LIVERMORE, Calif., Oct. 31, 2017 (GLOBE NEWSWIRE) -- McGrath RentCorp (NASDAQ:MGRC) (the “Company”), a diversified business to business rental company, today announced total revenues for the quarter ended September 30, 2017 of $135.4 million, an increase of 11%, compared to the third quarter of 2016.  The Company reported net income of $16.8 million, or $0.69 per diluted share for the third quarter of 2017, compared to net income of $12.9 million, or $0.54 per diluted share, in the third quarter of 2016.

THIRD QUARTER 2017 Company HIGHLIGHTS:

• Income from operations increased 25% year-over-year to $30.3 million.
• Rental revenues increased 9% year-over-year to $73.8 million.
• Adjusted EBITDA¹ increased 12% to $50.7 million for the third quarter of 2017.   
• Dividend rate increased 2% year-over-year to $0.26 per share for the third quarter of 2017. On an annualized basis, this dividend represents a 2.3% yield on the October 30, 2017 close price of $44.46 per share.

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

“We were pleased with our third quarter performance.  Mobile Modular, Adler Tank Rentals and TRS-RenTelco each delivered significant operating profit growth compared to a year ago, contributing to the Company’s 25% operating profit increase.  Company operating profit growth was driven by a $6.8 million increase in gross profit from rental operations and a $1.1 million increase in sales gross profit also contributed to the strong results. Hurricanes Harvey and Irma had no material impact on our third quarter results.

Mobile Modular rental revenues for the quarter increased 9% from a year ago as rental rates and equipment on rent both increased, while average utilization declined slightly.  Rental revenue growth continued to be healthy across commercial and education markets, as well as in our Portable Storage business.

TRS-RenTelco rental revenues for the quarter increased 3% as a result of higher general-purpose test equipment business activity.  General-purpose test equipment rental revenues increased by 9%, but were partly offset by a 1% decrease for communications test equipment.  While average equipment utilization increased, average rental rates declined for the quarter, primarily due to the business activity mix shift to general-purpose from communications test equipment. 

Adler Tank Rentals rental revenues for the quarter increased 17% from a year ago.  Rental revenue growth occurred across a broad mix of vertical markets, including upstream oil and natural gas, which increased from 9% to 10% of total Adler rental revenues.  Average equipment on rent increased 16% to $176 million from $152 million a year ago, and average utilization increased to 57% from 49%.  Despite ongoing competitive price pressure, average rental rates improved slightly as a result of product mix shifts.

Our third quarter results reflect some improvement in market conditions at Adler Tank Rentals and TRS-RenTelco.  In addition we benefited from the various return on invested capital performance improvement initiatives across the business.  We are also maintaining discipline on new rental equipment capital spending while selectively selling non-core equipment.

Based on our third quarter and year to date results, and our current outlook for the remainder of the year, we are raising our financial outlook and expect 2017 total Company operating profit to increase 15% to 18% above 2016, compared to our prior expectation of a 9% to 12% increase.”

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization 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 September 30, 2017 to the quarter ended September 30, 2016 unless otherwise indicated.

MOBILE MODULAR

For the third quarter of 2017, the Company’s Mobile Modular division reported income from operations of $15.8 million, an increase of $3.1 million, or 25%.  Rental revenues increased 9% to $36.2 million, depreciation expense was flat at $5.3 million and other direct costs increased 5% to $9.4 million, which resulted in an increase in gross profit on rental revenues of 14% to $21.6 million.  Rental related services revenues increased 8% to $14.7 million, with associated gross profit increasing 27% to $3.7 million.  Sales revenues increased 5% to $17.5 million and gross margin on sales increased to 27% compared to 25% in 2016, resulting in increased gross profit on sales revenues of $0.7 million, or 16%.  Selling and administrative expenses increased 9% to $14.5 million, primarily due to increased salaries and employee benefit costs and higher allocated corporate expenses. 

TRS-RENTELCO

For the third quarter of 2017, the Company’s TRS-RenTelco division reported income from operations of $7.1 million, an increase of $0.7 million, or 12%.  Rental revenues increased 3% to $21.0 million, depreciation expense decreased 3% to $8.3 million and other direct costs decreased 5% to $3.4 million, which resulted in an increase in gross profit on rental revenues of 13% to $9.4 million.  Sales revenues increased 3% to $4.9 million.  Gross margin on sales decreased to 51% from 57% in 2016 primarily due to lower margins on used equipment sales, resulting in a 9% decrease in gross profit on sales revenues to $2.5 million.  Selling and administrative expenses increased 7% to $5.5 million, primarily due to increased salaries and employee benefit costs.

ADLER TANKS

For the third quarter of 2017, the Company’s Adler Tanks division reported income from operations of $4.2 million, an increase of $1.6 million, or 60%.  Rental revenues increased 17% to $16.5 million, depreciation expense decreased 1% to $3.9 million and other direct costs increased 19% to $2.6 million, which together resulted in an increase in gross profit on rental revenues of $1.9 million.  Rental related services revenues increased 10% to $6.3 million, with gross profit on rental related services increasing 19% to $1.5 million.  Selling and administrative expenses increased 10% to $7.3 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 2017 total Company operating profit to increase 15% to 18% above 2016, compared to our prior expectation of a 9% to 12% increase.   

ABOUT MCGRATH RENTCORP:

Founded in 1979, McGrath RentCorp is a diversified business-to-business rental company with four rental divisions.  Mobile Modular rents and sells modular buildings to fulfill customers' temporary and permanent classroom and office space needs in California, Texas, Florida, and the Mid-Atlantic from Washington D.C. to Georgia.  TRS-RenTelco rents and sells electronic test equipment and is one of the leading rental providers of general purpose and communications test equipment in the Americas.  Adler Tank Rentals rents and sells containment solutions for hazardous and nonhazardous liquids and solids with operations serving key markets throughout the United States.  Mobile Modular Portable Storage provides portable storage solutions in the California, Texas, Florida, Northern Illinois, New Jersey, North Carolina and Georgia markets.  For more information on McGrath RentCorp and its operating units, please visit our websites:

Corporate – www.mgrc.com
Modular Buildings – www.mobilemodular.com
Electronic Test Equipment – www.trsrentelco.com
Tanks and Boxes – www.adlertankrentals.com
Portable Storage – www.mobilemodularcontainers.com
School Facilities Manufacturing – www.enviroplex.com

You should read this press release in conjunction with the financial statements and notes thereto included in the Company’s latest Forms 10-K, 10-Q and other SEC filings.  You can visit the Company’s web site at www.mgrc.com to access information on McGrath RentCorp, including the latest Forms 10-K, 10-Q and other SEC filings.

CONFERENCE CALL NOTE:

As previously announced in its press release of October 2, 2017, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on October 31, 2017 to discuss the third quarter 2017 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 www.mgrc.com.  A 7-day replay will be available following the call by dialing 1-855-859-2056 (in the U.S.), or 1-404-537-3406 (outside the U.S.).  The pass code for the call replay is 92731571.  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 http://www.mgrc.com/investors#events-archives.

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, the full year 2017 operating profit outlook in the CEO comments and “Financial Outlook” sections 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; the potential for continuing softness in communications test equipment rental demand in our electronics division; 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 September 30,								Nine Months Ended September 30,
(in thousands, except per share amounts)	2017				2016				2017				2016
Revenues
Rental	$	73,781			$	67,757			$	211,712			$	201,036
Rental related services		21,856				20,122				58,587				57,028
Rental operations		95,637				87,879				270,299				258,064
Sales		38,684				33,486				67,166				58,916
Other		1,067				628				2,342				1,817
Total revenues		135,388				121,993				339,807				318,797
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment		17,492				17,819				52,113				54,590
Rental related services		16,611				16,026				44,756				44,428
Other		15,396				14,689				46,794				45,991
Total direct costs of rental operations		49,499				48,534				143,663				145,009
Costs of sales		27,114				23,026				44,488				38,944
Total costs of revenues		76,613				71,560				188,151				183,953
Gross profit		58,775				50,433				151,656				134,844
Selling and administrative expenses		28,489				26,201				83,702				78,281
Income from operations		30,286				24,232				67,954				56,563
Other income (expense):
Interest expense		(2,986	)			(2,940	)			(8,724	)			(9,486	)
Foreign currency exchange gain (loss)		36				(15	)			273				59
Income before provision for income taxes		27,336				21,277				59,503				47,136
Provision for income taxes		10,574				8,405				23,307				18,619
Net income	$	16,762			$	12,872			$	36,196			$	28,517
Earnings per share:
Basic	$	0.70			$	0.54			$	1.51			$	1.19
Diluted	$	0.69			$	0.54			$	1.50			$	1.19
Shares used in per share calculation:
Basic		24,015				23,911				23,984				23,891
Diluted		24,228				24,041				24,201				23,957
Cash dividends declared per share	$	0.260			$	0.255			$	0.780			$	0.765

MCGRATH RENTCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
		September 30,				December 31,
(in thousands)		2017				2016
Assets
Cash		$	1,369			$	852
Accounts receivable, net of allowance for doubtful accounts of $1,987 in 2017   and $2,087 in 2016			107,413				96,877
Rental equipment, at cost:
Relocatable modular buildings			781,791				769,190
Electronic test equipment			258,877				246,325
Liquid and solid containment tanks and boxes			309,825				308,542
			1,350,493				1,324,057
Less accumulated depreciation			(484,769	)			(467,686	)
Rental equipment, net			865,724				856,371
Property, plant and equipment, net			119,315				112,190
Prepaid expenses and other assets			26,844				25,583
Intangible assets, net			7,942				8,595
Goodwill			27,808				27,808
Total assets		$	1,156,415			$	1,128,276
Liabilities and Shareholders' Equity
Liabilities:
Notes payable		$	323,117			$	326,266
Accounts payable and accrued liabilities			81,765				78,205
Deferred income			42,188				37,499
Deferred income taxes, net			296,563				292,019
Total liabilities			743,633				733,989
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,032 shares as of September 30, 2017 and 23,948  shares as of December 31, 2016			102,703				101,821
Retained earnings			310,210				292,521
Accumulated other comprehensive loss			(131	)			(55	)
Total shareholders’ equity			412,782				394,287
Total liabilities and shareholders’ equity		$	1,156,415			$	1,128,276

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
		Nine Months Ended September 30,
(in thousands)		2017				2016
Cash Flows from Operating Activities :
Net income		$	36,196			$	28,517
Adjustments to reconcile net income to net cash provided by   operating activities:
Depreciation and amortization			58,425				61,528
Provision for doubtful accounts			1,155				1,366
Share-based compensation			2,245				2,327
Gain on sale of used rental equipment			(13,006	)			(10,798	)
Foreign currency exchange gain			(273	)			(59	)
Amortization of debt issuance costs			38				39
Change in:
Accounts receivable			(11,691	)			(10,107	)
Income taxes receivable			—				11,000
Prepaid expenses and other assets			(1,261	)			1,374
Accounts payable and accrued liabilities			80				3,089
Deferred income			4,689				5,191
Deferred income taxes			4,544				11,810
Net cash provided by operating activities			81,141				105,277
Cash Flows from Investing Activities:
Purchases of rental equipment			(73,193	)			(64,349	)
Purchases of property, plant and equipment			(12,784	)			(10,028	)
Proceeds from sales of used rental equipment			28,478				24,037
Net cash used in investing activities			(57,499	)			(50,340	)
Cash Flows from Financing Activities:
Net borrowings (repayments) under bank lines of credit			16,813				(16,034	)
Principal payments on Series A senior notes			(20,000	)			(20,000	)
Proceeds from the exercise of stock options			—				37
Taxes paid related to net share settlement of stock awards			(1,363	)			(589	)
Payment of dividends			(18,628	)			(18,349	)
Net cash used in financing activities			(23,178	)			(54,935	)
Effect of foreign currency exchange rate changes on cash			53				(13	)
Net increase (decrease) in cash			517				(11	)
Cash balance, beginning of period			852				1,103
Cash balance, end of period		$	1,369			$	1,092
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period		$	8,563			$	9,042
Net income taxes paid, during the period		$	23,510			$	7,751
Dividends accrued during the period, not yet paid		$	5,979			$	6,144
Rental equipment acquisitions, not yet paid		$	6,622			$	3,688

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended September 30, 2017
(dollar amounts in thousands)		Mobile Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	36,239			$	21,018			$	16,524			$	—			$	73,781
Rental related services			14,729				783				6,344				—				21,856
Rental operations			50,968				21,801				22,868				—				95,637
Sales			17,533				4,909				461				15,781				38,684
Other			386				594				87				—				1,067
Total revenues			68,887				27,304				23,416				15,781				135,388
Costs and Expenses
Direct costs of rental operations:
Depreciation			5,285				8,264				3,943				—				17,492
Rental related services			11,075				683				4,853				—				16,611
Other			9,396				3,352				2,648				—				15,396
Total direct costs of rental operations			25,756				12,299				11,444				—				49,499
Costs of  sales			12,770				2,432				397				11,515				27,114
Total costs of revenues			38,526				14,731				11,841				11,515				76,613
Gross Profit
Rental			21,558				9,402				9,933				—				40,893
Rental related services			3,654				100				1,491				—				5,245
Rental operations			25,212				9,502				11,424				—				46,138
Sales			4,763				2,477				64				4,266				11,570
Other			386				594				87				—				1,067
Total gross profit			30,361				12,573				11,575				4,266				58,775
Selling and administrative expenses			14,540				5,456				7,327				1,166				28,489
Income  from operations		$	15,821			$	7,117			$	4,248			$	3,100				30,286
Interest expense																			(2,986	)
Foreign currency exchange gain																			36
Provision for income taxes																			(10,574	)
Net income																		$	16,762
Other Information
Average rental equipment 1		$	748,779			$	254,369			$	307,790
Average monthly total yield 2			1.61	%			2.75	%			1.79	%
Average utilization 3			76.3	%			63.4	%			57.1	%
Average monthly rental rate 4			2.11	%			4.35	%			3.14	%

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 September 30, 2016
(dollar amounts in thousands)		Mobile Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	33,210			$	20,365			$	14,182			$	—			$	67,757
Rental related services			13,697				655				5,770				—				20,122
Rental operations			46,907				21,020				19,952				—				87,879
Sales			16,700				4,788				358				11,640				33,486
Other			82				509				37				—				628
Total revenues			63,689				26,317				20,347				11,640				121,993
Costs and Expenses
Direct costs of rental operations:
Depreciation			5,295				8,553				3,971				—				17,819
Rental related services			10,811				700				4,515				—				16,026
Other			8,949				3,524				2,216				—				14,689
Total direct costs of rental operations			25,055				12,777				10,702				—				48,534
Costs of  sales			12,592				2,065				360				8,009				23,026
Total costs of revenues			37,647				14,842				11,062				8,009				71,560
Gross Profit (Loss)
Rental			18,966				8,288				7,995				—				35,249
Rental related services			2,886				(45	)			1,255				—				4,096
Rental operations			21,852				8,243				9,250				—				39,345
Sales			4,108				2,723				(2	)			3,631				10,460
Other			82				509				37				—				628
Total gross profit			26,042				11,475				9,285				3,631				50,433
Selling and administrative expenses			13,364				5,101				6,631				1,105				26,201
Income from operations		$	12,678			$	6,374			$	2,654			$	2,526				24,232
Interest expense																			(2,940	)
Foreign currency exchange loss																			(15	)
Provision for income taxes																			(8,405	)
Net income																		$	12,872
Other Information
Average rental equipment 1		$	729,943			$	251,786			$	307,621
Average monthly total yield 2			1.52	%			2.70	%			1.54	%
Average utilization 3			76.7	%			61.2	%			49.4	%
Average monthly rental rate 4			1.98	%			4.41	%			3.11	%

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)
Nine months ended September 30, 2017
(dollar amounts in thousands)		Mobile Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	104,923			$	60,569			$	46,220			$	—			$	211,712
Rental related services			38,283				2,095				18,209				—				58,587
Rental operations			143,206				62,664				64,429				—				270,299
Sales			30,001				14,897				1,576				20,692				67,166
Other			621				1,596				125				—				2,342
Total revenues			173,828				79,157				66,130				20,692				339,807
Costs and Expenses
Direct costs of rental operations:
Depreciation			15,951				24,335				11,827				—				52,113
Rental related services			28,802				1,937				14,017				—				44,756
Other			29,290				9,957				7,547				—				46,794
Total direct costs of rental operations			74,043				36,229				33,391				—				143,663
Costs of  sales			21,846				6,508				1,332				14,802				44,488
Total costs of revenues			95,889				42,737				34,723				14,802				188,151
Gross Profit
Rental			59,683				26,277				26,846				—				112,806
Rental related services			9,481				158				4,191				—				13,830
Rental operations			69,164				26,435				31,037				—				126,636
Sales			8,154				8,389				245				5,890				22,678
Other			621				1,596				125				—				2,342
Total gross profit			77,939				36,420				31,407				5,890				151,656
Selling and administrative expenses			42,157				16,475				21,855				3,215				83,702
Income from operations		$	35,782			$	19,945			$	9,552			$	2,675				67,954
Interest expense																			(8,724	)
Foreign currency exchange gain																			273
Provision for income taxes																			(23,307	)
Net income																		$	36,196
Other Information
Average rental equipment 1		$	746,632			$	249,740			$	307,322
Average monthly total yield 2			1.56	%			2.69	%			1.67	%
Average utilization 3			76.6	%			62.8	%			54.7	%
Average monthly rental rate 4			2.04	%			4.29	%			3.06	%

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)
Nine months ended September 30, 2016
(dollar amounts in thousands)		Mobile Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	96,002			$	61,562			$	43,472			$	—			$	201,036
Rental related services			37,034				2,156				17,838				—				57,028
Rental operations			133,036				63,718				61,310				—				258,064
Sales			25,132				17,050				947				15,787				58,916
Other			284				1,441				92				—				1,817
Total revenues			158,452				82,209				62,349				15,787				318,797
Costs and Expenses
Direct costs of rental operations:
Depreciation			15,642				26,939				12,009				—				54,590
Rental related services			28,370				1,965				14,093				—				44,428
Other			28,501				10,500				6,990				—				45,991
Total direct costs of rental operations			72,513				39,404				33,092				—				145,009
Costs of  sales			18,610				8,772				895				10,667				38,944
Total costs of revenues			91,123				48,176				33,987				10,667				183,953
Gross Profit
Rental			51,860				24,122				24,473				—				100,455
Rental related services			8,664				191				3,745				—				12,600
Rental operations			60,524				24,313				28,218				—				113,055
Sales			6,521				8,279				52				5,120				19,972
Other			284				1,441				92				—				1,817
Total gross profit			67,329				34,033				28,362				5,120				134,844
Selling and administrative expenses			38,162				16,444				20,786				2,889				78,281
Income from operations		$	29,167			$	17,589			$	7,576			$	2,231				56,563
Interest expense																			(9,486	)
Foreign currency exchange gain																			59
Provision for income taxes																			(18,619	)
Net income																		$	28,517
Other Information
Average rental equipment 1		$	719,206			$	255,896			$	307,669
Average monthly total yield 2			1.48	%			2.67	%			1.57	%
Average utilization 3			76.3	%			60.1	%			49.9	%
Average monthly rental rate 4			1.94	%			4.44	%			3.15	%

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 September 30,								Nine Months Ended September 30,								Twelve Months Ended September 30,
		2017				2016				2017				2016				2017				2016
Net income		$	16,762			$	12,872			$	36,196			$	28,517			$	45,930			$	40,035
Provision for income taxes			10,574				8,405				23,307				18,619				33,368				25,624
Interest			2,986				2,940				8,724				9,486				11,445				12,396
Depreciation and amortization			19,673				20,111				58,425				61,528				78,076				82,505
EBITDA			49,995				44,328				126,652				118,150				168,819				160,560
Share-based compensation			707				741				2,245				2,327				3,009				2,863
Adjusted EBITDA 1		$	50,702			$	45,069			$	128,897			$	120,477			$	171,828			$	163,423
Adjusted EBITDA margin 2			37	%			37	%			38	%			38	%			39	%			39	%

Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities

(dollar amounts in thousands)		Three Months Ended September 30,								Nine Months Ended September 30,								Twelve Months Ended September 30,
		2017				2016				2017				2016				2017				2016
Adjusted EBITDA 1		$	50,702			$	45,069			$	128,897			$	120,477			$	171,828			$	163,423
Interest paid			(2,746	)			(2,396	)			(8,563	)			(9,042	)			(11,957	)			(11,859	)
Net income taxes paid			(5,369	)			(2,072	)			(23,510	)			(7,751	)			(31,314	)			(8,009	)
Gain on sale of used rental equipment			(5,092	)			(4,516	)			(13,006	)			(10,798	)			(15,947	)			(13,634	)
Foreign currency exchange loss (gain)			(36	)			15				(273	)			(59	)			(93	)			(25	)
Amortization of debt financing cost			13				13				38				39				51				51
Change in certain assets and liabilities:
Accounts receivable, net			(10,874	)			(8,144	)			(10,536	)			(8,741	)			(3,655	)			3,302
Income taxes receivable		—				—				—					11,000			—				—
Prepaid expenses and other assets			7,578				4,237				(1,261	)			1,374				(686	)			1,379
Accounts payable and other liabilities			(2,089	)			(2,444	)			4,666				3,587				8,298				14,293
Deferred income			(345	)			3,130				4,689				5,191				34				1,306
Net cash provided by operating activities		$	31,742			$	32,892			$	81,141			$	105,277			$	116,559			$	150,227

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    

McGrath RentCorp