LIVERMORE, Calif., Oct. 29, 2020 (GLOBE NEWSWIRE) -- McGrath RentCorp (NASDAQ: MGRC) (the “Company”), a diversified business-to-business rental company, today announced total revenues for the quarter ended September 30, 2020 of $156.4 million, a decrease of 10%, compared to the third quarter of 2019. The Company reported net income of $28.1 million, or $1.15 per diluted share, for the third quarter of 2020, compared to net income of $32.5 million, or $1.32 per diluted share, for the third quarter of 2019.

THIRD QUARTER 2020 COMPANY HIGHLIGHTS:

• Income from operations decreased 20% year-over-year to $37.3 million.
• Rental revenues decreased 3% year-over-year to $88.1 million.
• Adjusted EBITDA¹ decreased 11% year-over-year to $62.7 million.
• Dividend rate increased 12% year-over-year to $0.42 per share for the third quarter of 2020. On an annualized basis, this dividend represents a 2.9% yield on the October 28, 2020 close price of $58.40 per share.

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

“For the third quarter, rental revenue growth of 1% at Mobile Modular and 3% at TRS-RenTelco was offset by a 22% decline at Adler, resulting in an overall 3% decrease for the Company. Rental revenue performance by end markets and geographic locations was varied and still affected by COVID-19 uncertainty. The decrease in total Company revenues was primarily a result of lower new equipment sales revenues at our Enviroplex business, which in 2019 had a large concentration of sales completed in the third quarter. Disciplined expense management continued in our production centers and support services, reflecting softer demand conditions.

Our third quarter results reflect slowly improving market conditions compared to the second quarter and we were pleased with how the business performed on an overall basis, despite uncertainty due to COVID-19. Sequentially, each of our three divisions grew rental revenues from the second to third quarter 2020. After withdrawing guidance in the second quarter, we set milestones for performance in the third quarter and landed high in our ranges for total revenues and EBITDA while maintaining discipline on rental equipment capital expenditures. Our teams successfully navigated difficult circumstances and delivered solid results.

Entering the fourth quarter of 2020, we are seeing the generally improved third quarter business conditions continuing, despite the pandemic uncertainties. We remain focused on consistent execution for our customers and we are working hard to finish the year on solid footing.”

DIVISION HIGHLIGHTS:

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

MOBILE MODULAR

For the third quarter of 2020, the Company’s Mobile Modular division reported income from operations of $24.9 million, an increase of $2.7 million, or 12%. Rental revenues increased 1% to $47.1 million, depreciation expense increased 4% to $5.8 million and other direct costs decreased 8% to $11.8 million, which resulted in an increase in gross profit on rental revenues of 4% to $29.6 million. The rental revenue growth was due to increased demand from education customers. Rental related services revenues decreased 17% to $18.7 million, with associated gross profit decreasing 10% to $5.2 million. Sales revenues increased 76% to $29.3 million, primarily due to higher new equipment sales with gross margin on sales decreasing to 26% from 28%, resulting in a 60% increase in gross profit on sales revenues to $7.5 million. Selling and administrative expenses increased 5% to $17.7 million, primarily due to higher allocated corporate expenses.

TRS-RENTELCO

For the third quarter of 2020, the Company’s TRS-RenTelco division reported income from operations of $9.0 million, a decrease of $1.1 million, or 11%. Rental revenues increased 3% to $27.6 million, depreciation expense increased 6% to $11.5 million and other direct costs increased 18% to $4.8 million, which resulted in a 6% decrease in gross profit on rental revenues to $11.3 million. The rental revenue growth was due to increased demand from general purpose test equipment customers. Sales revenues increased 22% to $6.9 million. Gross margin on sales was 44% in 2020 compared to 60% in 2019, resulting in a 10% decrease in gross profit on sales revenues to $3.1 million. Selling and administrative expenses decreased 1% to $6.0 million.

ADLER TANKS

For the third quarter of 2020, the Company’s Adler Tanks division reported income from operations of $2.7 million, a decrease of $2.4 million, or 47%. Rental revenues decreased 22% to $13.4 million, depreciation expense was flat at $4.1 million and other direct costs decreased 29% to $2.0 million, which resulted in a 29% decrease in gross profit on rental revenues to $7.3 million. The rental revenue decrease was primarily due to COVID-19 related business disruptions and a decrease in the price of oil and gas, which contributed to weaker activities in multiple geographic and market segments. Rental related services revenues decreased 25% to $5.6 million, with gross profit on rental related services decreasing 39% to $1.1 million. Selling and administrative expenses decreased 19% to $5.8 million, primarily due to decreased allocated corporate expenses, lower marketing and administrative costs and decreased salaries and employee benefit costs.

FINANCIAL OUTLOOK:

For the fourth quarter 2020, the Company expects:

• Total revenue: $140 million - $150 million
• Adjusted EBITDA^1,2: $58 million - $63 million
• Gross rental equipment capital expenditures: $10 million to $13 million
  

1.

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

2.

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

ABOUT MCGRATH RENTCORP:

Founded in 1979, McGrath RentCorp (Nasdaq: MGRC) is a diversified business-to-business rental company providing modular buildings, electronic test equipment, portable storage and tank containment solutions across the United States and other select North American regions. The Company’s rental operations consist of four divisions: Mobile Modular rents and sells modular buildings to fulfill customers’ temporary and permanent classroom and office space needs; TRS-RenTelco rents and sells electronic test equipment; Adler Tank Rentals rents and sells containment solutions for hazardous and nonhazardous liquids and solids; and Mobile Modular Portable Storage provides portable storage rental solutions. For more information on McGrath RentCorp and its operating units, please visit our websites:

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

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

CONFERENCE CALL NOTE:

As previously announced in its press release of October 1, 2020, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on October 29, 2020 to discuss the third quarter 2020 results. To participate in the teleconference, dial 1-844-707-0666 (in the U.S.), or 1-703-639-1220 (outside the U.S.), or to listen only, access the simultaneous webcast at the investor relations section of the Company’s website at https://investors.mgrc.com/. A replay will be available for 7 days following the call by dialing 1-855-859-2056 (in the U.S.), or 1-404-537-3406 (outside the U.S.). The pass code for the conference call replay is 5478927. In addition, a live audio webcast and replay of the call may be found in the investor relations section of the Company’s website at https://investors.mgrc.com/events-and-presentations.

FORWARD-LOOKING STATEMENTS:

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, regarding McGrath RentCorp’s expectations, strategies, prospects or targets are forward looking statements. These forward-looking statements also can be identified by the use of forward-looking terminology such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plan,” “predict,” “project,” or “will,” or the negative of these terms or other comparable terminology. In particular, Mr. Hanna’s comments about seeing the generally improved business conditions continuing, despite the pandemic uncertainties and the Company working hard to finish the year on solid footing as well as the statements regarding the fourth quarter 2020 outlook in the “Financial Outlook” section, are forward-looking.

These forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties that could cause our actual results to differ materially from those projected including: the duration of the COVID-19 pandemic and its economic impact, the extent and length of the shelter-in and other restrictions associated with COVID-19 pandemic, the health of the education and commercial markets in our modular building division; the activity levels in the general purpose and communications test equipment markets at TRS-RenTelco; the utilization levels and rental rates of our Adler Tanks liquid and solid containment tank and box rental assets; continued execution of our performance improvement initiatives; and our ability to effectively manage our rental assets, as well as the factors disclosed under “Risk Factors” in the Company’s Form 10-Q for the period ended September 30, 2020.

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)		2020				2019				2020				2019
Revenues
Rental		$	88,138			$	90,857			$	263,273			$	261,658
Rental related services			25,040				30,816				70,026				76,738
Rental operations			113,178				121,673				333,299				338,396
Sales			42,331				50,855				87,366				81,387
Other			939				1,034				2,909				3,226
Total revenues			156,448				173,562				423,574				423,009
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment			21,419				20,535				64,640				59,222
Rental related services			18,603				23,007				51,760				57,507
Other			18,553				19,654				56,171				61,128
Total direct costs of rental operations			58,575				63,196				172,571				177,857
Costs of sales			29,669				32,084				57,911				49,984
Total costs of revenues			88,244				95,280				230,482				227,841
Gross profit			68,204				78,282				193,093				195,168
Selling and administrative expenses			30,871				31,534				93,365				92,044
Income from operations			37,333				46,748				99,728				103,124
Other income (expense):
Interest expense			(1,968	)			(3,161	)			(6,804	)			(9,407	)
Foreign currency exchange gain (loss)			130				(132	)			(189	)			(46	)
Income before provision for income taxes			35,495				43,455				92,735				93,671
Provision for income taxes			7,394				10,987				21,926				23,266
Net income		$	28,101			$	32,468			$	70,809			$	70,405
Earnings per share:
Basic		$	1.17			$	1.34			$	2.93			$	2.90
Diluted		$	1.15			$	1.32			$	2.88			$	2.86
Shares used in per share calculation:
Basic			24,097				24,268				24,170				24,237
Diluted			24,443				24,632				24,558				24,592
Cash dividends declared per share		$	0.420			$	0.375			$	1.260			$	1.125

MCGRATH RENTCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

		September 30,				December 31,
(in thousands)		2020				2019
Assets
Cash		$	1,543			$	2,342
Accounts receivable, net of allowance for doubtful accounts of $2,200 in 2020   and $1,883 in 2019			129,433				128,099
Rental equipment, at cost:
Relocatable modular buildings			885,314				868,807
Electronic test equipment			335,520				335,343
Liquid and solid containment tanks and boxes			316,110				316,261
			1,536,944				1,520,411
Less accumulated depreciation			(588,819	)			(552,911	)
Rental equipment, net			948,125				967,500
Property, plant and equipment, net			134,245				131,047
Prepaid expenses and other assets			46,670				45,356
Intangible assets, net			7,167				7,334
Goodwill			28,197				28,197
Total assets		$	1,295,380			$	1,309,875
Liabilities and Shareholders' Equity
Liabilities:
Notes payable		$	249,980			$	293,431
Accounts payable and accrued liabilities			108,824				109,174
Deferred income			58,555				54,964
Deferred income taxes, net			216,407				218,270
Total liabilities			633,766				675,839
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,111 shares as of September 30, 2020 and 24,296 shares as of December 31, 2019			106,079				106,360
Retained earnings			555,555				527,746
Accumulated other comprehensive loss			(20	)			(70	)
Total shareholders’ equity			661,614				634,036
Total liabilities and shareholders’ equity		$	1,295,380			$	1,309,875

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

		Nine Months Ended September 30,
(in thousands)		2020				2019
Cash Flows from Operating Activities:
Net income		$	70,809			$	70,405
Adjustments to reconcile net income to net cash provided by   operating activities:
Depreciation and amortization			71,249				65,960
Provision for doubtful accounts			1,227				655
Share-based compensation			4,894				4,096
Gain on sale of used rental equipment			(14,110	)			(15,168	)
Foreign currency exchange loss			189				46
Amortization of debt issuance costs			8				8
Change in:
Accounts receivable			(2,561	)			(16,929	)
Prepaid expenses and other assets			(1,314	)			(11,734	)
Accounts payable and accrued liabilities			(582	)			19,304
Deferred income			3,591				10,946
Deferred income taxes			(1,863	)			9,280
Net cash provided by operating activities			131,537				136,869
Cash Flows from Investing Activities:
Purchases of rental equipment			(65,661	)			(127,243	)
Purchases of property, plant and equipment			(9,639	)			(6,845	)
Cash paid for acquisition of business assets			—				(7,401	)
Proceeds from sales of used rental equipment			33,837				30,844
Net cash used in investing activities			(41,463	)			(110,645	)
Cash Flows from Financing Activities:
Net (repayment) borrowing under bank lines of credit			(43,460	)			2,897
Repurchase of common stock			(13,617	)			—
Taxes paid related to net share settlement of stock awards			(3,930	)			(1,864	)
Payment of dividends			(29,642	)			(26,432	)
Net cash used in financing activities			(90,649	)			(25,399	)
Effect of foreign currency exchange rate changes on cash			(224	)			(43	)
Net (decrease) increase in cash			(799	)			782
Cash balance, beginning of period			2,342				1,508
Cash balance, end of period		$	1,543			$	2,290
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period		$	6,829			$	9,359
Net income taxes paid, during the period		$	24,704			$	10,030
Dividends accrued during the period, not yet paid		$	10,355			$	9,241
Rental equipment acquisitions, not yet paid		$	5,827			$	9,450

BUSINESS SEGMENT DATA (unaudited)
Three months ended September 30, 2020
(dollar amounts in thousands)		Mobile Modular				TRS-RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	47,134			$	27,619			$	13,385			$	—			$	88,138
Rental related services			18,684				800				5,556				—				25,040
Rental operations			65,818				28,419				18,941				—				113,178
Sales			29,275				6,912				230				5,914				42,331
Other			320				525				94				—				939
Total revenues			95,413				35,856				19,265				5,914				156,448
Costs and Expenses
Direct costs of rental operations:
Depreciation			5,771				11,547				4,101				—				21,419
Rental related services			13,510				673				4,420				—				18,603
Other			11,780				4,820				1,953				—				18,553
Total direct costs of rental operations			31,061				17,040				10,474				—				58,575
Costs of sales			21,726				3,853				251				3,839				29,669
Total costs of revenues			52,787				20,893				10,725				3,839				88,244
Gross Profit (Loss)
Rental			29,583				11,252				7,331				—				48,166
Rental related services			5,174				127				1,136				—				6,437
Rental operations			34,757				11,379				8,467				—				54,603
Sales			7,549				3,059				(21	)			2,075				12,662
Other			320				525				94				—				939
Total gross profit			42,626				14,963				8,540				2,075				68,204
Selling and administrative expenses			17,739				5,962				5,821				1,349				30,871
Income from operations		$	24,887			$	9,001			$	2,719			$	726				37,333
Interest expense																			(1,968	)
Foreign currency exchange loss																			130
Provision for income taxes																			(7,394	)
Net income																		$	28,101
Other Information
Average rental equipment 1		$	829,460			$	336,015			$	314,933
Average monthly total yield 2			1.89	%			2.74	%			1.42	%
Average utilization 3			76.3	%			67.1	%			44.1	%
Average monthly rental rate 4			2.48	%			4.08	%			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, 2019
(dollar amounts in thousands)		Mobile Modular				TRS-RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	46,738			$	26,938			$	17,181			$	—			$	90,857
Rental related services			22,574				863				7,379				—				30,816
Rental operations			69,312				27,801				24,560				—				121,673
Sales			16,676				5,678				140				28,361				50,855
Other			314				611				109				—				1,034
Total revenues			86,302				34,090				24,809				28,361				173,562
Costs and Expenses
Direct costs of rental operations:
Depreciation			5,572				10,849				4,114				—				20,535
Rental related services			16,799				695				5,513				—				23,007
Other			12,804				4,088				2,762				—				19,654
Total direct costs of rental operations			35,175				15,632				12,389				—				63,196
Costs of sales			11,963				2,277				126				17,718				32,084
Total costs of revenues			47,138				17,909				12,515				17,718				95,280
Gross Profit
Rental			28,362				12,001				10,305				—				50,668
Rental related services			5,775				168				1,866				—				7,809
Rental operations			34,137				12,169				12,171				—				58,477
Sales			4,713				3,401				14				10,643				18,771
Other			314				611				109				—				1,034
Total gross profit			39,164				16,181				12,294				10,643				78,282
Selling and administrative expenses			16,966				6,038				7,160				1,370				31,534
Income from operations		$	22,198			$	10,143			$	5,134			$	9,273				46,748
Interest expense																			(3,161	)
Foreign currency exchange loss																			(132	)
Provision for income taxes																			(10,987	)
Net income																		$	32,468
Other Information
Average rental equipment 1		$	802,718			$	314,428			$	314,314
Average monthly total yield 2			1.94	%			2.86	%			1.82	%
Average utilization 3			79.4	%			66.9	%			54.5	%
Average monthly rental rate 4			2.45	%			4.27	%			3.34	%

 

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, 2020
(dollar amounts in thousands)		Mobile Modular				TRS-RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	141,172			$	81,167			$	40,934			$	—			$	263,273
Rental related services			51,291				2,296				16,439				—				70,026
Rental operations			192,463				83,463				57,373				—				333,299
Sales			51,847				17,943				960				16,616				87,366
Other			1,063				1,592				254				—				2,909
Total revenues			245,373				102,998				58,587				16,616				423,574
Costs and Expenses
Direct costs of rental operations:
Depreciation			17,177				35,129				12,334				—				64,640
Rental related services			37,222				1,836				12,702				—				51,760
Other			36,773				12,762				6,636				—				56,171
Total direct costs of rental operations			91,172				49,727				31,672				—				172,571
Costs of sales			37,274				9,350				799				10,488				57,911
Total costs of revenues			128,446				59,077				32,471				10,488				230,482
Gross Profit
Rental			87,222				33,276				21,964				—				142,462
Rental related services			14,069				460				3,737				—				18,266
Rental operations			101,291				33,736				25,701				—				160,728
Sales			14,573				8,593				161				6,128				29,455
Other			1,064				1,592				254				—				2,910
Total gross profit			116,928				43,921				26,116				6,128				193,093
Selling and administrative expenses			52,014				18,198				18,998				4,155				93,365
Income from operations		$	64,914			$	25,723			$	7,118			$	1,973				99,728
Interest expense																			(6,804	)
Foreign currency exchange loss																			(189	)
Provision for income taxes																			(21,926	)
Net income																		$	70,809
Other Information
Average rental equipment 1		$	822,723			$	337,330			$	314,859
Average monthly total yield 2			1.89	%			2.67	%			1.44	%
Average utilization 3			77.5	%			65.6	%			45.5	%
Average monthly rental rate 4			2.46	%			4.08	%			3.18	%

 

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

 

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Nine months ended September 30, 2019
(dollar amounts in thousands)		Mobile Modular				TRS-RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	133,736			$	76,050			$	51,872			$	—			$	261,658
Rental related services			52,946				2,425				21,367				—				76,738
Rental operations			186,682				78,475				73,239				—				338,396
Sales			31,401				16,745				1,003				32,238				81,387
Other			1,033				1,856				337				—				3,226
Total revenues			219,116				97,076				74,579				32,238				423,009
Costs and Expenses
Direct costs of rental operations:
Depreciation			16,449				30,533				12,240				—				59,222
Rental related services			39,454				2,008				16,045				—				57,507
Other			39,721				12,206				9,201				—				61,128
Total direct costs of rental operations			95,624				44,747				37,486				—				177,857
Costs of sales			21,463				7,656				713				20,152				49,984
Total costs of revenues			117,087				52,403				38,199				20,152				227,841
Gross Profit
Rental			77,566				33,311				30,431				—				141,308
Rental related services			13,492				417				5,322				—				19,231
Rental operations			91,058				33,728				35,753				—				160,539
Sales			9,938				9,089				290				12,086				31,403
Other			1,033				1,856				337				—				3,226
Total gross profit			102,029				44,673				36,380				12,086				195,168
Selling and administrative expenses			48,013				18,101				22,054				3,876				92,044
Income from operations		$	54,016			$	26,572			$	14,326			$	8,210				103,124
Interest expense																			(9,407	)
Foreign currency exchange loss																			(46	)
Provision for income taxes																			(23,266	)
Net income																		$	70,405
Other Information
Average rental equipment 1		$	789,664			$	299,210			$	313,475
Average monthly total yield 2			1.88	%			2.82	%			1.84	%
Average utilization 3			79.1	%			66.0	%			56.2	%
Average monthly rental rate 4			2.38	%			4.28	%			3.27	%

 

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,
		2020				2019				2020				2019				2020				2019
Net income		$	28,101			$	32,468			$	70,809			$	70,405			$	97,210			$	94,654
Provision for income taxes			7,395				10,987				21,926				23,266				30,979				31,035
Interest expense			1,968				3,161				6,804				9,407				9,728				12,571
Depreciation and amortization			23,586				22,873				71,249				65,960				94,765				87,039
EBITDA			61,050				69,489				170,788				169,038				232,682				225,299
Share-based compensation			1,670				1,350				4,894				4,096				6,690				5,397
Adjusted EBITDA 1		$	62,720			$	70,839			$	175,682			$	173,134			$	239,372			$	230,696
Adjusted EBITDA margin 2			40	%			41	%			41	%			41	%			42	%			41	%

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,
		2020				2019				2020				2019				2020				2019
Adjusted EBITDA 1		$	62,720			$	70,839			$	175,682			$	173,134			$	239,372			$	230,696
Interest paid			(1,798	)			(3,149	)			(6,829	)			(9,359	)			(9,945	)			(12,764	)
Income taxes paid, net of refunds received			(22,551	)			(3,857	)			(24,704	)			(10,030	)			(32,202	)			(12,132	)
Gain on sale of used rental equipment			(4,508	)			(6,000	)			(14,110	)			(15,168	)			(20,251	)			(19,683	)
Foreign currency exchange loss (gain)			(130	)			132				189				46				59				30
Amortization of debt issuance costs			3				3				8				8				11				10
Change in certain assets and liabilities:
Accounts receivable, net			(3,493	)			(16,272	)			(1,334	)			(16,274	)			8,630				(22,201	)
Prepaid expenses and other assets			327				9,512				(1,314	)			(11,734	)			(3,110	)			(10,890	)
Accounts payable and other liabilities			5,669				(363	)			358				15,300				2,315				17,167
Deferred income			(2,224	)			(5,963	)			3,591				10,946				(2,217	)			12,463
Net cash provided by operating activities		$	34,015			$	44,882			$	131,537			$	136,869			$	182,662			$	182,696

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

FOR INFORMATION CONTACT:	Keith E. Pratt
	EVP & Chief Financial Officer
	925-606-9200

Source: McGrath RentCorp