Rental revenues increase 2% EPS decreases 18% to $0.32 for the quarter

LIVERMORE, Calif., July 30, 2015 (GLOBE NEWSWIRE) -- McGrath RentCorp (NASDAQ:MGRC) (the "Company"), a diversified business-to-business rental company, today announced total revenues for the quarter ended June 30, 2015, of $96.0 million, an increase of less than 1%, compared to $95.7 million in the second quarter of 2014. The Company reported net income of $8.5 million, or $0.32 per diluted share for the second quarter of 2015, compared to net income of $10.2 million, or $0.39 per diluted share, in the second quarter of 2014. Second quarter 2014 results included a $0.8 million non-operating gain on sale of an excess property, which contributed $0.02 per diluted share.

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

"Our electronics rental business second quarter results were well below our expectations and chiefly responsible for the overall Company's year over year decline in second quarter EPS of $0.07 to $0.32 from $0.39 a year ago. The shortfall in TRS-RenTelco rental revenues for the quarter compared to a year ago, directly related to reduced communications test equipment business activity levels, was the primary factor behind TRSR's approximately $0.07 EPS reduction to overall Company earnings. The Company's quarterly results were also negatively impacted by Adler Tank Rentals' exposure to depressed crude oil prices and the related current industry oversupply of 21K tanks, resulting in approximately a $0.03 reduction in EPS for the quarter compared to a year ago. In addition, 2014 second quarter results included a non-operating gain on sale of an excess property which contributed $0.02 to EPS. Partially offsetting these year over year comparisons, our modular segment contributed approximately $0.05 more in EPS for the quarter compared to the same period a year ago. Our modular segment results were driven primarily by the continuing strong recovery of our modular building business, and secondarily by increasing profitability from our portable storage business.

Rental revenues for TRS-RenTelco, our electronics division, declined by $2.5 million for the quarter, or 10%, to $21.9 million from a year ago. The year over year reduction in rental revenues was driven entirely by lower communications test equipment business activity. We continued to experience a significantly slower wireless communications network upgrade environment compared to the first half of 2014. We had anticipated higher activity levels in this market vertical beginning in the second quarter that did not materialize. Although we anticipate some improvement in test equipment order activity in communications network upgrades in the second half of 2015, we have pared back our expectations significantly. General-purpose test equipment rental activity which had been slow throughout 2014 continued to improve during the second quarter. During the second quarter, the average rental billing level for these products was higher than for the same period a year ago. EBIT, or income from operations, for the quarter declined by $3.1 million, or 35%, from the same period in 2014. The reduction in rental revenue of $2.5 million was the primary contributor to lower year over year EBIT along with lower gross profit on equipment sales, higher laboratory costs and depreciation expense, partially offset by lower SG&A expenses. The higher percentage drop in year over year EBIT at 35% compared to rental revenues at 10% is primarily due to equipment mix and depreciation expense typically making up between 70 to 75% of direct rental costs. In other words, within any given quarter, we only have a limited amount of variable cost associated with rental revenue generation that can easily and responsibly be taken out of the business. In particular, with communications test equipment having much shorter depreciable lives than for general-purpose test equipment, there is a significantly higher monthly depreciation expense, but also much higher rental rates than for general-purpose test equipment. As a result, when communications test equipment is unutilized it impacts profitability more significantly than for general-purpose test equipment due to its higher carrying costs without its matching higher rental rates and revenues. Average equipment utilization was 59.5% for the second quarter, compared to 59.3% for the same period in 2014. Average rental rates for the second quarter of 2015 declined by 13% to 4.56% from 5.25% a year ago, primarily due to the on-rent equipment mix increasing for general-purpose and decreasing for communications test equipment. General-purpose test equipment has longer depreciable lives and lower rental rates than communications test equipment.

Rental revenues at Adler Tank Rentals, our liquid and solid containment tank and box division, declined by $1.0 million for the quarter, or 5% to $17.7 million from a year ago. Adler Tank Rentals serves a wide variety of market segments including industrial plant, petrochemical, pipeline, oil & gas, waste management, environmental field service and construction. Average utilization and total original cost of rental equipment were 60.6% and $303 million for the quarter compared to 63.2% and $287 million a year ago. Second quarter average equipment on rent at original cost was $183 million compared to $181 million for the same period in 2014. Period end equipment on rent at original cost rose to $188 million from $179 million a year ago. However, average monthly rental rates slid to 3.23% from 3.44%, or by 6% from a year ago. The reduction in rental rates is primarily due to lower crude oil prices and the significant decline in wellhead related drilling and completions activity, resulting in highly competitive upstream rental market conditions, in particular for 21K tanks. The oversupply of 21K tanks relative to demand in the oilfields is also putting downward pressure on rental pricing in midstream, downstream and other market verticals. Keep in mind, our 21K tanks are a multipurpose product and are the primary containment source utilized in virtually all market verticals from ground water collection to fracking to ethanol glycol (deicing fluid) storage. We remain cautious in our outlook for our liquid and solid containment rental business for the remainder of 2015 due to the current excess supply of 21K tanks in the marketplace. EBIT for the quarter decreased $1.2 million, or 18%, to $5.5 million from a year ago. The higher percentage decrease in EBIT at 18% as compared to rental revenues at 5% for the quarter was primarily a result of lower profit on rental related services, higher loss on equipment sales, and higher depreciation expense, partially offset by lower equipment preparation costs, all from a year ago.

Modular division-wide rental revenues for the quarter increased $5.0 million, or 22%, to $27.7 million from a year ago. This is the ninth consecutive year over year quarterly rental revenue increase. During the second quarter, we experienced a 29% increase in division-wide year over year first month's rental revenue bookings for modular buildings with a 28% increase in California and 29% outside the state. Second quarter 2015 modular division average utilization was 74.4%, an increase from 70.3% a year ago. Modular division EBIT for the quarter increased to $5.3 million, or by 77%, from the same period a year ago. EBIT margin increased to 13% from 8% a year ago. This favorable increase in EBIT profit and margin was driven primarily by higher rental revenues and rental revenue margin expansion. Gross margin on rental revenues increased to 44% for the quarter from 41% a year ago. Modular division EBIT results also benefited from higher profit on rental related services, offset by higher SG&A expenses and lower profit on equipment sales from last year's quarter. It should be noted that these results were generated despite a year over year 14% increase in building and container preparation, and inventory center related, costs associated with meeting continued strong order demand for both products.

Mobile Modular Portable Storage made good progress during the second quarter in building its customer following, increasing booking levels, and growing both rental revenues and profitability. First month's rent booking levels and rental revenues for the second quarter grew by 20% and 36%, respectively, from the same period a year ago. EBIT for our storage container rental business was up two-fold from the second quarter of 2014. We are targeting further geographic expansion during 2015. We are on track towards building a meaningful-sized storage container rental business with attractive operating metrics.

As a result of our electronic test equipment division earnings shortfall to date, coupled with a challenging outlook for communications market rental opportunities for the remainder of 2015, we are revising our 2015 full year EPS guidance to a range of $1.55 to $1.65 from $1.75 to $1.95. It's important to emphasize when there are shortfalls in rental revenues in our electronics business, and in particular related to communications test equipment products with shorter depreciable lives, the negative earnings impact can be significant as discussed above. Conversely, when this communications test equipment is utilized, the great majority of the rental revenue generated will drop to the pre-tax line.

Over the past few years, we have been through a significant investment cycle in the Company. During this period, we launched our portable storage business, expanded our modular business to the Mid-Atlantic region from Georgia to Washington D.C., entered the liquid and solid containment rental industry through the acquisition of Adler Tank Rentals and created a national footprint for the business, and shepherded the turnaround and early recovery of our legacy largest earnings engine modular business to improving financial health from having lost approximately $1.00 of annual EPS due to the effects of the Great Recession. Our electronics rental business performed well through the majority of this time frame, and will do so again in the future. As both a business manager and an investor in McGrath RentCorp, I can fully appreciate the challenges associated with getting four different rental businesses all performing at favorable levels consistently. We are well on our way to creating four large rental businesses with collectively materially greater annual earnings horsepower than we have experienced to date. Twenty-one consecutive quarters of year over year rental revenue growth should be a clear beacon of what we are building over time. Cyclical challenges with our different rental businesses will occur from time to time; however, as our meaningful modular rental business earnings platform continues to recover, and our newest investments continue to grow and improve their key metrics, the impact of downturns in any one specific vertical market, within any one business should be considerably less of an impact on overall Company results. The Company's management is confident in the foundation for growth in place today supporting greater shareholder value in our future. Last, as noted in our Q1 2015 10Q, in March, 2015 the Company entered into a share repurchase plan in accordance with Rule 10b5-1 and continues to be active in repurchasing its shares."

All comparisons presented below are for the quarter ended June 30, 2015 to the quarter ended June 30, 2014 unless otherwise indicated.

MOBILE MODULAR

For the second quarter of 2015, the Company's Mobile Modular division reported a 77% increase in income from operations to $5.3 million. Rental revenues increased 22% to $27.7 million, depreciation expense increased 18% to $4.7 million and other direct costs increased 14% to $10.7 million, which resulted in an increase in gross profit on rental revenues of 32% to $12.2 million. Rental related services revenues increased 31% to $10.5 million, with gross profit on rental related services revenues increasing 38% to $3.1 million. Sales revenues decreased 41% to $3.8 million with gross profit on sales revenues decreasing 23% to $1.1 million, primarily due to lower new equipment sales revenues in the second quarter of 2015. Selling and administrative expenses increased 12% to $11.3 million primarily due to increased employee headcount, salaries and benefit costs and higher allocated corporate expenses.

TRS-RENTELCO

For the second quarter of 2015, the Company's TRS-RenTelco division reported a 35% decrease in income from operations to $5.9 million. Rental revenues decreased 10% to $21.9 million, depreciation expenses increased 2% to $10.3 million and other direct costs increased 7% to $3.3 million, which resulted in a decrease in gross profit on rental revenues of 26% to $8.3 million. Sales revenues decreased 24% to $4.8 million in 2015. Gross profit on sales revenues decreased 18% to $2.7 million, with gross margin percentage increasing to 55% from 51% in 2014, due to higher gross margins on new and used equipment sales revenues. Selling and administrative expenses decreased 8% to $5.5 million, primarily due to lower allocated corporate expenses.

ADLER TANKS

For the second quarter of 2015, the Company's Adler Tanks division reported an 18% decrease in income from operations to $5.5 million. Rental revenues decreased 5% to $17.7 million, other direct costs decreased 18% to $2.2 million and depreciation expense increased 5% to $4.0 million, which resulted in a decrease in gross profit on rental revenues of 6% to $11.6 million. Rental related services revenues decreased 5% to $5.9 million, with gross profit on rental related services decreasing 19% to $1.1 million. Selling and administrative expenses were flat at $6.9 million.

OTHER HIGHLIGHTS

  • Debt increased $16.3 million during the quarter to $337.2 million, with the Company's funded debt (notes payable) to equity ratio increasing to 0.79 to 1 at June 30, 2015 compared to 0.75 to 1 at March 31, 2015. As of June 30, 2015, the Company had capacity to borrow an additional $192.8 million under its lines of credit.
  • Dividend rate increased 2% to $0.25 per share for the second quarter 2015 compared to the second quarter 2014. On an annualized basis, this dividend represents a 3.6% yield on the July 29, 2015 close price of $27.67.
  • Adjusted EBITDA decreased 4% to $38.7 million for the second quarter of 2015 compared to the second quarter of 2014. At June 30, 2015, the Company's ratio of funded debt to the last twelve months actual Adjusted EBITDA was 2.00 to 1 compared to 1.88 to 1 at March 31, 2015. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization 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 press release.

You should read this press release in conjunction with the financial statements and notes thereto included in the Company's latest Forms 10-K and 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 and 10-Q and other SEC filings.

FINANCIAL GUIDANCE

The Company revises its previous 2015 full-year earnings guidance range of $1.75 to $1.95 to an updated range of $1.55 to $1.65 per diluted share.

For the full-year 2015, the Company expects 2% to 5% growth in rental revenues over 2014. Sales revenue is expected to be approximately 20% lower than 2014. Rental equipment depreciation expense is expected to increase to between $76 and $78 million, driven by rental fleet growth. "Other" direct costs of rental operations, primarily for rental equipment maintenance and repair, are expected to increase to between $60 and $62 million in 2015. Selling and administrative costs are expected to increase to between $100 and $103 million to support business growth. Full year interest expense is expected to be between $9.5 and $10.5 million. The Company expects the 2015 effective tax rate to be 39.5% and the diluted share count to be between 26.0 and 26.2 million shares. These forward-looking statements reflect McGrath RentCorp's expectations as of July 30, 2015. Actual 2015 full-year earnings per share results may be materially different and affected by many factors, including those factors outlined in the "forward-looking statements" paragraph at the end of this press release.

ABOUT MCGRATH RENTCORP

Founded in 1979, McGrath RentCorp is a diversified business-to-business rental company. The Company's Mobile Modular division 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. The Company's TRS-RenTelco division rents and sells electronic test equipment and is one of the leading rental providers of general purpose and communications test equipment in the Americas. The Company's Adler Tank Rentals subsidiary rents and sells containment solutions for hazardous and nonhazardous liquids and solids with operations today serving key markets throughout the United States. In 2008, the Company entered the portable storage container rental business under the trade name Mobile Modular Portable Storage. Today, the business is located in the key markets of California, Texas, Florida, Northern Illinois, New Jersey and most recently entered the North Carolina region. For more information on McGrath RentCorp and its operating units, please visit our websites:

Corporate – www.mgrc.com Tanks and Boxes – www.AdlerTankRentals.com Modular Buildings – www.MobileModularRents.com Portable Storage – www.MobileModularRents-PortableStorage.com Electronic Test Equipment – www.TRS-RenTelco.com School Facilities Manufacturing – www.Enviroplex.com

CONFERENCE CALL NOTE

As previously announced in its press release of July 9, 2015, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on July 30, 2015 to discuss the second quarter 2015 results. To participate in the teleconference, dial 1-888-503-8175 (in the U.S.), or 1-719-325-2429 (outside the US), or visit the investor relations section of the Company's website at www.mgrc.com. Telephone replay of the call will be available for 7 days following the call by dialing 1-888-203-1112 (in the U.S.), or 1-719-457-0820 (outside the U.S.). The pass code for the call replay is 8555107. 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 http://mgrc.com/Investor/EventsAndArchive

FORWARD-LOOKING STATEMENTS

Statements in this press release which are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, regarding McGrath RentCorp's business strategy, future operations, financial position, estimated revenues or losses, projected costs, prospects, plans and objectives are forward looking statements. These forward-looking statements appear in a number of places and can be identified by the use of forward-looking terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "future," "intend," "hopes," "goals" or "certain" or the negative of these terms or other variations or comparable terminology. In particular, the statements made in this press release about the following topics are forward looking statements: anticipation of improvement in test equipment order activity in communication network upgrades in the second half of 2015; further geographic expansion of the Mobile Modular Portable Storage business during 2015; the Company being on track towards building a meaningful-sized storage container rental business with attractive operating metrics; anticipation of electronics business performing well again in the future; anticipation of creating four large rental businesses with collectively materially greater annual earnings horsepower, which would lessen the negative impact of downturns in any one specific vertical market; the continued recovery of the modular business; anticipation of newest investments continuing to grow and improve their key metrics; anticipation of continuing share repurchase activities; and updated 2015 full-year guidance.

Management cautions that forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements including, without limitation, the following: the extent of and timetable for the recovery underway in our modular building division; the scope of recovery of the electronics division, including general-purpose equipment and communications equipment rentals, during the remainder of 2015; the utilization levels of our Adler Tanks liquid and sold containment tank and box rental assets, including as a result of the impact from the precipitous decline in crude oil prices; the extent of economic recovery, particularly in California, including the impact on funding for school facility projects and residential and commercial construction sectors; our customers' need and ability to rent our products; failure by third parties to manufacture and deliver our products in a timely manner and to our specifications; our ability to successfully integrate and operate acquisitions, as well as manage expansions; our ability to effectively manage our rental assets, as well as building preparation and transportation costs relating to our rental assets; the risk that we may be subject to litigation under environmental, health and safety and product liability laws and claims from employees, vendors and other third parties; new or modified statutory or regulatory requirements; success of our strategic growth initiatives; risks associated with doing business with government entities; seasonality of our businesses; intense industry competition including increasing price pressure; our ability to timely deliver, install and redeploy our rental products; significant increases in raw materials, labor, and other costs; and risks associated with operating internationally.

Our future business, financial condition and results of operations could differ materially from those anticipated by such forward-looking statements and are subject to risks and uncertainties including the risks set forth above, those discussed in Part II—Item 1A "Risk Factors" and elsewhere in our Form 10-K for the year ended December 31, 2014, and those that may be identified from time to time in our reports and registration statements filed with the SEC. Forward-looking statements are made only as of the date of this press release and are based on management's reasonable assumptions; however, these assumptions can be wrong or affected by known or unknown risks and uncertainties. Readers should not place undue reliance on these forward-looking statements and are cautioned that any such forward-looking statements are not guarantees of future performance. Except as otherwise required by law, we do not undertake any duty to update any of the forward-looking statements after the date of this press release to conform such statements to actual results or to changes in our expectations.
 
 
MCG RATH RENTCORP CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
  Three Months Ended June 30, Six Months Ended June 30,
(in thousands, except per share amounts) 2015 2014 2015 2014
         
R evenues        
Rental  $ 67,305  $ 65,809  $ 132,807  $ 128,239
Rental related services  17,227  15,146  32,594  28,658
Rental operations  84,532  80,955  165,401  156,897
Sales  10,968  14,170  19,755  25,208
Other  526  620  1,058  1,200
Total revenues  96,026  95,745  186,214  183,305
         
Costs and Expenses        
Direct costs of rental operations:        
Depreciation of rental equipment  19,016  17,924  37,698  35,821
Rental related services  12,901  11,366  24,800  21,673
Other  16,226  15,188  31,437  28,738
Total direct costs of rental operations  48,143  44,478  93,935  86,232
Costs of sales  6,965  9,188  12,274  16,356
Total costs of revenues  55,108  53,666  106,209  102,588
Gross profit  40,918  42,079  80,005  80,717
Selling and administrative expenses  24,453  23,840  49,665  47,251
Income from operations  16,465  18,239  30,340  33,466
Other income (expense):        
Interest expense  (2,347)  (2,335)  (4,738)  (4,538)
Gain on sale of property, plant and equipment  —  812  —  812
Foreign currency exchange gain (loss)  (85)  78  (253)  (10)
Income before provision for income taxes  14,033  16,794  25,349  29,730
Provision for income taxes  5,543  6,589  10,013  11,654
Net income  $  8,490  $ 10,205  $ 15,336  $ 18,076
         
Earnings per share:        
Basic   $ 0.33  $ 0.39  $ 0.59  $ 0.70
Diluted   $ 0.32  $ 0.39  $ 0.58  $ 0.69
Shares used in per share calculation:        
Basic  26,142  25,912  26,117  25,851
Diluted 26,273 26,220  26,272  26,223
         
Cash dividends declared per share   $ 0.250   $ 0.245  $ 0.500  $ 0.490
 

 
 
MCGRATH RENTCORP CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
  June 30, December 31,
(in thousands) 2015 2014
     
Assets    
Cash  $  739  $ 1,167
Accounts receivable, net of allowance for doubtful accounts of $2,047 in 2015 and $2,038 in 2014  93,974  101,294
     
Rental equipment, at cost:    
Relocatable modular buildings  699,781  664,340
Electronic test equipment  269,668  261,995
Liquid and solid containment tanks and boxes  307,795  303,303
   1,277,244  1,229,638
Less accumulated depreciation  (420,755)  (403,888)
Rental equipment, net  856,489  825,750
     
Property, plant and equipment, net  110,422  108,628
Prepaid expenses and other assets  33,417  41,424
Intangible assets, net  9,901   10,336
Goodwill  27,808  27,808
Total assets  $ 1,132,750  $1,116,407
     
Liabilities and Shareholders' Equity    
Liabilities:    
Notes payable  $ 337,177  $ 322,478
Accounts payable and accrued liabilities  76,636  71,357
Deferred income  29,726  29,139
Deferred income taxes, net  262,388  268,902
Total liabilities  705,927  691,876
     
Shareholders' equity:    
Common stock, no par value - authorized 40,000 shares -- issued and outstanding 26,106 shares as of June 30, 2015 and 26,051 shares as of December 31, 2014  109,232  106,469
Retained earnings 317,620 318,164
Accumulated other comprehensive loss   (29)   (102)
Total shareholders' equity  426,823  424,531
Total liabilities and shareholders' equity  $ 1,132,750  $1,116,407
 

 
 
MCGRATH RENTCORP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
     
  Six Months Ended June 30,
(in thousands) 2015 2014
     
Cash Flows from Operating Activities:    
Net income  $ 15,336  $ 18,076
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization  42,171  39,982
Provision for doubtful accounts  690  1,014
Share-based compensation  1,953  1,984
Gain on sale of used rental equipment  (5,565)   (6,444)
Gain on sale of property, plant and equipment    (812)
Foreign currency exchange loss  253 10
Change in:    
Accounts receivable  6,630  (2,448)
Prepaid expenses and other assets   8,007   (2,287)
Accounts payable and accrued liabilities  1,715  2,236
Deferred income  587  2,080
Deferred income taxes  (6,514)  1,781
Net cash provided by operating activities  65,263  55,172
     
Cash Flows from Investing Activities:    
Purchase of rental equipment  (71,237)  (68,105)
Purchase of property, plant and equipment  (5,832)  (6,101)
Proceeds from sale of used rental equipment  11,815   13,757
Proceeds from sale of property, plant and equipment  —  2,501
Net cash used in investing activities   (65,254)   (57,948)
     
Cash Flows from Financing Activities:    
Net repayments under bank lines of credit  34,699  (3,003)
Borrowing under Series B senior notes 40,000
Principal payment on Series A senior notes (20,000) (20,000)
Proceeds from the exercise of stock options 1,458 302
Excess tax benefit from exercise and disqualifying disposition of stock options 313 1,173
Taxes paid related to net share settlement of stock awards  (584)   (3,378)
Repurchase of common stock    (3,132)  —
Payment of dividends     (13,176)   (12,833) 
Net cash provided by (used in) financing activities   (422)   2,261
Effect of exchange rate changes on cash    (15)  26
Net decrease in cash   (428)  (489)
Cash balance, beginning of period   1,167  1,630
Cash balance, end of period  $    739  $   1,141
Supplemental Disclosure of Cash Flow Information:    
Interest paid, during the period  $ 4,896  $   4,198
Net income taxes paid, during the period $ 1,490 $   8,526
Dividends accrued during the period, not yet paid  $ 6,588  $   6,425
Rental equipment acquisitions, not yet paid  $ 8,390  $ 12,033
 
 
 
MCGRATH RENTCORP BUSINESS SEGMENT DATA (unaudited) Three Months Ended June 30, 2015
  ( dollar amounts in thousands) Mobile Modular TRS- RenTelco Adler Tanks   Enviroplex   Consolidated
Revenues          
Rental $ 27,680  $ 21,889   $ 17,736 $ — $ 67,305
Rental related services 10,488 794 5,945  — 17,227
Rental operations 38,168 22,683 23,681  — 84,532
Sales 3,831 4,832 416  1,889 10,968
Other  121  386 19 526
Total revenues  42,120 27,901 24,116 1,889 96,026
           
Costs and Expenses          
Direct costs of rental operations:          
Depreciation of rental equipment 4,719 10,325 3,972 19,016
Rental related services 7,388 692 4,821 12,901
Other 10,740 3,278 2,208 16,226
Total direct costs of rental operations 22,847 14,295 11,001 48,143
Costs of sales 2,711 2,165 742 1,347 6,965
Total costs of revenues 25,558 16,460 11,743 1,347 55,108
           
Gross Profit (Loss)           
Rental  12,221 8,286 11,556 32,063
Rental related services  3,100  102 1,124 4,326
Rental operations  15,321  8,388 12,680 36,389
Sales 1,120  2,667 (326) 542 4,003
Other  121 386 19 —  526
Total gross profit  16,562 11,441 12,373  542 40,918
Selling and administrative expenses 11,286 5,493 6,901 773 24,453
Income (loss) from operations  $  5,276  $  5,948  $   5,472  $ (231) 16,465
Interest expense         (2,347)
Foreign currency exchange loss         (85)
Provision for income taxes         (5,543)
Net Income         $ 8,490
           
Other Information          
Average rental equipment 1 $ 655,479  $ 269,225  $302,697    
Average monthly total yield 2  1.41% 2.71%  1.95%    
Average utilization 3  74.4% 59.5%  60.6%    
Average monthly rental rate 4  1.89% 4.56%  3.23%    
 
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 June 30, 2014
  ( dollar amounts in thousands) Mobile Modular TRS- RenTelco Adler Tanks   Enviroplex   Consolidated
Revenues          
Rental $ 22,679  $ 24,424  $ 18,706 $ — $ 65,809
Rental related services 8,011 895 6,240  — 15,146
Rental operations 30,690 25,319 24,946   — 80,955
Sales 6,489 6,374 165  1,142 14,170
Other  136  444 40 620
Total revenues  37,315  32,137 25,151 1,142 95,745
           
Costs and Expenses          
Direct costs of rental operations:          
Depreciation of rental equipment 4,011 10,148 3,765 17,924
Rental related services 5,768 754 4,844 11,366
Other 9,441 3,068 2,679 15,188
Total direct costs of rental operations 19,220 13,970 11,288 44,478
Costs of sales 5,025 3,104 243 816 9,188
Total costs of revenues 24,245 17,074 11,531 816 53,666
           
Gross Profit (Loss)          
Rental  9,227 11,208 12,262 32,697
Rental related services  2,243  141 1,396 3,780
Rental operations  11,470  11,349 13,658 36,477
Sales   1,464  3,270 (78) 326 4,982
Other  136 444 40 —  620
Total gross profit   13,070 15,063 13,620 326 42,079
Selling and administrative expenses 10,090 5,967 6,940 843 23,840
Income (loss) from operations $   2,980 $ 9,096 $ 6,680  $  (517) 18,239
Interest expense         (2,335)
Gain on sale of property, plant and equipment         812
Foreign currency exchange gain         78
Provision for income taxes         (6,589)
Net income         $ 10,205
           
Other Information          
Average rental Equipment 1  $ 585,468  $ 261,301  $286,798    
Average monthly total yield 2  1.29%  3.12%  2.17%    
Average utilization 3   70.3%  59.3%  63.2%    
Average monthly rental rate 4  1.84%   5.25%  3.44%    
 
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) Six Months Ended June 30, 2015
  ( dollar amounts in thousands) Mobile Modular TRS- RenTelco Adler Tanks   Enviroplex   Consolidated
Revenues          
Rental $ 54,088  $ 44,000  $ 34,719 $ — $ 132,807
Rental related services 19,591 1,450 11,553  — 32,594
Rental operations 73,679 45,450 46,272  — 165,401
Sales 7,091 9,772 691  2,201 19,755
Other  234  773 51 1,058
Total revenues  81,004 55,995 47,014 2,201 186,214
           
Costs and Expenses          
Direct costs of rental operations:          
Depreciation of rental equipment 9,280 20,477 7,941 37,698
Rental related services 14,169 1,390 9,241 24,800
Other 20,265 6,673 4,499 31,437
Total direct costs of rental operations 43,714 28,540 21,681 93,935
Costs of sales 5,024 4,704 953 1,593 12,274
Total costs of revenues 48,738 33,244 22,634 1,593 106,209
           
Gross Profit (Loss)           
Rental  24,543 16,850 22,279 63,672
Rental related services  5,422 60 2,312 7,794
Rental operations  29,965  16,910 24,591 71,466
Sales  2,067 5,068 (262)  608 7,481
Other 234 773 51 —  1,058
Total gross profit  32,266 22,751 24,380  608 80,005
Selling and administrative expenses 22,642 11,611 13,819 1,593 49,665
Income (loss) from operations  $ 9,624  $ 11,140 $ 10,561 $ (985) 30,340
Interest expense         (4,738)
Foreign currency exchange loss         (253)
Provision for income taxes         (10,013)
Net Income         $ 15,336
           
           
Other Information          
Average rental equipment 1  $ 648,446   $ 266,528  $301,580    
Average monthly total yield 2  1.39% 2.75%  1.92%    
Average utilization 3 Average monthly rental rate 4  74.3% 1.87% 59.8% 4.60%  60.9% 3.15%    
 
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) Six Months Ended June 30, 2014
  ( dollar amounts in thousands) Mobile Modular TRS- RenTelco Adler Tanks   Enviroplex   Consolidated
Revenues          
Rental $ 44,212  $ 48,184  $ 35,843 $ — $ 128,239
Rental related services 15,328 1,617 11,713  — 28,658
Rental operations 59,540 49,801 47,556  — 156,897
Sales 11,161 11,109 691 2,247 25,208
Other   254 868 78 1,200
Total revenues  70,955  61,778 48,325 2,247 183,305
           
Costs and Expenses          
Direct costs of rental operations:          
Depreciation of rental equipment 7,842 20,539 7,440 35,821
Rental related services 11,103 1,382 9,188 21,673
Other 17,914 5,878 4,946 28,738
Total direct costs of rental operations 36,859 27,799 21,574 86,232
Costs of sales 8,322 5,841 691 1,502 16,356
Total costs of revenues 45,181 33,640 22,265 1,502 102,588
           
Gross Profit          
Rental  18,456 21,767 23,457 63,680
Rental related services  4,225  235 2,525 6,985
Rental operations  22,681  22,002 25,982 70,665
Sales  2,839  5,268 745 8,852
Other  254 868 78 —  1,200
Total gross profit   25,774 28,138 26,060 745 80,717
Selling and administrative expenses 19,830 12,004 13,836 1,581 47,251
Income (loss) from operations $ 5,944 $ 16,134  $ 12,224  $ (836) 33,466
Interest expense         (4,538)
Gain on sale of property, plant and equipment         812
Foreign currency exchange gain         (10)
Provision for income taxes         (11,654)
Net income         $ 18,076
           
Other Information          
Average rental Equipment 1  $ 577,951  $ 264,249  $283,819    
Average monthly total yield 2  1.27%  3.04%  2.10%    
Average utilization 3  70.2%  58.3%  61.8%    
Average monthly rental rate 4  1.82%  5.21%  3.41%    
 
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 June 30, Six Months Ended June 30, Twelve Months Ended June 30,
  2015 2014 2015 2014 2015 2014
Net income   $ 8,490   $10,205   $15,336   $18,076    $ 42,969    $ 42,410
Provision for income taxes   5,543   6,589   10,013   11,654  29,211  27,340
Interest  2,347  2,335  4,738  4,538   9,480  8,865
Depreciation and amortization  21,265  20,050  42,171  39,982  83,314  79,186
EBITDA  37,645  39,179  72,258  74,250  164,974  157,801
Share-based compensation  1,022  1,029  1,953  1,984  3,823  3,409
Adjusted EBITDA 1   $38,667   $40,208   $74,211   $76,234   $168,797   $161,210
             
Adjusted EBITDA margin 2  40%  42%  40%  42%  41%  42%
             
             
Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities
( dollar amounts in thousands) Three Months Ended June 30, Six Months Ended June 30, Twelve Months Ended June 30,
  2015 2014 2015 2014 2015 2014
Adjusted EBITDA 1 $38,667 $40,208  $74,211  $76,234  $168,797  $161,210
Interest paid  (2,888)  (3,041)  (4,896)  (4,198)  (9,722)  (8,680)
Net income taxes paid  (1,174)  (8,187)  (1,490)  (8,526)  (15,239)  (12,821)
Gain on sale of used rental equipment  (2,696)  (3,944)  (5,565)  (6,444)  (14,489)  (13,279)
Gain on sale of property, plant and equipment (812) (812) (812)
Foreign currency exchange (gain) loss  65  (78)  253  10  574  4
Change in certain assets and liabilities:            
Accounts receivable, net (4,613) (6,013) 7,320 (1,434)   (4,890)   (1,798)
Prepaid expenses and other assets  1,870  (4,874) 8,007 (2,287)  (3,358)  (2,330)
Accounts payable and other liabilities 1,032 (534) (13,164) 549  7,811  934
Deferred income 367 4,395 587 2,080  3,643  147
Net cash provided by operating activities  $30,630  $17,120  $65,263  $55,172  $133,077  $122,575
 
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.
CONTACT: Keith E. Pratt         Chief Financial Officer         925 606 9200

McGrath RentCorp logo