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8-K

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 26, 2023

McGRATH RENTCORP

(Exact name of Registrant as Specified in Its Charter)


California	000-13292	94-2579843
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

5700 Las Positas Road
Livermore, California		94551-7800
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (925) 606-9200

(Former Name or Former Address, if Changed Since Last Report)

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))

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	MGRC	Nasdaq Global Select Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

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 26, 2023, McGrath RentCorp (the “Company”) announced via press release the Company’s results for its third quarter ended September 30, 2023. 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 Item 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 26, 2023.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

SIGNATURES

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

Date:	October 26, 2023	By:	/s/ Keith E. Pratt
			Keith E. Pratt Executive Vice President and Chief Financial Officer

EX-99.1

Exhibit 99.1

Contact

Keith E. Pratt

EVP & Chief Financial Officer

925-606-9200

PRESS RELEASE

FOR RELEASE October 26, 2023

McGrath Announces Results for Third Quarter 2023

Livermore, CA - October 26, 2023 – McGrath RentCorp (“McGrath” or the “Company”) (Nasdaq: MGRC), a leading business-to-business rental company in North America, today announced total revenues from continuing operations for the quarter ended September 30, 2023 of $243.5 million, an increase of 40% compared to the third quarter of 2022. The Company reported net income from continuing operations of $40.4 million, or $1.65 per diluted share, for the third quarter of 2023, compared to net income from continuing operations of $27.1 million, or $1.11 per diluted share, for the third quarter of 2022.

THIRD QUARTER 2023 YEAR-OVER-YEAR Company HIGHLIGHTS (FROM CONTINUING OPERATIONS):

•

Rental revenues increased 22% to $122.7 million.

•

Total revenues increased 40% to $243.5 million.

•

Other income for the third quarter 2023 includes a $3.6 million net gain on sale of two properties, which increased earnings per diluted share by $0.11.

•

Adjusted EBITDA1 increased 47% to $95.3 million.

•

Dividend rate of $0.465 per share for the third quarter of 2023. On an annualized basis, this dividend represents a 1.9% yield on the October 25, 2023 close price of $97.06 per share.

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

“We were very pleased with our third quarter results. Our 22% increase in companywide rental revenues was driven by strong modular segment performance. Modular rental revenues grew 36%, with over half of the growth attributable to our Vesta Modular and several smaller Portable Storage acquisitions completed earlier this year. Before acquisitions, the modular segment rental revenues grew organically by a robust 13%.

Our modular business saw broad based rental strength across commercial, education and portable storage customer bases. We maintained our focus on pricing optimization, rental fleet utilization, and value-added services for our modular customers. Our initiatives to grow modular sales also showed progress as sales revenues doubled compared to a year ago.

TRS-RenTelco experienced continued softness in semiconductor related demand, resulting in 10% lower rental revenues for the quarter, compared to a year ago. During the quarter we reduced new equipment capital spending, made progress with sales of underutilized equipment, and improved rental fleet utilization to above 60% at quarter-end.

We made good progress with the Vesta integration. Our organization work is complete and the Vesta team is fully integrated into the McGrath organization. I am very pleased with the team collaboration and commercial successes that have been achieved.

We are very pleased with our year-to-date performance, and we are fully focused on solid execution for the remainder of the year.”

Division HIGHLIGHTS:

All comparisons presented below are for the quarter ended September 30, 2023 to the quarter ended September 30, 2022 unless otherwise indicated.

Mobile Modular

For the third quarter of 2023, the Company’s Mobile Modular division reported Adjusted EBITDA of $73.0 million, an increase of $33.1 million, or 83%.

•

Rental revenues increased 36% to $94.0 million, depreciation expense increased 30% to $10.0 million, and other direct costs increased 2% to $23.4 million, which resulted in an increase in gross profit on rental revenues of 57% to $60.6 million. Vesta Modular contributed $14.8 million and $10.2 million in rental revenues and gross profit during the quarter, respectively.

•

Rental related services revenues increased 45% to $39.7 million, primarily attributable to higher delivery and pick up activities and higher site related services, with associated gross profit increasing 60% to $11.8 million. Vesta Modular contributed $4.0 million and $1.8 million in rental related services revenues and gross profit during the quarter, respectively.

•

Sales revenues increased $29.9 million to $58.9 million, primarily from higher new equipment sales. Gross margin on sales was 32% compared to 35% in 2022, resulting in a 86% increase in gross profit on sales revenues to $19.0 million. Vesta Modular contributed $16.2 million and $5.1 million in sales revenues and gross profit during the quarter, respectively.

•

Selling and administrative expenses increased $11.0 million to $39.8 million. The addition of Vesta Modular increased selling and administrative expenses by $6.0 million, which included $1.2 million higher amortization of intangibles. In addition, allocated corporate expenses increased $2.7 million.

TRS-RenTelco

For the third quarter of 2023, the Company’s TRS-RenTelco division reported Adjusted EBITDA of $21.9 million, a decrease of 9%, when compared to the same quarter in 2022.

•

Rental revenues decreased 10% to $28.7 million, depreciation expense decreased 3%, and other direct costs decreased 4%, resulting in a 18% decrease in gross profit on rental revenues to $11.5 million. The rental revenue decrease was primarily the result of lower average rental equipment on rent compared to the prior year and comparable average monthly rental rates.

•

Sales revenues increased 58% to $8.7 million and gross profit on sales revenues decreased 9% to $3.1 million. The higher sales revenues and lower gross profit on sales can be attributed to the mix of equipment sold, which can fluctuate quarterly depending on customer requirements, equipment availability and funding.

•

Selling and administrative expenses increased $0.3 million, or 4%, to $7.0 million, primarily due to higher allocated corporate expenses.

financial outlook:

Based upon the Company's year-to-date results and current outlook for the remainder of the year, the Company is revising its financial outlook. For the full-year 2023, the Company expects:


		Previous (Continuing Operations)	Current (Continuing Operations)
•	Total revenue:	$805 to $830 million	$820 to $830 million
•	Adjusted EBITDA1, 2:	$306 to $320 million	$312 to $320 million
•	Gross rental equipment capital expenditures:	$190 to $200 million	$190 to $200 million

Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs. 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. Adjusted EBITDA from continuing operations for the quarter ended September 30, 2023, excludes the income from discontinued operations from the divestiture of Adler Tanks.

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:

McGrath RentCorp (Nasdaq: MGRC) is a leading business-to-business rental company in North America with a strong record of profitable business growth. Founded in 1979, McGrath’s operations are centered on modular solutions through its Mobile Modular and Mobile Modular Portable Storage businesses. In addition, its TRS-RenTelco business offers electronic test equipment rental solutions. The Company’s rental product offerings and services are part of the circular supply economy, helping customers work more efficiently, and sustainably manage their environmental footprint. With over 40 years of experience, McGrath’s success is driven by a focus on exceptional customer experiences. This focus has underpinned the Company’s long-term financial success and supported over 30 consecutive years of annual dividend increases to shareholders, a rare distinction among publicly listed companies.

McGrath is headquartered in Livermore, California. Additional information about McGrath and its businesses is available at mgrc.com and investors.mgrc.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 September 28, 2023, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on October 26, 2023 to discuss the third quarter 2023 results. To participate in the teleconference, dial 1-800-245-3047 (in the U.S.), or 1-203-518-9765 (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 1-800-839-5685 (in the U.S.), or 1-402-220-2567 (outside the U.S.). 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 statements about (i) progress with sales of underutilized TRS equipment, (ii) focus on solid execution for the remainder of the year, and (iii) statements regarding the full year 2023 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: health of the education and commercial markets in our modular building division; unforeseen liabilities and integration challenges associated with the Vesta, Brekke Storage, Dixie Storage and Inland Storage acquisitions; competition within the modular business; the activity levels in the semiconductor and general purpose and communications test equipment markets at TRS-RenTelco; continued execution of our strategic performance improvement initiatives; our ability to successfully increase prices to offset cost increases; and our ability to effectively manage our rental assets, as well as the other 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)	2023			2022			2023			2022
Revenues
Rental	$	122,686		$	100,871		$	350,773		$	285,588
Rental related services		40,492			28,198			101,481			69,276
Rental operations		163,178			129,069			452,254			354,864
Sales		77,115			44,414			148,576			95,503
Other		3,213			860			9,424			2,397
Total revenues		243,506			174,343			610,254			452,764
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment		22,069			20,174			66,499			60,118
Rental related services		28,532			20,576			71,625			50,116
Other		28,493			28,203			90,188			82,573
Total direct costs of rental operations		79,094			68,953			228,312			192,807
Costs of sales		52,878			28,548			98,431			58,124
Total costs of revenues		131,972			97,501			326,743			250,931
Gross profit		111,534			76,842			283,511			201,833
Selling and administrative expenses		48,508			36,954			153,032			103,368
Other income		(3,559	)		—			(3,559	)		—
Income from operations		66,585			39,888			134,038			98,465
Interest expense		(11,025	)		(3,355	)		(28,434	)		(8,057	)
Foreign currency exchange (loss) gain		(42	)		(236	)		166			(404	)
Income from continuing operations before provision for income taxes		55,518			36,297			105,770			90,004
Provision for income taxes from continuing operations		15,152			9,182			25,934			21,687
Income from continuing operations		40,366			27,115			79,836			68,317

Discontinued operations:
Income from discontinued operations before provision for income taxes		—			4,635			1,709			9,350
Provision for income taxes from discontinued operations		—			1,183			453			2,170
Gain on sale of discontinued operations, net of tax		—			—			61,513			—
Income from discontinued operations		—			3,452			62,769			7,180

Net income	$	40,366		$	30,567		$	142,605		$	75,497

Earnings per share from continuing operations:
Basic	$	1.65		$	1.11		$	3.26		$	2.81
Diluted	$	1.65		$	1.11		$	3.26		$	2.79
Earnings per share from discontinued operations:
Basic	$	—		$	0.14		$	2.57		$	0.29
Diluted	$	—		$	0.14		$	2.56		$	0.29
Earnings per share:
Basic	$	1.65		$	1.25		$	5.83		$	3.10
Diluted	$	1.65		$	1.25		$	5.81		$	3.08
Shares used in per share calculation:
Basic		24,487			24,379			24,461			24,342
Diluted		24,525			24,504			24,527			24,516
Cash dividends declared per share	$	0.465		$	0.455		$	1.395		$	1.365

MCGRATH RENTCORP

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	September 30,			December 31,
(in thousands)	2023			2022
Assets
Cash	$	1,946		$	957
Accounts receivable, net of allowance for credit losses of $2,683 in 2023 and $2,300 in 2022		224,269			169,937
Rental equipment, at cost:
Relocatable modular buildings		1,474,359			1,123,268
Electronic test equipment		383,006			398,267
		1,857,365			1,521,535
Less: accumulated depreciation		(565,497	)		(531,218	)
Rental equipment, net		1,291,868			990,317
Property, plant and equipment, net		146,484			138,713
Prepaid expenses and other assets		80,853			69,837
Intangible assets, net		67,480			35,431
Goodwill		323,771			106,403
Assets of discontinued operations		—			196,249
Total assets	$	2,136,671		$	1,707,844
Liabilities and Shareholders' Equity
Liabilities:
Notes payable	$	667,640		$	413,742
Accounts payable and accrued liabilities		223,010			151,208
Deferred income		105,534			82,417
Deferred income taxes, net		229,115			203,361
Liabilities of discontinued operations		—			53,171
Total liabilities		1,225,299			903,899
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,489 shares as of September 30, 2023 and 24,388 shares as of December 31, 2022		109,253			110,080
Retained earnings		802,161			693,943
Accumulated other comprehensive loss		(42	)		(78	)
Total shareholders’ equity		911,372			803,945
Total liabilities and shareholders’ equity	$	2,136,671		$	1,707,844

MCGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
(in thousands)	2023			2022
Cash Flows from Operating Activities:
Net income	$	142,605		$	75,497
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		81,842			83,272
Deferred income taxes		(30,018	)		(4,299	)
Provision for credit losses		1,794			307
Share-based compensation		5,273			5,106
Gain on sale of property, plant and equipment		(3,559	)		—
Gain on sale of discontinued operations		(61,513	)		—
Gain on sale of used rental equipment		(22,964	)		(26,705	)
Foreign currency exchange (gain) loss		(166	)		404
Amortization of debt issuance costs		6			13
Change in:
Accounts receivable		(27,733	)		(30,767	)
Prepaid expenses and other assets		(7,390	)		(17,313	)
Accounts payable and accrued liabilities		32,818			14,384
Deferred income		7,908			33,399
Net cash provided by operating activities		118,903			133,298
Cash Flows from Investing Activities:
Proceeds from sale of discontinued operations		268,012			—
Purchases of rental equipment		(171,322	)		(130,395	)
Purchases of property, plant and equipment		(16,448	)		(10,594	)
Cash paid for acquisition of businesses		(458,315	)		—
Cash paid for acquisition of business assets		(3,474	)		—
Proceeds from sales of used rental equipment		49,405			54,193
Proceeds from sales of property, plant and equipment		595			—
Net cash used in investing activities		(331,547	)		(86,796	)
Cash Flows from Financing Activities:
Net borrowings (payments) under bank lines of credit		178,892			(7,000	)
Borrowings under note purchase agreement		75,000			—
Taxes paid related to net share settlement of stock awards		(6,100	)		(6,253	)
Payment of dividends		(34,168	)		(33,175	)
Net cash provided by (used in) financing activities		213,624			(46,428	)
Effect of foreign currency exchange rate changes on cash		9			(4	)
Net increase in cash		989			70
Cash balance, beginning of period		957			1,491
Cash balance, end of period	$	1,946		$	1,561
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period	$	27,818		$	8,982
Net income taxes paid, during the period	$	9,547		$	24,885
Dividends accrued during the period, not yet paid	$	12,014		$	11,167
Rental equipment acquisitions, not yet paid	$	5,765		$	9,555
Proceeds to be received on the sale of property, plant and equipment	$	6,370		$	—
Business acquisition payments withheld	$	293		$	—


MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended September 30, 2023
(dollar amounts in thousands)	Mobile Modular			TRS-RenTelco			Enviroplex		Adler Tanks (Discontinued)		Consolidated
Revenues
Rental	$	94,028		$	28,658		$	—	$	—	$	122,686
Rental related services		39,716			776			—		—		40,492
Rental operations		133,744			29,434			—		—		163,178
Sales		58,867			8,733			9,515		—		77,115
Other		2,271			942			—		—		3,213
Total revenues		194,882			39,109			9,515		—		243,506

Costs and Expenses
Direct costs of rental operations:
Depreciation		10,037			12,032			—		—		22,069
Rental related services		27,927			605			—		—		28,532
Other		23,353			5,140			—		—		28,493
Total direct costs of rental operations		61,317			17,777			—		—		79,094
Costs of sales		39,821			5,651			7,406		—		52,878
Total costs of revenues		101,138			23,428			7,406		—		131,972

Gross Profit
Rental		60,638			11,486			—		—		72,124
Rental related services		11,789			171			—		—		11,960
Rental operations		72,427			11,657			—		—		84,084
Sales		19,046			3,082			2,109		—		24,237
Other		2,271			942			—		—		3,213
Total gross profit		93,744			15,681			2,109		—		111,534
Selling and administrative expenses		39,832			6,999			1,677		—		48,508
Other income		(2,740	)		(819	)		—		—		(3,559	)
Income from operations	$	56,652		$	9,501		$	432	$	—		66,585
Interest expense												(11,025	)
Foreign currency exchange loss												(42	)
Provision for income taxes												(15,152	)
Net income											$	40,366

Other Information
Adjusted EBITDA 1	$	72,953		$	21,858		$	517	$	—	$	95,328
Average rental equipment 2	$	1,350,562		$	385,353
Average monthly total yield 3		2.32	%		2.46	%
Average utilization 4		79.4	%		59.4	%
Average monthly rental rate 5		2.92	%		4.17	%

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs. Adjusted EBITDA for the quarter ended September 30, 2023, excludes the gain on sale of discontinued operations from the divestiture of Adler Tanks.

2. Average rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.

3. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.

4. 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.

5. 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, 2022
(dollar amounts in thousands)	Mobile Modular			TRS-RenTelco			Enviroplex		Adler Tanks (Discontinued)		Consolidated
Revenues
Rental	$	69,111		$	31,760		$	—	$	17,490	$	118,361
Rental related services		27,353			845			—		7,163		35,361
Rental operations		96,464			32,605			—		24,653		153,722
Sales		28,922			5,514			9,978		977		45,391
Other		452			408			—		563		1,423
Total revenues		125,838			38,527			9,978		26,193		200,536

Costs and Expenses
Direct costs of rental operations:
Depreciation		7,747			12,427			—		4,002		24,176
Rental related services		19,973			603			—		5,395		25,971
Other		22,837			5,366			—		3,505		31,708
Total direct costs of rental operations		50,557			18,396			—		12,902		81,855
Costs of sales		18,696			2,133			7,719		693		29,241
Total costs of revenues		69,253			20,529			7,719		13,595		111,096

Gross Profit
Rental		38,527			13,967			—		9,983		62,477
Rental related services		7,380			242			—		1,768		9,390
Rental operations		45,907			14,209			—		11,751		71,867
Sales		10,226			3,381			2,259		284		16,150
Other		452			408			—		563		1,423
Total gross profit		56,585			17,998			2,259		12,598		89,440
Selling and administrative expenses		28,798			6,726			1,430		7,141		44,095
Other income		—			—			—		—		—
Income from operations	$	27,787		$	11,272		$	829	$	5,457		45,345
Interest expense												(4,177	)
Foreign currency exchange loss												(236	)
Provision for income taxes												(10,365	)
Net income											$	30,567

Other Information
Adjusted EBITDA 1	$	39,901		$	23,894		$	900	$	10,192	$	74,887
Average rental equipment 2	$	1,030,792		$	389,675
Average monthly total yield 3		2.23	%		2.71	%
Average utilization 4		80.1	%		65.3	%
Average monthly rental rate 5		2.79	%		4.16	%

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs.

2. Average rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.

3. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.

4. 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.

5. 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, 2023
(dollar amounts in thousands)	Mobile Modular			TRS-RenTelco			Enviroplex			Adler Tanks (Discontinued)		Consolidated
Revenues
Rental	$	264,398		$	86,375		$	—		$	6,520	$	357,293
Rental related services		99,158			2,323			—			2,584		104,065
Rental operations		363,556			88,698			—			9,104		461,358
Sales		115,829			21,368			11,379			269		148,845
Other		6,416			3,008			—			65		9,489
Total revenues		485,801			113,074			11,379			9,438		619,692

Costs and Expenses
Direct costs of rental operations:
Depreciation		29,766			36,733			—			1,325		67,824
Rental related services		69,618			2,007			—			2,020		73,645
Other		74,345			15,843			—			1,270		91,458
Total direct costs of rental operations		173,729			54,583			—			4,614		232,926
Costs of sales		78,102			11,307			9,022			159		98,590
Total costs of revenues		251,831			65,890			9,022			4,773		331,516

Gross Profit
Rental		160,287			33,799			—			3,926		198,012
Rental related services		29,540			316			—			564		30,420
Rental operations		189,827			34,115			—			4,490		228,432
Sales		37,727			10,061			2,357			110		50,255
Other		6,416			3,008			—			65		9,489
Total gross profit		233,970			47,184			2,357			4,665		288,176
Selling and administrative expenses		124,642			23,576			4,814			2,582		155,614
Other income		(2,740	)		(819	)		—			—		(3,559	)
Income (loss) from operations	$	112,068		$	24,427		$	(2,457	)	$	2,083		136,121
Interest expense													(28,808	)
Foreign currency exchange loss													166
Provision for income taxes													(26,387	)
Net income												$	81,092

Other Information
Adjusted EBITDA 1	$	172,222		$	64,031		$	(2,207	)	$	3,682	$	237,728
Average rental equipment 2	$	1,275,330		$	391,993
Average monthly total yield 3		2.30	%		2.43	%
Average utilization 4		79.5	%		59.0	%
Average monthly rental rate 5		2.90	%		4.15	%

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs. Adjusted EBITDA for the nine months ended September 30, 2023, excludes the gain on sale of discontinued operations from the divestiture of Adler Tanks.

2. Average rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.

3. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.

4. 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.

5. 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, 2022
(dollar amounts in thousands)	Mobile Modular			TRS-RenTelco			Enviroplex			Adler Tanks (Discontinued)		Consolidated
Revenues
Rental	$	195,598		$	89,990		$	—		$	47,638	$	333,226
Rental related services		66,947			2,329			—			19,221		88,497
Rental operations		262,545			92,319			—			66,859		421,723
Sales		64,113			15,845			15,545			2,235		97,738
Other		1,202			1,195			—			1,082		3,479
Total revenues		327,860			109,359			15,545			70,176		522,940

Costs and Expenses
Direct costs of rental operations:
Depreciation		23,329			36,789			—			11,996		72,114
Rental related services		48,269			1,847			—			14,851		64,967
Other		67,072			15,501			—			9,783		92,356
Total direct costs of rental operations		138,670			54,137			—			36,630		229,437
Costs of sales		39,785			6,398			11,941			1,613		59,737
Total costs of revenues		178,455			60,535			11,941			38,243		289,174

Gross Profit
Rental		105,197			37,700			—			25,859		168,756
Rental related services		18,678			482			—			4,370		23,530
Rental operations		123,875			38,182			—			30,229		192,286
Sales		24,328			9,447			3,604			622		38,001
Other		1,202			1,195			—			1,082		3,479
Total gross profit		149,405			48,824			3,604			31,933		233,766
Selling and administrative expenses		79,245			19,930			4,193			20,642		124,010
Other income		—			—			—			—		—
Income (loss) from operations	$	70,160		$	28,894		$	(589	)	$	11,291		109,756
Interest expense													(9,998	)
Foreign currency exchange loss													(404	)
Provision for income taxes													(23,857	)
Net income												$	75,497

Other Information
Adjusted EBITDA 1	$	106,156		$	66,675		$	(377	)	$	25,443	$	197,897
Average rental equipment 2	$	1,019,105		$	379,181
Average monthly total yield 3		2.13	%		2.63	%
Average utilization 4		78.5	%		64.8	%
Average monthly rental rate 5		2.72	%		4.07	%

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs.

2. Average rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.

3. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.

4. 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.

5. 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, share-based compensation and transaction costs. 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 and transaction costs, 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 and transaction costs. 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 Income from Continuing Operations to Adjusted EBITDA


(dollar amounts in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,						Twelve Months Ended September 30,
	2023			2022			2023			2022			2023			2022
Income from continuing operations	$	40,366		$	27,115		$	79,836		$	68,317		$	114,828		$	95,182
Provision for income taxes from continuing operations		15,152			9,182			25,934			21,687			35,624			32,331
Interest expense		11,025			3,355			28,434			8,057			32,607			10,653
Depreciation and amortization		26,884			23,491			80,385			69,982			104,043			93,065
EBITDA		93,427			63,143			214,589			168,043			287,102			231,231
Share-based compensation		1,891			1,461			5,155			4,244			7,658			6,278
Transaction costs 3		10			167			14,302			167			18,188			899
Adjusted EBITDA 1	$	95,328		$	64,771		$	234,046		$	172,454		$	312,948		$	238,408
Adjusted EBITDA margin 2		39	%		37	%		38	%		38	%		39	%		39	%

Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities


(dollar amounts in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,						Twelve Months Ended September 30,
	2023			2022			2023			2022			2023			2022
Adjusted EBITDA 1	$	95,328		$	74,887		$	237,728		$	197,897		$	328,697		$	271,589
Interest paid		(11,016	)		(3,161	)		(27,818	)		(8,982	)		(33,611	)		(12,831	)
Income taxes paid, net of refunds received		(2,616	)		(7,807	)		(9,547	)		(24,885	)		(12,024	)		(25,898	)
Gain on sale of used rental equipment		(8,714	)		(10,612	)		(22,964	)		(26,705	)		(34,238	)		(34,358	)
Foreign currency exchange loss		42			236			(166	)		404			(192	)		429
Amortization of debt issuance costs		2			4			6			13			9			17
Change in certain assets and liabilities:
Accounts receivable, net		(26,223	)		(22,630	)		(25,939	)		(30,460	)		(26,003	)		(21,128	)
Prepaid expenses and other assets		1,114			(6,458	)		(7,390	)		(17,313	)		(6,561	)		(12,720	)
Accounts payable and other liabilities		917			12,232			(32,915	)		9,930			(34,250	)		5,302
Deferred income		(1,382	)		14,564			7,908			33,399			(1,790	)		22,353
Net cash provided by operating activities	$	47,452		$	51,255		$	118,903		$	133,298		$	180,037		$	192,755

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs. Adjusted EBITDA for the nine months ended September 30, 2023, excludes the gain on sale of discontinued operations from

the divestiture of Adler Tanks. Total Adjusted EBITDA attributed to discontinued operations for the nine months ended September 30, 2023 and 2022, was $3,682 and $25,443, respectively.

2. Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by total revenues for the period.

3. Transaction costs include acquisition and divestiture related legal and professional fees and other costs specific to these transactions.