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 COMPANYHIGHLIGHTS:

  • 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 EBITDA1,2: $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



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Source: McGrath RentCorp

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