UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
Form 8-K
_____________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event Reported): October 30, 2018
McGRATH RENTCORP
(Exact Name of Registrant as Specified in Charter)
| California | 000-13292 | 94-2579843 |
| (State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification Number) |
| 5700 Las Positas Road, Livermore, CA 94551-7800 |
| (Address of Principal Executive Offices) (Zip Code) |
(925) 606-9200
(Registrant's telephone number, including area code)
| Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: | ||
| [ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| [ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| [ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| [ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b- 2). Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Item 2.02. Results of Operations and Financial Condition.
On October 30, 2018, McGrath RentCorp (the “Company”) announced via press release the Company’s results for its third quarter ended September 30, 2018. A copy of the Company’s press release is attached hereto as Exhibit 99.1. This Form 8-K and the attached exhibit are provided under Items 2.02 of Form 8-K and are furnished to, but not filed with, the Securities and Exchange Commission, and shall not be incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits. Exhibit No. Description 99.1 Press Release of McGrath RentCorp, dated October 30, 2018.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| McGRATH RENTCORP | ||
| Dated: October 30, 2018 | By: | /s/ Keith E. Pratt |
| Keith E. Pratt | ||
| Executive Vice President and Chief Financial Officer | ||
EXHIBIT 99.1
McGrath RentCorp Announces Results for Third Quarter 2018
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.”
________________________
- 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 | % | |||||||||||||
- 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.
- Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
- 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.
- 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 | % | ||||||||||||
- 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.
- Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
- 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.
- 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 | % | ||||||||||||
- 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.
- Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
- 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.
- 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 | % | ||||||||||||
- 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.
- Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
- 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.
- 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 | |||||||||||
- Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs and share-based compensation.
- Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by total revenues for the period.