McGrath Announces Results for Second Quarter 2023

LIVERMORE, Calif.--(BUSINESS WIRE)-- 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 June 30, 2023 of $203.0 million, an increase of 32%, compared to the second quarter of 2022. The Company reported net income from continuing operations of $28.0 million, or $1.14 per diluted share, for the second quarter of 2023, compared to net income from continuing operations of $23.5 million, or $0.96 per diluted share, for the second quarter of 2022.

SECOND QUARTER 2023 YEAR-OVER-YEAR COMPANY HIGHLIGHTS (FROM CONTINUING OPERATIONS):

• Rental revenues increased 24% to $117.8 million.
• Total revenues increased 32% to $203.0 million.
• Adjusted EBITDA¹ increased 33% to $77.0 million.
• Dividend rate of $0.465 per share for the second quarter of 2023. On an annualized basis, this dividend represents a 2.0% yield on the July 26, 2023 close price of $92.16 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 second quarter results. Our 24% increase in companywide rental revenues was driven by strong modular segment performance. Modular rental revenues grew 37%, 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 14%.

Our modular business saw broad based rental strength across commercial, education and portable storage customer bases. Overall demand conditions continued to be positive. Our initiatives to grow modular sales also showed progress as sales revenues increased by 59% compared to a year ago. Consistent with our growth objectives, we increased our portable storage geographic coverage with the acquisitions of Dixie Storage and Inland Leasing and Storage.

TRS-RenTelco experienced continued softness in semiconductor related demand, resulting in lower general purpose rentals during the quarter, while communications rentals were flat, compared to a year ago. Rental revenues at TRS-RenTelco decreased by 4%.

We are continuing to make good progress with the strategic transformation of McGrath’s business portfolio. The Adler divestiture will be fully completed at the end of July, which has been a substantial undertaking for the McGrath team through the first half of the year. Concurrently, we have been making good progress with the Vesta integration. I am very pleased with the team collaboration and commercial successes that we have seen in the last few months.

Our first half accomplishments have been significant, and we look forward to building on that momentum in the second half of the year. I am excited by the range of long-term growth opportunities for McGrath.”

DIVISION HIGHLIGHTS:

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

MOBILE MODULAR

For the second quarter of 2023, the Company’s Mobile Modular division reported Adjusted EBITDA of $56.8 million, an increase of $21.1 million, or 59%.

• Rental revenues increased 37% to $89.3 million, depreciation expense increased 33% to $10.3 million and other direct costs increased 4% to $25.1 million, which resulted in an increase in gross profit on rental revenues of 63% to $53.9 million. Vesta Modular contributed $13.9 million and $8.9 million in rental revenues and gross profit during the quarter, respectively.
• Rental related services revenues increased 56% to $33.2 million, primarily attributable to higher delivery and pick up activities for both modular buildings and portable storage containers, with associated gross profit increasing 65% to $10.1 million. Vesta Modular contributed $4.6 million and $1.7 million in rental related services revenues and gross profit during the quarter, respectively.
• Sales revenues increased 59% to $39.4 million, primarily from higher new equipment sales. Gross margin on sales was 31% compared to 41% in 2022, resulting in a 21% increase in gross profit on sales revenues to $12.2 million. Vesta Modular contributed $11.2 million and $2.8 million in sales revenues and gross profit during the quarter, respectively.
• Selling and administrative expenses increased $12.5 million to $38.3 million. The addition of Vesta Modular increased selling and administrative expenses by $6.6 million, which included $1.2 million higher amortization of intangibles. In addition, allocated corporate expenses increased $2.8 million.

TRS-RENTELCO

For the second quarter of 2023, the Company’s TRS-RenTelco division reported Adjusted EBITDA of $21.5 million, a decrease of 3%, when compared to the same quarter in 2022.

• Rental revenues decreased 4% to $28.6 million, with depreciation expense and other direct costs comparable to the previous period, resulting in a 10% decrease in gross profit on rental revenues to $10.8 million. The rental revenue decrease was the result of lower average rental equipment on rent compared to the prior year, partly offset by higher average monthly rental rates.
• Sales revenues increased 17% to $7.5 million and gross profit on sales revenues increased 12% to $4.1 million.
• Selling and administrative expenses increased $0.5 million, or 8%, to $7.1 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:	$790 to $820 million	$805 to $830 million
●	Adjusted EBITDA1, 2:	$300 to $315 million	$306 to $320 million
●	Gross rental equipment capital expenditures:	$190 to $210 million	$190 to $200 million

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. 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 June 30, 2023, excludes the income from discontinued operations from the divestiture of Adler Tanks.
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:

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 June 29, 2023, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on July 27, 2023 to discuss the second 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 1-800-839-3413 (in the U.S.), or 1-402-220-7236 (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) the overall demand conditions, (ii) the progress with the strategic transformation of McGrath's business portfolio (iii) success with the integration of Vesta and additional business opportunities stemming from the acquisition, (iv) the outlook on future opportunities and the overall growth across the business, and (v) 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 June 30,								Six Months Ended June 30,
(in thousands, except per share amounts)		2023				2022				2023				2022
Revenues
Rental		$	117,840			$	94,667			$	228,087			$	184,717
Rental related services			33,857				22,046				60,989				41,078
Rental operations			151,697				116,713				289,076				225,795
Sales			47,801				35,870				71,461				51,089
Other			3,532				785				6,211				1,537
Total revenues			203,030				153,368				366,748				278,421
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment			22,597				20,082				44,430				39,944
Rental related services			23,825				15,780				43,093				29,540
Other			30,560				29,516				61,695				54,370
Total direct costs of rental operations			76,982				65,378				149,218				123,854
Costs of sales			31,438				21,034				45,553				29,576
Total costs of revenues			108,420				86,412				194,771				153,430
Gross profit			94,610				66,956				171,977				124,991
Selling and administrative expenses			47,026				33,809				104,524				66,414
Income from operations			47,584				33,147				67,453				58,577
Other (expense) income:
Interest expense			(9,945	)			(2,426	)			(17,409	)			(4,702	)
Foreign currency exchange (loss) gain			(18	)			(181	)			208				(168	)
Income from continuing operations before provision for income taxes			37,621				30,540				50,252				53,707
Provision for income taxes from continuing operations			9,669				6,996				10,782				12,505
Income from continuing operations			27,952				23,544				39,470				41,202
Discontinued operations:
Income from discontinued operations before provision for income taxes			—				3,327				1,709				4,715
Provision for income taxes from discontinued operations			—				734				453				987
Gain on sale of discontinued operations, net of tax			2,630				—				61,513				—
Income from discontinued operations			2,630				2,593				62,769				3,728
Net income		$	30,582			$	26,137			$	102,239			$	44,930
Earnings per share from continuing operations:
Basic		$	1.14			$	0.96			$	1.61			$	1.68
Diluted		$	1.14			$	0.96			$	1.61			$	1.68
Earnings per share from discontinued operations:
Basic		$	0.11			$	0.11			$	2.57			$	0.15
Diluted		$	0.11			$	0.11			$	2.56			$	0.15
Earnings per share:
Basic		$	1.25			$	1.07			$	4.18			$	1.83
Diluted		$	1.25			$	1.07			$	4.17			$	1.83
Shares used in per share calculation:
Basic			24,479				24,360				24,448				24,323
Diluted			24,512				24,509				24,527				24,522
Cash dividends declared per share		$	0.465			$	0.455			$	0.930			$	0.910

MCGRATH RENTCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
		June 30,				December 31,
(in thousands)		2023				2022
Assets
Cash		$	2,205			$	957
Accounts receivable, net of allowance for credit losses of $2,600 in 2023 and $2,300 in 2022			191,676				169,937
Rental equipment, at cost:
Relocatable modular buildings			1,457,984				1,123,268
Electronic test equipment			390,832				398,267
			1,848,816				1,521,535
Less: accumulated depreciation			(553,166	)			(531,218	)
Rental equipment, net			1,295,650				990,317
Property, plant and equipment, net			146,624				138,713
Prepaid expenses and other assets			81,967				69,837
Intangible assets, net			65,607				35,431
Goodwill			325,354				106,403
Assets of discontinued operations			—				196,249
Total assets		$	2,109,083			$	1,707,844
Liabilities and Shareholders' Equity
Liabilities:
Notes payable		$	672,631			$	413,742
Accounts payable and accrued liabilities			219,611				151,208
Deferred income			106,523				82,417
Deferred income taxes, net			229,749				203,361
Liabilities of discontinued operations			—				53,171
Total liabilities			1,228,514				903,899
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,485 shares as of June 30, 2023 and 24,388 shares as of December 31, 2022			107,362				110,080
Retained earnings			773,260				693,943
Accumulated other comprehensive loss			(53	)			(78	)
Total shareholders’ equity			880,569				803,945
Total liabilities and shareholders’ equity		$	2,109,083			$	1,707,844

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
		Six Months Ended June 30,
(in thousands)		2023				2022
Cash Flows from Operating Activities:
Net income		$	102,239			$	44,930
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			54,958				55,355
Deferred income taxes			(39,486	)			(5,815	)
Provision for credit losses			1,400				49
Share-based compensation			3,382				3,412
Gain on sale of discontinued operations			(61,513	)			—
Gain on sale of used rental equipment			(14,250	)			(16,093	)
Foreign currency exchange (gain) loss			(208	)			168
Amortization of debt issuance costs			4				9
Change in:
Accounts receivable			(1,116	)			(7,879	)
Prepaid expenses and other assets			(8,504	)			(10,855	)
Accounts payable and accrued liabilities			25,255				(73	)
Deferred income			9,290				18,835
Net cash provided by operating activities			71,451				82,043
Cash Flows from Investing Activities:
Proceeds from sale of discontinued operations			268,012				—
Purchases of rental equipment			(128,088	)			(94,820	)
Purchases of property, plant and equipment			(11,229	)			(6,594	)
Cash paid for acquisition of businesses			(456,312	)			—
Proceeds from sales of used rental equipment			27,410				31,830
Net cash used in investing activities			(300,207	)			(69,584	)
Cash Flows from Financing Activities:
Net borrowings under bank lines of credit			258,885				15,000
Taxes paid related to net share settlement of stock awards			(6,100	)			(6,128	)
Payment of dividends			(22,782	)			(22,083	)
Net cash provided by (used in) financing activities			230,003				(13,211	)
Effect of foreign currency exchange rate changes on cash			1				135
Net increase (decrease) in cash			1,248				(617	)
Cash balance, beginning of period			957				1,491
Cash balance, end of period		$	2,205			$	874
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period		$	16,802			$	5,821
Net income taxes paid, during the period		$	6,931			$	17,078
Dividends accrued during the period, not yet paid		$	11,937			$	11,009
Rental equipment acquisitions, not yet paid		$	7,612			$	6,906

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended June 30, 2023
(dollar amounts in thousands)		Mobile Modular				TRS-RenTelco				Enviroplex				Adler Tanks (Discontinued)				Consolidated
Revenues
Rental		$	89,257			$	28,583			$	—			$	—			$	117,840
Rental related services			33,190				667				—				—				33,857
Rental operations			122,447				29,250				—				—				151,697
Sales			39,357				7,521				923				—				47,801
Other			2,458				1,074				—				—				3,532
Total revenues			164,262				37,845				923				—				203,030
Costs and Expenses
Direct costs of rental operations:
Depreciation			10,285				12,312				—				—				22,597
Rental related services			23,084				741				—				—				23,825
Other			25,082				5,478				—				—				30,560
Total direct costs of rental operations			58,451				18,531				—				—				76,982
Costs of sales			27,207				3,431				800				—				31,438
Total costs of revenues			85,658				21,962				800				—				108,420
Gross Profit (Loss)
Rental			53,890				10,793				—				—				64,683
Rental related services			10,106				(74	)			—				—				10,032
Rental operations			63,996				10,719				—				—				74,715
Sales			12,150				4,090				123				—				16,363
Other			2,458				1,074				—				—				3,532
Total gross profit			78,604				15,883				123				—				94,610
Selling and administrative expenses			38,296				7,126				1,604				—				47,026
Income (loss) from operations		$	40,308			$	8,757			$	(1,481	)		$	—				47,584
Interest expense																			(9,945	)
Foreign currency exchange loss																			(18	)
Provision for income taxes																			(9,669	)
Net income																		$	27,952
Other Information
Adjusted EBITDA 1		$	56,824			$	21,538			$	(1,394	)		$	—			$	76,968
Average rental equipment 2		$	1,321,767			$	393,891
Average monthly total yield 3			2.25	%			2.40	%
Average utilization 4			79.1	%			58.2	%
Average monthly rental rate 5			2.84	%			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. Adjusted EBITDA for the quarter ended June 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 June 30, 2022
(dollar amounts in thousands)		Mobile Modular				TRS-RenTelco				Enviroplex				Adler Tanks (Discontinued)				Consolidated
Revenues
Rental		$	64,949			$	29,718			$	—			$	15,957			$	110,624
Rental related services			21,233				813				—				6,773				28,819
Rental operations			86,182				30,531				—				22,730				139,443
Sales			24,816				6,404				4,650				601				36,471
Other			379				406				—				332				1,117
Total revenues			111,377				37,341				4,650				23,663				177,031
Costs and Expenses
Direct costs of rental operations:
Depreciation			7,749				12,333				—				3,982				24,064
Rental related services			15,116				664				—				5,073				20,853
Other			24,073				5,443				—				3,309				32,825
Total direct costs of rental operations			46,938				18,440				—				12,364				77,742
Costs of sales			14,760				2,765				3,509				418				21,452
Total costs of revenues			61,698				21,205				3,509				12,782				99,194
Gross Profit
Rental			33,127				11,942				—				8,666				53,735
Rental related services			6,117				149				—				1,700				7,966
Rental operations			39,244				12,091				—				10,366				61,701
Sales			10,056				3,639				1,141				183				15,019
Other			379				406				—				332				1,117
Total gross profit			49,679				16,136				1,141				10,881				77,837
Selling and administrative expenses			25,755				6,614				1,440				6,979				40,788
Income (loss) from operations		$	23,924			$	9,522			$	(299	)		$	3,902				37,049
Interest expense																			(3,001	)
Foreign currency exchange loss																			(181	)
Provision for income taxes																			(7,730	)
Net income																		$	26,137
Other Information
Adjusted EBITDA 1		$	35,773			$	22,128			$	(230	)		$	8,620			$	66,291
Average rental equipment 2		$	1,019,927			$	382,068
Average monthly total yield 3			2.12	%			2.59	%
Average utilization 4			78.1	%			64.5	%
Average monthly rental rate 5			2.72	%			4.02	%

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 June 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)
Six months ended June 30, 2023
(dollar amounts in thousands)		Mobile Modular				TRS-RenTelco				Enviroplex				Adler Tanks (Discontinued)				Consolidated
Revenues
Rental		$	170,370			$	57,717			$	—			$	6,520			$	228,087
Rental related services			59,442				1,547				—				2,584				60,989
Rental operations			229,812				59,264				—				9,104				289,076
Sales			56,962				12,635				1,864				269				71,461
Other			4,145				2,066				—				65				6,211
Total revenues			290,919				73,965				1,864				9,438				366,748
Costs and Expenses
Direct costs of rental operations:
Depreciation			19,729				24,701				—				1,325				44,430
Rental related services			41,691				1,402				—				2,020				43,093
Other			50,992				10,703				—				1,270				61,695
Total direct costs of rental operations			112,412				36,806				—				4,614				149,218
Costs of sales			38,281				5,656				1,616				159				45,553
Total costs of revenues			150,693				42,462				1,616				4,773				194,771
Gross Profit
Rental			99,649				22,313				—				3,926				121,962
Rental related services			17,751				145				—				564				17,896
Rental operations			117,400				22,458				—				4,490				139,858
Sales			18,681				6,979				248				110				25,908
Other			4,145				2,066				—				65				6,211
Total gross profit			140,226				31,503				248				4,665				171,977
Selling and administrative expenses			84,810				16,577				3,137				2,582				104,524
Income (loss) from operations		$	55,416			$	14,926			$	(2,889	)		$	2,083				67,453
Interest expense																			(17,783	)
Foreign currency exchange loss																			208
Provision for income taxes																			(11,235	)
Net income																		$	38,643
Other Information
Adjusted EBITDA 1		$	99,269			$	42,173			$	(2,724	)		$	3,682			$	142,400
Average rental equipment 2		$	1,241,287			$	395,049
Average monthly total yield 3			2.29	%			2.42	%
Average utilization 4			79.4	%			58.7	%
Average monthly rental rate 5			2.88	%			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 quarter ended June 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)
Six months ended June 30, 2022
(dollar amounts in thousands)		Mobile Modular				TRS-RenTelco				Enviroplex				Adler Tanks (Discontinued)				Consolidated
Revenues
Rental		$	126,487			$	58,230			$	—			$	30,148			$	214,865
Rental related services			39,594				1,484				—				12,058				53,136
Rental operations			166,081				59,714				—				42,206				268,001
Sales			35,191				10,331				5,567				1,258				52,347
Other			750				787				—				519				2,056
Total revenues			202,022				70,832				5,567				43,983				322,404
Costs and Expenses
Direct costs of rental operations:
Depreciation			15,582				24,362				—				7,994				47,938
Rental related services			28,296				1,244				—				9,456				38,996
Other			44,235				10,135				—				6,278				60,648
Total direct costs of rental operations			88,113				35,741				—				23,728				147,582
Costs of sales			21,089				4,265				4,222				920				30,496
Total costs of revenues			109,202				40,006				4,222				24,648				178,078
Gross Profit
Rental			66,670				23,733				—				15,876				106,279
Rental related services			11,298				240				—				2,602				14,140
Rental operations			77,968				23,973				—				18,478				120,419
Sales			14,102				6,066				1,345				338				21,851
Other			750				787				—				519				2,056
Total gross profit			92,820				30,826				1,345				19,335				144,326
Selling and administrative expenses			50,447				13,204				2,763				13,501				79,915
Income (loss) from operations		$	42,373			$	17,622			$	(1,418	)		$	5,834				64,411
Interest expense																			(5,821	)
Foreign currency exchange loss																			(168	)
Provision for income taxes																			(13,492	)
Net income																		$	44,930
Other Information
Adjusted EBITDA 1		$	66,178			$	42,781			$	(1,276	)		$	15,327			$	123,010
Average rental equipment 2		$	1,013,361			$	374,364
Average monthly total yield 3			2.08	%			2.59	%
Average utilization 4			77.6	%			64.6	%
Average monthly rental rate 5			2.68	%			4.02	%

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 June 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.

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 June 30,								Six Months Ended June 30,								Twelve Months Ended June 30,
	2023				2022				2023				2022				2023				2022
Income from continuing operations	$	27,952			$	23,544			$	39,470			$	41,202			$	101,577			$	89,756
Provision for income taxes from continuing operations		9,669				6,996				10,782				12,505				29,654				31,885
Interest expense		9,945				2,426				17,409				4,702				24,937				9,828
Depreciation and amortization		27,368				23,357				53,501				46,491				100,650				93,469
EBITDA		74,934				56,323				121,162				104,900				256,818				224,938
Share-based compensation		1,889				1,271				3,264				2,783				7,228				6,296
Transaction costs 3		145				—				14,292				—				18,345				1,141
Adjusted EBITDA 1	$	76,968			$	57,594			$	138,718			$	107,683			$	282,391			$	232,375
Adjusted EBITDA margin 2		38	%			38	%			38	%			39	%			39	%			40	%

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,
	2023				2022				2023				2022				2023				2022
Adjusted EBITDA 1	$	76,968			$	66,291			$	142,400			$	123,010			$	308,256			$	263,074
Interest paid		(8,985	)			(3,684	)			(16,802	)			(5,821	)			(25,756	)			(12,160	)
Income taxes paid, net of refunds received		(6,518	)			(16,658	)			(6,931	)			(17,078	)			(17,215	)			(19,175	)
Gain on sale of used rental equipment		(11,161	)			(10,729	)			(14,250	)			(16,093	)			(36,136	)			(29,664	)
Foreign currency exchange (gain) loss		18				181				(208	)			168				2				321
Amortization of debt issuance costs		2				5				4				9				11				18
Change in certain assets and liabilities:
Accounts receivable, net		(16,669	)			(15,765	)			284				(7,830	)			(22,410	)			(26,420	)
Prepaid expenses and other assets		(1,159	)			(15,068	)			(8,504	)			(10,855	)			(14,133	)			(8,286	)
Accounts payable and other liabilities		(2,828	)			12,115				(33,832	)			(2,302	)			(22,935	)			(8,362	)
Deferred income		6,072				13,612				9,290				18,835				14,156				20,459
Net cash provided by operating activities	$	35,740			$	30,300			$	71,451			$	82,043			$	183,840			$	179,805

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 six months ended June 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 six months ended June 30, 2023 and 2022, was $3,682 and $15,173, 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.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230726023794/en/

Keith E. Pratt

EVP & Chief Financial Officer

925-606-9200

Source: McGrath RentCorp