 % 67.2 % 2 %
Average Monthly Rental Rate (4) 4.56 % 5.00 % -9 %
Period End Rental Equipment (1) $ 262,054 $ 221,752 $ 40,302 18 %
Period End Utilization (3) 68.0 % 69.9 % -3 %
1 Average and Period End Rental Equipment represents the cost of
rental equipment excluding accessory equipment.
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 Period End Utilization is calculated by dividing the cost of
rental equipment on rent by the total cost of rental equipment
excluding accessory equipment. Average Utilization for the period
is calculated using the average costs of the 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 Generally Accepted Accounting Principles ("GAAP"), the Company presents Adjusted EBITDA which is defined by the Company as net income before minority interest in income of subsidiary, interest expense, provision for income taxes, depreciation, amortization, and non-cash stock-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 and evaluate the Company's ability to meet future capital expenditure and working capital requirements. Management believes the exclusion of non-cash charges, including stock-based compensation, is useful in measuring the Company's cash available to operations and the performance of the Company. Because we find 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 generally accepted accounting principles in the United States 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 nona^'GAAP measures used by other companies. Unlike EBITDA which may be used by other companies or investors, Adjusted EBITDA does not include stock-based compensation charges and income from the former minority interest in the Company's Enviroplex subsidiary. 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. Therefore, Adjusted EBITDA should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures. The presentation of Adjusted EBITDA is not meant to be considered in isolation or as a substitute for the most directly comparable 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. Since Adjusted EBITDA is a non-GAAP financial measure as defined by the Securities and Exchange Commission, the Company includes in the tables below reconciliations of Adjusted EBITDA to the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States.
Reconciliation of Net Income to Adjusted EBITDA
(dollar amounts in thousands) Three Months Nine Months Twelve Months
Ended Ended Ended
September 30, September 30, September 30,
2008 2007 2008 2007 2008 2007
Net Income $ 11,568 $ 11,877 $ 31,922 $ 30,290 $ 44,042 $ 42,187
Minority Interest in Income (Loss) of Subsidiary -- 92 -- 77 (13 ) 121
Provision for Income Taxes 7,458 7,652 20,581 19,415 28,503 26,259
Interest 2,525 2,662 7,283 8,115 9,887 10,790
Income from Operations 21,551 22,283 59,786 57,897 82,419 79,357
Depreciation and Amortization 15,395 14,032 44,143 39,934 58,212 52,255
Non-Cash Stock- Based Compensation 912 874 2,831 2,578 3,709 3,369
Adjusted EBITDA (1) $ 37,858 $ 37,189 $ 106,760 $ 100,409 $ 144,340 $ 134,981
Adjusted EBITDA Margin (2) 44 % 46 % 47 % 48 % 49 % 48 %
Reconciliation of Adjusted EBITDA to Net Cash Provided by
Operating Activities
(dollar amounts in thousands) Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
2008 2007 2008 2007 2008 2007
Adjusted EBITDA (1) $ 37,858 $ 37,189 $ 106,760 $ 100,409 $ 144,340 $ 134,981
Interest Paid (1,868 ) (1,739 ) (6,927 ) (7,371 ) (10,273 ) (10,520 )
Income Taxes Paid (997 ) (3,337 ) (3,412 ) (9,413 ) (8,422 ) (16,168 )
Gain on Sale of Rental Equipment (3,966 ) (2,892 ) (8,790 ) (7,242 ) (11,574 ) (9,904 )
Change in certain assets and liabilities:
Accounts Receivable, net (7,200 ) (14,872 ) (8,856 ) (19,197 ) 3,114 (15,424 )
Prepaid Expenses and Other Assets (1,587 ) (1,952 ) (3,693 ) (2,998 ) (2,415 ) (1,058 )
Accounts Payable and Other Liabilities 3,983 165 1,424 (5,460 ) 4,805 (1,612 )
Deferred Income 9,691 12,853 4,765 5,462 2,399 683
Net Cash Provided by Operating Activities $ 35,914 $ 25,415 $ 81,271 $ 54,190 $ 121,974 $ 80,978
1 Adjusted EBITDA is defined as net income before minority interest
in income of subsidiary, interest expense, provision for income
taxes, depreciation, amortization, and non-cash stock-based
compensation.
2 Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by
total revenues for the period.
SOURCE: McGrath RentCorp
McGrath RentCorp
Keith E. Pratt, 925-606-9200
Chief Financial Officer