LIVERMORE, Calif., Oct. 30, 2018 (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, 2018 of $143.1 million, an increase of 6%, compared to the third quarter of 2017.  The Company reported net income of $24.8 million, or $1.01 per diluted share for the third quarter of 2018, compared to net income of $16.8 million, or $0.69 per diluted share, in the third quarter of 2017. 

THIRD QUARTER 2018 COMPANY HIGHLIGHTS:

• Income from operations increased 18% year-over-year to $35.8 million.
• Rental revenues increased 11% year-over-year to $82.2 million.
• Adjusted EBITDA¹ increased 13% year-over-year to $57.3 million.   
• Dividend rate increased 31% year-over-year to $0.34 per share for the third quarter of 2018.  On an annualized basis, this dividend represents a 2.9% yield on the October 29, 2018 close price of $46.87 per share.

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

“We were very pleased with our execution across the business in the third quarter.  We realized a healthy 11% growth in rental revenues and delivered an 18% improvement in operating profit, despite additional expenses in the third quarter to get equipment ready for rent.  Our pipelines remain strong and we are well positioned as we enter the fourth quarter to finish 2018 favorably.

Mobile Modular rental revenues for the quarter increased 14% from a year ago, and operating profit grew 21%.  Rental rates increased 9%, as growth continued to be strong across commercial and education markets in most regions.  We experienced strong third quarter shipments, with average utilization improving 3% and ending the quarter above 79%.  Demand for containers in our Portable Storage division was also strong and we are realizing growth in all regions.

TRS-RenTelco rental revenues for the quarter increased 6% and operating profit grew 8% from a year ago.  Testing demand for general purpose equipment as well as communications equipment was favorable, supported by R&D work in labs and infrastructure development as carriers prepare their networks for future 5G rollout.  Rental rates decreased 2% primarily due to mix changes between general purpose and communications equipment.

Adler Tank Rentals rental revenues for the quarter increased 13% and operating profit grew 30% from a year ago.  Rental rates increased 2% and utilization improved 9% during the quarter with utilization rising to 64% at quarter end.  Five of our six industry segments realized rental revenue growth with upstream oil and gas exploration continuing to feed demand.

Our drive to improve performance continues.  This quarter we again demonstrated our ability to scale on our cost structure and improve margins to deliver strong operating profit growth.  Utilization gains in both Mobile Modular and Adler, combined with prudent investment in new fleet, reflect continued effort to deploy fleet we already own.  Based on our strong third quarter performance, and positive trends entering the fourth quarter, we are increasing our guidance for the full year of 2018.”

________________________

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs and share-based compensation.  A reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA to net cash provided by operating activities can be found at the end of this release.

 

DIVISION HIGHLIGHTS:

All comparisons presented below are for the quarter ended September 30, 2018 to the quarter ended September 30, 2017 unless otherwise indicated.

MOBILE MODULAR

For the third quarter of 2018, the Company’s Mobile Modular division reported income from operations of $19.2 million, an increase of $3.4 million, or 21%.  Rental revenues increased 14% to $41.2 million, depreciation expense increased 1% to $5.3 million and other direct costs increased 13% to $10.7 million, which resulted in an increase in gross profit on rental revenues of 17% to $25.2 million.  Rental related services revenues increased 10% to $16.2 million, with associated gross profit increasing 2% to $3.7 million.  Sales revenues decreased 2% to $17.1 million.  Gross margin on sales decreased to 24% from 27% in 2017 primarily due to lower margins on used equipment sales, resulting in a 13% decrease in gross profit on sales revenues to $4.2 million.  Selling and administrative expenses decreased 2% to $14.3 million.

TRS-RENTELCO

For the third quarter of 2018, the Company’s TRS-RenTelco division reported income from operations of $7.7 million, an increase of $0.6 million, or 8%.  Rental revenues increased 6% to $22.2 million, depreciation expense increased 10% to $9.1 million and other direct costs increased 12% to $3.8 million, which resulted in a comparable gross profit on rental revenues of $9.4 million.  Sales revenues decreased 7% to $4.5 million.  Gross margin on sales increased to 63% from 51% in 2017 primarily due to higher margins on used equipment sales, resulting in a 16% increase in gross profit on sales revenues to $2.9 million.  Selling and administrative expenses decreased 4% to $5.2 million, primarily due to lower bad debt expense.

ADLER TANKS

For the third quarter of 2018, the Company’s Adler Tanks division reported income from operations of $5.5 million, an increase of $1.3 million, or 30%.  Rental revenues increased 13% to $18.7 million, depreciation expense increased 1% to $4.0 million and other direct costs increased 23% to $3.2 million, which resulted in an increase in gross profit on rental revenues of 16% to $11.5 million.  Rental related services revenues increased 9% to $6.9 million, with gross profit on rental related services decreasing 2% to $1.5 million.  Selling and administrative expenses increased 4% to $7.6 million primarily due to increased employee headcount, salaries and employee benefit cost.

FINANCIAL OUTLOOK:

Based upon the Company’s year-to-date results and current outlook for the remainder of the year, the Company is raising its financial outlook and expects its 2018 total operating profit to increase 18% to 21% above 2017 results, as compared to our prior expectation of an 11% to 15% 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 1, 2018, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on October 30, 2018 to discuss the third quarter 2018 results.  To participate in the teleconference, dial 1-844-707-0666 (in the U.S.), or 1-703-639-1220 (outside the U.S.), or to listen only, access the simultaneous webcast at the investor relations section of the Company’s website at https://investors.mgrc.com/.  A 7-day replay will be available following the call by dialing 1-855-859-2056 (in the U.S.), or 1-404-537-3406 (outside the U.S.).  The pass code for the call replay is 3466139.  In addition, a live audio webcast and replay of the call may be found in the investor relations section of the Company’s website at https://investors.mgrc.com/events-and-presentations.

FORWARD-LOOKING STATEMENTS:

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  All statements, other than statements of historical facts, regarding McGrath RentCorp’s expectations, strategies, prospects or targets are forward looking statements.  These forward-looking statements also can be identified by the use of forward-looking terminology such as “believes,” “expects,” “will,” or “anticipates” or the negative of these terms or other comparable terminology.  In particular, Mr. Hanna’s comments that the pipelines remain strong thereby positioning the Company to finish 2018 favorably, as well as the full year 2018 outlook in the “Financial Outlook” section are forward-looking. 

These forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties that could cause our actual results to differ materially from those projected including: the extent of the recovery underway in our modular building division; the state of the wireless communications network upgrade environment; the utilization levels and rental rates of our Adler Tanks liquid and sold containment tank and box rental assets; continued execution of our performance improvement initiatives; and our ability to effectively manage our rental assets, as well as the factors disclosed under “Risk Factors” in the Company’s Form 10-K and other SEC filings.

Forward-looking statements are made only as of the date hereof.  Except as otherwise required by law, we assume no obligation to update any of the forward-looking statements contained in this press release.

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

	Three Months Ended September 30,								Nine Months Ended September 30,
(in thousands, except per share amounts)	2018				2017				2018				2017
Revenues
Rental	$	82,155			$	73,781			$	233,683			$	211,712
Rental related services		23,880				21,856				60,797				58,587
Rental operations		106,035				95,637				294,480				270,299
Sales		36,085				38,684				67,722				67,166
Other		1,027				1,067				3,013				2,342
Total revenues		143,147				135,388				365,215				339,807
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment		18,407				17,492				54,287				52,113
Rental related services		18,618				16,611				47,404				44,756
Other		17,674				15,396				52,696				46,794
Total direct costs of rental operations		54,699				49,499				154,387				143,663
Costs of sales		24,398				27,114				42,680				44,488
Total costs of revenues		79,097				76,613				197,067				188,151
Gross profit		64,050				58,775				168,148				151,656
Selling and administrative expenses		28,226				28,489				85,833				83,702
Income from operations		35,824				30,286				82,315				67,954
Other income (expense):
Interest expense		(3,142	)			(2,986	)			(9,133	)			(8,724	)
Foreign currency exchange gain (loss)		(129	)			36				(505	)			273
Income before provision for income taxes		32,553				27,336				72,677				59,503
Provision for income taxes		7,774				10,574				17,520				23,307
Net income	$	24,779			$	16,762			$	55,157			$	36,196
Earnings per share:
Basic	$	1.03			$	0.70			$	2.29			$	1.51
Diluted	$	1.01			$	0.69			$	2.25			$	1.50
Shares used in per share calculation:
Basic		24,172				24,015				24,128				23,984
Diluted		24,563				24,228				24,550				24,201
Cash dividends declared per share	$	0.340			$	0.260			$	1.020			$	0.780

MCGRATH RENTCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

	September 30,				December 31,
(in thousands)	2018				2017
Assets
Cash	$	4,399			$	2,501
Accounts receivable, net of allowance for doubtful accounts of $1,883 in 2018 and $1,987 in 2017		115,089				105,872
Rental equipment, at cost:
Relocatable modular buildings		801,129				775,400
Electronic test equipment		284,647				262,325
Liquid and solid containment tanks and boxes		312,487				309,808
		1,398,263				1,347,533
Less accumulated depreciation		(509,656	)			(485,213	)
Rental equipment, net		888,607				862,320
Property, plant and equipment, net		125,756				119,170
Prepaid expenses and other assets		32,660				22,459
Intangible assets, net		7,480				7,724
Goodwill		27,808				27,808
Total assets	$	1,201,799			$	1,147,854
Liabilities and Shareholders' Equity
Liabilities:
Notes payable	$	309,006			$	303,414
Accounts payable and accrued liabilities		92,443				86,408
Deferred income		48,192				39,219
Deferred income taxes, net		197,611				194,629
Total liabilities		647,252				623,670
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,176 shares as of September 30, 2018 and 24,052 shares as of December 31, 2017		102,753				102,947
Retained earnings		451,794				421,405
Accumulated other comprehensive income (loss)		—				(168	)
Total shareholders’ equity		554,547				524,184
Total liabilities and shareholders’ equity	$	1,201,799			$	1,147,854

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Nine Months Ended September 30,
(in thousands)	2018				2017
Cash Flows from Operating Activities:
Net income	$	55,157			$	36,196
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		60,896				58,425
Impairment of rental assets		39				—
Provision for doubtful accounts		297				1,155
Share-based compensation		2,810				2,245
Gain on sale of used rental equipment		(15,044	)			(13,006	)
Foreign currency exchange (gain) loss		505				(273	)
Amortization of debt issuance costs		18				38
Change in:
Accounts receivable		(9,514	)			(11,691	)
Prepaid expenses and other assets		(10,195	)			(1,261	)
Accounts payable and accrued liabilities		148				80
Deferred income		8,741				4,689
Deferred income taxes		2,982				4,544
Net cash provided by operating activities		96,840				81,141
Cash Flows from Investing Activities:
Purchases of rental equipment		(84,658	)			(73,193	)
Purchases of property, plant and equipment		(12,521	)			(12,784	)
Cash paid for business acquisition		(7,543	)			—
Proceeds from sales of used rental equipment		30,067				28,478
Net cash used in investing activities		(74,655	)			(57,499	)
Cash Flows from Financing Activities:
Net borrowings under bank lines of credit		25,575				16,813
Principal payments on Series A senior notes		(20,000	)			(20,000	)
Taxes paid related to net share settlement of stock awards		(3,004	)			(1,363	)
Payment of dividends		(22,719	)			(18,628	)
Net cash used in financing activities		(20,148	)			(23,178	)
Effect of foreign currency exchange rate changes on cash		(139	)			53
Net increase in cash		1,898				517
Cash balance, beginning of period		2,501				852
Cash balance, end of period	$	4,399			$	1,369
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period	$	9,193			$	8,563
Net income taxes paid, during the period	$	16,055			$	23,510
Dividends accrued during the period, not yet paid	$	8,349			$	5,979
Rental equipment acquisitions, not yet paid	$	9,643			$	6,622

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended September 30, 2018
(dollar amounts in thousands)	Mobile Modular				TRS-RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental	$	41,205			$	22,225			$	18,725			$	—			$	82,155
Rental related services		16,188				773				6,919				—				23,880
Rental operations		57,393				22,998				25,644				—				106,035
Sales		17,140				4,549				294				14,102				36,085
Other		358				590				79				—				1,027
Total revenues		74,891				28,137				26,017				14,102				143,147
Costs and Expenses
Direct costs of rental operations:
Depreciation		5,320				9,093				3,994				—				18,407
Rental related services		12,457				697				5,464				—				18,618
Other		10,662				3,767				3,245				—				17,674
Total direct costs of rental operations		28,439				13,557				12,703				—				54,699
Costs of  sales		12,987				1,667				195				9,549				24,398
Total costs of revenues		41,426				15,224				12,898				9,549				79,097
Gross Profit
Rental		25,223				9,365				11,486				—				46,074
Rental related services		3,731				76				1,455				—				5,262
Rental operations		28,954				9,441				12,941				—				51,336
Sales		4,153				2,882				99				4,553				11,687
Other		358				590				79				—				1,027
Total gross profit		33,465				12,913				13,119				4,553				64,050
Selling and administrative expenses		14,261				5,220				7,587				1,158				28,226
Income  from operations	$	19,204			$	7,693			$	5,532			$	3,395				35,824
Interest expense																		(3,142	)
Foreign currency exchange gain																		(129	)
Provision for income taxes																		(7,774	)
Net income																	$	24,779
Other Information
Average rental equipment 1	$	759,542			$	280,377			$	311,086
Average monthly total yield 2		1.81	%			2.64	%			2.01	%
Average utilization 3		78.6	%			61.9	%			62.5	%
Average monthly rental rate 4		2.30	%			4.27	%			3.21	%

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, 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 loss																	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)
Nine months ended September 30, 2018
(dollar amounts in thousands)	Mobile Modular				TRS-RenTelco				Adler Tanks				Enviroplex			Consolidated
Revenues
Rental	$	116,436			$	65,919			$	51,328			$	—		$	233,683
Rental related services		40,510				2,287				18,000				—			60,797
Rental operations		156,946				68,206				69,328				—			294,480
Sales		30,694				16,568				629				19,831			67,722
Other		973				1,753				287				—			3,013
Total revenues		188,613				86,527				70,244				19,831			365,215
Costs and Expenses
Direct costs of rental operations:
Depreciation		15,841				26,536				11,910				—			54,287
Rental related services		31,031				1,956				14,417				—			47,404
Other		33,460				10,834				8,402				—			52,696
Total direct costs of rental operations		80,332				39,326				34,729				—			154,387
Costs of  sales		21,766				7,046				484				13,384			42,680
Total costs of revenues		102,098				46,372				35,213				13,384			197,067
Gross Profit
Rental		67,134				28,549				31,017				—			126,700
Rental related services		9,479				331				3,583				—			13,393
Rental operations		76,613				28,880				34,600				—			140,093
Sales		8,929				9,522				144				6,447			25,042
Other		973				1,753				287				—			3,013
Total gross profit		86,515				40,155				35,031				6,447			168,148
Selling and administrative expenses		43,191				16,780				22,245				3,617			85,833
Income from operations	$	43,324			$	23,375			$	12,786			$	2,830			82,315
Interest expense																	(9,133	)
Foreign currency exchange gain																	(505	)
Provision for income taxes																	(17,520	)
Net income																$	55,157
Other Information
Average rental equipment 1	$	752,076			$	273,142			$	309,943
Average monthly total yield 2		1.72	%			2.68	%			1.84	%
Average utilization 3		77.8	%			62.4	%			59.8	%
Average monthly rental rate 4		2.21	%			4.29	%			3.08	%

1. Average rental equipment represents the cost of rental equipment excluding accessory equipment.  For Mobile Modular and Adler Tanks, Average rental equipment also excludes new equipment inventory.
2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
3. Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment.
4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
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.

Reconciliation of Adjusted EBITDA to the most directly comparable GAAP measures

To supplement the Company’s financial data presented on a basis consistent with accounting principles generally accepted in the United States of America (“GAAP”), the Company presents “Adjusted EBITDA”, which is defined by the Company as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs (if applicable) 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,
	2018				2017				2018				2017				2018				2017
Net income	$	24,779			$	16,762			$	55,157			$	36,196			$	172,881			$	45,930
Provision (benefit) for income taxes		7,774				10,574				17,520				23,307				(76,255	)			33,368
Interest		3,142				2,986				9,133				8,724				12,031				11,445
Depreciation and amortization		20,608				19,673				60,896				58,425				80,887				78,076
EBITDA		56,303				49,995				142,706				126,652				189,544				168,819
Impairment of rental assets		—				—				39				—				1,678				—
Share-based compensation		982				707				2,810				2,245				3,763				3,009
Adjusted EBITDA 1	$	57,285			$	50,702			$	145,555			$	128,897			$	194,985			$	171,828
Adjusted EBITDA margin 2		40	%			37	%			40	%			38	%			40	%			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,
	2018				2017				2018				2017				2018				2017
Adjusted EBITDA 1	$	57,285			$	50,702			$	145,555			$	128,897			$	194,985			$	171,828
Interest paid		(3,070	)			(2,746	)			(9,193	)			(8,563	)			(12,455	)			(11,957	)
Income taxes paid, net of refunds received		(4,380	)			(5,369	)			(16,055	)			(23,510	)			(22,049	)			(31,314	)
Gain on sale of used rental equipment		(5,169	)			(5,092	)			(15,044	)			(13,006	)			(19,771	)			(15,947	)
Foreign currency exchange loss (gain)		129				(36	)			505				(273	)			444				(93	)
Amortization of debt financing cost		3				13				18				38				30				51
Change in certain assets and liabilities:
Accounts receivable, net		(9,994	)			(10,874	)			(9,217	)			(10,536	)			(7,676	)			(3,655	)
Prepaid expenses and other assets		4,743				7,578				(10,195	)			(1,261	)			(5,810	)			(686	)
Accounts payable and other liabilities		(359	)			(2,089	)			1,725				4,666				4,618				8,298
Deferred income		3,887				(345	)			8,741				4,689				5,772				34
Net cash provided by operating activities	$	43,075			$	31,742			$	96,840			$	81,141			$	138,088			$	116,559

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs and share-based compensation.
2. Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by total revenues for the period.

 

Source: McGrath RentCorp