McGrath RentCorp Announces Results for Third Quarter 2012

Rental revenues increase 4%

EPS decreases 19% to $0.50 for the Quarter

LIVERMORE, Calif.--()--McGrath RentCorp (NASDAQ: MGRC) (the “Company”), a diversified business to business rental company, today announced revenues for the quarter ended September 30, 2012 of $99.4 million, a decrease of 5%, compared to $104.9 million in the third quarter of 2011. The Company reported net income of $12.5 million, or $0.50 per diluted share for the third quarter of 2012, compared to net income of $15.4 million, or $0.62 per diluted share, in the third quarter of 2011.

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

“Although Company-wide rental revenues increased 4% from a year ago, we had a 19% drop in EPS for the quarter. The reduction of $0.12 of EPS was primarily related to Enviroplex, our non-core California classroom manufacturing business having lower equipment sales of approximately $9.3 million, and to a lesser degree, margin compression during the quarter from a year ago. These items accounted for approximately $0.08 of the EPS reduction. The sales revenue shortfall was chiefly related to projects that will bill either later in 2012, or in early 2013. The margin compression reduction in Enviroplex profitability resulted from cost overruns on multiple custom projects moving through the plant during the same time frame. Additionally, as a result of the in-plant bottleneck, and needing to meet our delivery commitment time frames, a considerable amount of work was completed on site. This site work was considerably more costly due to significant inefficiencies between in-plant and field production work, and prevailing wage labor rates. Looking forward, we anticipate continued margin compression on Enviroplex’s sales revenues over the next quarter or two as these projects are completed. The remaining EPS reduction of $0.04 from a year ago was due to higher depreciation expense on a larger sized, but lower utilized fleet and higher interregional transportation costs to move equipment primarily from Northeastern to Southern U.S. rental markets for Adler, lower equipment sales and related gross profit in our modular division, partially offset by higher profitability at TRS-RenTelco.

TRS-RenTelco, our electronic test equipment division, rental revenues for the quarter increased by $1.8 million, or 7% to $26.5 million from a year ago. Divisional income from operations increased by 24% from the third quarter of 2011 to $10.2 million. The significantly higher percentage increase in profitability as compared to rental revenues was primarily related to lower direct SG&A and equipment depreciation expenses, partially offset by higher laboratory costs, all as a percentage of rental revenues from a year ago. Our results for TRS-RenTelco continue to reflect its discipline in strategic focus, strong brand following, operational efficiencies and an exceptionally talented and tenured work force.

Adler Tank Rentals, our tank and box division, rental revenues increased by $0.8 million, or 5% to $16.9 million from a year ago. Divisional income from operations decreased by $1.9 million or 20% year over year to $7.6 million. The decrease in profitability was primarily due to lower utilization driving higher rental equipment depreciation as a percentage of rental revenues, and higher inventory center costs from a year ago. As a result of the ongoing reduction in dry natural gas production in the Northeast and markedly lower utilization of Adler’s 21,000 gallon tank fleet in the region, we moved a large number of units to other regions, primarily to fill order opportunities. The one-time costs to transport these tanks were a material portion of the increase in inventory center expenses compared to a year ago.

The higher depreciation expense as a percentage of rental revenues was the result of a significant increase in year over year rental equipment inventory to support a larger geographic footprint and new customer growth opportunities, and lower equipment utilization levels, primarily in the Northeast, from a year ago. Division-wide Adler rental equipment utilization declined to 69.4% at the end of the third quarter compared to 90.5% a year ago; however, utilization increased from 67.5% from the end of the second quarter 2012. We are building the Adler brand across the continental U.S. and it is essential that we have the right mix and depth of inventory on the ground in all of the markets in which we operate in order to respond to a variety of end market needs. In fact, Adler’s industry mix of rental revenues for the third quarter of 2012 compared to the same period in 2011 reflects fracking related rentals decreasing from approximately 35% to 19%, while overall rental revenues increased 5%.

Modular division rental revenues for the quarter were down slightly to $20.0 million, or less than 1% from a year ago, however, rental revenues increased from $19.5 million or 2% from the second quarter of 2012. Rental revenues for the quarter grew by 9% year over year in our markets outside of California; however, they declined by 7% within the state. We had a 22% increase in first month’s rent bookings for modular buildings during the third quarter compared to a year ago with our markets outside of California increasing by 48%, while the California market was flat. Although the California market still has general economic and state budget headwinds, we believe there is a discernible recovery occurring in the state. The unemployment rate has declined to 10.2% from 10.7% in July, and from a Great Recession high of 12.6%. The housing market for new homes in the greater Bay Area has improved with a number of projects under construction and others in preliminary stages. There has also been an uptick in commercial construction activity. We are hopeful these trends continue and that we begin to see their impact in our California modular numbers.

Modular division year over year income from operations decreased by 24% to $4.6 million; however, modular rental operations gross profit declined only 4%. The higher percentage reduction in income from operations was due primarily to lower gross profit on modular equipment sales, which tends to be less predictable than for rentals. We also experienced higher inventory center equipment processing expenses for the quarter from a year ago related primarily to increased business activity in the Texas market. Finally, modular division utilization was down slightly to 66% from 67% a year ago, and was flat compared to the second quarter of 2012. It is important to point out that our division-wide modular quarterly average utilization over the past eight quarters has stayed within a narrow range of 66% to 68%. We believe this speaks to a modular business that has stabilized with greater upside opportunity than downside risk.

Looking forward, we are keenly focused on leveraging the significant opportunities that Adler Tank Rentals provides us in building a much larger and more profitable tank and box rental business. Although third quarter utilization levels were lower than we would like to see them, there is no reservation in my outlook that we are in the very early innings of a very successful franchise. Our growth opportunities are numerous and we will need many more rental assets over time in achieving our goals.

As for other strategic direction comments, our portable storage business continued to make good progress during the quarter in building its customer following, increasing booking levels and growing rental revenues. We are beginning to realize critical mass in our installed base of customers in some of the markets in which we operate. We still have ample room to grow rental revenues within our current cost structure. At the same time, we are actively investigating additional geographies for expansion. I’m very pleased with what we have accomplished in growing our portable storage business starting in 2008, and in an economy that has had an average annual real GDP growth rate of less than one-half of one-percent over this time frame. As the economy continues to improve, and with the infrastructure and quality team we are continuing to build, our portable storage business should benefit very favorably. We believe that we have an excellent opportunity to become a meaningful player in the portable storage rental industry. As mentioned this past quarter, we plan to exit the environmental test equipment business. We have had interest from multiple parties in acquiring the assets of the business and are presently managing this process. We’ve also recently added a full-time corporate development associate to our team in order to provide greater bandwidth in our review of a continuum of strategic growth opportunities.”

All comparisons presented below are for the quarter ended September 30, 2012 to the quarter ended September 30, 2011 unless otherwise indicated.

MOBILE MODULAR

For the third quarter of 2012, the Company’s Mobile Modular division reported a 24% decrease in income from operations to $4.6 million. Rental revenues decreased 1% to $20.0 million and other direct costs increased 14% to $6.7 million, which resulted in a decrease in gross profit on rental revenues of 9% to $9.8 million. Sales revenues decreased 33% to $5.7 million, with gross profit on sales revenues decreasing 41% to $1.3 million, primarily due to lower margins on used equipment sales revenues in the third quarter of 2012. Selling and administrative expenses increased 1% to $8.5 million primarily as a result of higher salary and benefit costs, primarily related to the expansion of our Portable Storage growth initiative.

TRS-RENTELCO

For the third quarter of 2012, the Company’s TRS-RenTelco division reported a 24% increase in income from operations to $10.2 million. Rental revenues increased 7% to $26.5 million. The increase in rental revenues together with a 1% decrease in depreciation expense to $9.7 million and an 18% increase in other direct costs to $3.9 million, resulted in an increase in gross profit on rental revenues of 10% to $12.9 million. Sales revenues increased 2% to $5.8 million with gross profit on sales increasing 11% to $2.8 million, due to higher margins on used equipment sales revenues in the third quarter of 2012. Selling and administrative expenses decreased 1% to $6.2 million, primarily due to decreased salary and benefit costs.

ADLER TANKS

For the third quarter of 2012, the Company’s Adler Tanks division reported a 20% decrease in income from operations to $7.6 million. Rental revenues increased 5% to $16.9 million and other direct costs increased 94% to $2.1 million, which resulted in a decrease in gross profit on rental revenues of 8% to $11.8 million. Rental related services revenues increased $1.3 million to $4.6 million, with gross profit on rental related services revenues decreasing $0.3 million to $0.7 million. Selling and administrative expenses increased 13% to $4.9 million, primarily due to higher allocated corporate expenses as Adler’s revenues grew at a higher rate compared to other business segments and increased personnel and benefit costs.

OTHER HIGHLIGHTS

  • Debt increased $6.2 million during the quarter to $314.2 million, with the Company’s funded debt (notes payable) to equity ratio decreasing from 0.89 to 1 at June 30, 2012 to 0.88 to 1 at September 30, 2012. As of September 30, 2012, the Company had capacity to borrow an additional $215.8 million under its lines of credit.
  • Dividend rate increased 2% to $0.235 per share for the third quarter 2012 compared to the third quarter 2011. On an annualized basis, this dividend represents a 3.6% yield on the October 31, 2012 close price of $26.26.
  • Adjusted EBITDA decreased 8% to $42.2 million for the third quarter of 2012. At September 30, 2012, the Company’s ratio of funded debt to the last twelve months actual Adjusted EBITDA was 1.96 to 1 compared to 1.88 to 1 at June 30, 2012. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization and non-cash stock-based compensation. A reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA to net cash provided by operating activities can be found at the end of this release.

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 2012 full-year earnings guidance range of $1.70 to $1.85 to an updated range of $1.70 to $1.75 per diluted share.

For the full-year 2012, the Company expects approximately 5% to 6% growth in rental operations revenues over 2011 and gross profit from sales to be approximately 25% to 30% lower than 2011. Rental equipment depreciation expense is expected to increase to approximately $63 million, driven by rental fleet growth. Selling and administrative costs are expected to increase to approximately $84 million to support business growth, and continued investment in Adler Tanks and our portable storage initiative. Full year interest expense is forecasted to be approximately $9 million. The Company expects the 2012 effective tax rate to be 39.2% and the diluted share count to be approximately 25.2 million shares. These forward-looking statements reflect McGrath RentCorp’s expectations as of November 1, 2012. Actual 2012 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. Under the trade name Mobile Modular Management Corporation (Mobile Modular), it 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. In 2008, the Company purchased the assets of Adler Tank Rentals, a New Jersey based supplier of rental containment solutions for hazardous and nonhazardous liquids and solids with operations today serving key markets throughout the U.S. Also, in 2008, under the trade name TRS-Environmental, the Company entered the environmental test equipment rental business serving the Americas. In 2008, the Company also entered the portable storage container rental business in California under the trade name Mobile Modular Portable Storage, and in 2009 expanded this business into Texas and Florida. 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
Environmental Test Equipment – www.TRS-Environmental.com
School Facilities Manufacturing – www.Enviroplex.com

CONFERENCE CALL NOTE

As previously announced in its press release of October 11, 2012, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on November 1, 2012 to discuss the third quarter 2012 results. To participate in the teleconference, dial 1-877-941-1427 (in the U.S.), or 1-480-629-9664 (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 1-800-406-7325 (in the U.S.), or 1-303-590-3030 (outside the U.S.). The pass code for the call replay is 4568266.

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: margin compression on Enviroplex’s sales revenues over the next quarter or two, Adler Tanks brand initiatives and expectations about building a larger and more profitable tank and box rental business, recovery in the California economy in general and the impact of this recovery on the modular market within the state, stabilization of our modular business with greater upside opportunity than downside risk, our plans to exit the environmental test equipment business [and management of the sale of these assets], and the statements under the heading “Financial 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 continuation of the current recession and financial, budget and credit crises, 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, and the Company’s ability to access additional capital in the current uncertain capital and credit market; changes in state funding for education and the timing and impact of federal stimulus monies; the effectiveness of management’s strategies and decisions, general economic, stock market and business conditions, including in the states and countries where we sell or rent our products; continuing demand for our products; hiring, retention and motivation of key personnel; failure by third parties to manufacture and deliver our products in a timely manner and to our specifications; the cost of and our ability to successfully implement information system upgrades; our ability to finance expansion and to locate and consummate acquisitions and to successfully integrate and operate Adler Tanks and other acquisitions; fluctuations in interest rates and the Company’s ability to manage credit risk; our ability to effectively manage 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; fluctuations in the Company’s effective tax rate; changes in financial accounting standards; our failure to comply with internal control requirements; catastrophic loss to our facilities; effect on the Company’s Adler Tanks business from reductions to the price of oil or gas; new or modified statutory or regulatory requirements; success of the Company’s 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, including unfavorable exchange rates for the U.S. dollar against our Canadian dollar denominated revenues.

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-Q for the quarter ended September 30, 2012 filed with the SEC on November 1, 2012 and in our Form 10-K for the year ended December 31, 2011, filed with the SEC on February 29, 2012, 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.

MCGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

         
 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

(in thousands, except per share amounts)     2012     2011     2012     2011
   

REVENUES

Rental $ 63,418 $ 60,964 $ 183,327 $ 172,108
Rental Related Services   13,010   10,737   34,703   28,616
Rental Operations 76,428 71,701 218,030 200,724
Sales 22,382 32,783 42,318 55,206
Other   620   388   1,776   1,488
Total Revenues   99,430   104,872   262,124   257,418
 

COSTS AND EXPENSES

Direct Costs of Rental Operations
Depreciation of Rental Equipment 16,163 15,357 47,236 44,794
Rental Related Services 10,252 8,321 27,816 22,201
Other   12,698   10,274   33,856   30,479
Total Direct Costs of Rental Operations 39,113 33,952 108,908 97,474
Costs of Sales   16,677   23,622   28,961   37,392
Total Costs of Revenues   55,790   57,574   137,869   134,866
Gross Profit 43,640 47,298 124,255 122,552
Selling and Administrative Expenses   20,848   19,992   63,372   57,238
Income from Operations 22,792 27,306 60,883 65,314
Interest Expense   2,312   2,051   6,867   5,487
Income Before Provision for Income Taxes 20,480 25,255 54,016 59,827
Provision for Income Taxes   8,029   9,900   21,175   23,452
Net Income $ 12,451 $ 15,355 $ 32,841 $ 36,375
 
Earnings Per Share:
Basic $ 0.50 $ 0.63 $ 1.33 $ 1.50
Diluted $ 0.50 $ 0.62 $ 1.31 $ 1.47
Shares Used in Per Share Calculation:
Basic 24,785 24,362 24,730 24,320
Diluted 25,106 24,719 25,133 24,702
 
Cash Dividends Declared Per Share $ 0.235 $ 0.230 $ 0.705 $ 0.690
                         

MCGRATH RENTCORP
CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

  September 30,   December 31,
(in thousands)     2012       2011  
 

ASSETS

Cash $ 362 $ 1,229

Accounts Receivable, net of allowance for doubtful accounts of $2,200 in 2012 and $1,500 in 2011

101,048 92,671
 
Rental Equipment, at cost:
Relocatable Modular Buildings 549,225 539,147
Electronic Test Equipment 274,300 258,586
Liquid and Solid Containment Tanks and Boxes   246,228     201,456  
1,069,753 999,189
Less Accumulated Depreciation   (350,117 )   (326,043 )
Rental Equipment, net   719,636     673,146  
 
Property, Plant and Equipment, net 99,916 94,702
Prepaid Expenses and Other Assets 27,899 17,170
Intangible Assets, net 11,693 12,311
Goodwill   27,700     27,700  
Total Assets $ 988,254   $ 918,929  
 

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:
Notes Payable $ 314,193 $ 296,500
Accounts Payable and Accrued Liabilities 61,615 58,854
Deferred Income 35,642 25,067
Deferred Income Taxes, net   221,046     205,366  
Total Liabilities   632,496     585,787  
 
Shareholders’ Equity:
Common Stock, no par value -
Authorized -- 40,000 shares

Issued and Outstanding -- 24,809 shares in 2012 and 24,576 shares in 2011

82,449 74,878
Retained Earnings   273,309     258,264  
Total Shareholders’ Equity   355,758     333,142  
Total Liabilities and Shareholders’ Equity $ 988,254   $ 918,929  
                 

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

  Nine Months Ended September 30,
(in thousands)     2012       2011  
 

CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income $ 32,841 $ 36,375

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Depreciation and Amortization 53,665 49,746
Provision for Doubtful Accounts 1,775 1,373
Non-Cash Stock-Based Compensation 3,154 3,709
Gain on Sale of Used Rental Equipment (9,381 ) (9,713 )
Change In:
Accounts Receivable (10,152 ) (14,526 )
Income Taxes Receivable 6,131
Prepaid Expenses and Other Assets (10,729 ) (109 )
Accounts Payable and Accrued Liabilities 3,580 10,467
Deferred Income 10,575 1,641
Deferred Income Taxes   15,680     19,401  
Net Cash Provided by Operating Activities   91,008     104,495  
 

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of Rental Equipment (106,219 ) (120,699 )
Purchase of Property, Plant and Equipment (11,025 ) (15,181 )
Proceeds from Sale of Used Rental Equipment   20,556     21,502  
Net Cash Used in Investing Activities   (96,688 )   (114,378 )
 

CASH FLOWS FROM FINANCING ACTIVITIES:

Net Borrowings (Repayments) Under Bank Lines of Credit 17,693 (64,067 )
Borrowings Under Private Placement 100,000
Principal Payments on Senior Notes (12,000 )
Proceeds from the Exercise of Stock Options 3,572 1,848

Excess Tax Benefit from Exercise and Disqualifying Disposition of Stock Options

844

408

Payment of Dividends   (17,296 )   (16,644 )
Net Cash Provided by Financing Activities   4,813     9,545  
 
Net Decrease in Cash (867 ) (338 )
Cash Balance, beginning of period   1,229     990  
Cash Balance, end of period $ 362   $ 652  
 
Interest Paid, during the period $ 5,854   $ 3,705  
Net Income Taxes Paid (Refunds Received), during the period $ 4,633   $ (2,696 )
Dividends Accrued During the period, not yet paid $ 6,156   $ 5,772  
Rental Equipment Acquisitions, not yet paid $ 6,868   $ 5,545  
                 

MCGRATH RENTCORP

BUSINESS SEGMENT DATA (unaudited)

Three Months Ended September 30, 2012

 

 

(dollar amounts in thousands)

 

Mobile
Modular

 

TRS-
RenTelco

 

Adler
Tanks

 

Enviroplex

 

Consolidated

Revenues

         
Rental $ 20,001 $ 26,529 $ 16,888 $ $ 63,418
Rental Related Services   7,227       1,147       4,636           13,010
Rental Operations 27,228 27,676 21,524 76,428
Sales 5,661 5,803 1,735 9,183 22,382
Other   111       447       62           620
Total Revenues   33,000       33,926       23,321       9,183     99,430
 

Costs and Expenses

Direct Costs of Rental Operations:
Depreciation of Rental Equipment 3,478 9,670 3,015 16,163
Rental Related Services 5,321 949 3,982 10,252
Other   6,679       3,938       2,081           12,698
Total Direct Costs of Rental Operations 15,478 14,557 9,078 39,113
Costs of Sales   4,368       3,009       1,695       7,605     16,677
Total Costs of Revenue   19,846       17,566       10,773       7,605     55,790
 

Gross Profit

Rental 9,844 12,921 11,792 34,557
Rental Related Services   1,906       198       654           2,758
Rental Operations 11,750 13,119 12,446 37,315
Sales 1,293 2,794 40 1,578 5,705
Other   111       447       62           620
Total Gross Profit 13,154 16,360 12,548 1,578 43,640
Selling and Administrative Expenses   8,538       6,210       4,938       1,162     20,848
Income from Operations $ 4,616     $ 10,150     $ 7,610     $ 416 22,792
Interest Expense 2,312
Provision for Income taxes   8,029
Net Income $ 12,451
 

Other Information

Average Rental Equipment 1 $ 526,534 $ 271,983 $ 231,955
Average Monthly Total Yield 2 1.26 % 3.25 % 2.43 %
Average Utilization 3 66.2 % 65.7 % 68.9 %
Average Monthly Rental Rate 4 1.91 % 4.95 % 3.52 %
 

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 cost of Average Rental Equipment on rent by the total cost of Average 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, 2011

 

 

(dollar amounts in thousands)

 

Mobile
Modular

 

TRS-
RenTelco

 

Adler
Tanks

 

Enviroplex

 

Consolidated

Revenues

         
Rental $ 20,123 $ 24,759 $ 16,082 $ $ 60,964
Rental Related Services   6,565       871       3,301           10,737
Rental Operations 26,688 25,630 19,383 71,701
Sales 8,485 5,699 134 18,465 32,783
Other   109       242       37           388
Total Revenues   35,282       31,571       19,554       18,465     104,872
 

Costs and Expenses

Direct Costs of Rental Operations:
Depreciation of Rental Equipment 3,457 9,725 2,175 15,357
Rental Related Services 5,115 856 2,350 8,321
Other   5,873       3,327       1,074           10,274
Total Direct Costs of Rental Operations 14,445 13,908 5,599 33,952
Costs of Sales   6,296       3,192       79       14,055     23,622
Total Costs of Revenues   20,741       17,100       5,678       14,055     57,574
 

Gross Profit

Rental 10,793 11,707 12,833 35,333
Rental Related Services   1,450       15       951           2,416
Rental Operations 12,243 11,722 13,784 37,749
Sales 2,189 2,507 55 4,410 9,161
Other   109       242       37           388
Total Gross Profit 14,541 14,471 13,876 4,410 47,298
Selling and Administrative Expenses   8,428       6,271       4,387       906     19,992
Income from Operations $ 6,113     $ 8,200     $ 9,489     $ 3,504 27,306

Interest Expense

2,051
Provision for Income taxes   9,900
Net Income $ 15,355
 

Other Information

Average Rental Equipment 1 $ 506,130 $ 264,980 $ 164,415
Average Monthly Total Yield 2 1.33 % 3.11 % 3.26 %
Average Utilization 3 67.1 % 65.5 % 88.0 %
Average Monthly Rental Rate 4 1.98 % 4.76 % 3.70 %
 

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 cost of Average Rental Equipment on rent by the total cost of Average 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, 2012

 

 

(dollar amounts in thousands)

 

Mobile
Modular

 

TRS-
RenTelco

 

Adler
Tanks

 

Enviroplex

 

Consolidated

Revenues

         
Rental $ 59,414 $ 74,796 $ 49,117 $ $ 183,327
Rental Related Services   19,427       2,831       12,445             34,703
Rental Operations 78,841 77,627 61,562 218,030
Sales 9,949 16,092 2,371 13,906 42,318
Other   345       1,309       122             1,776
Total Revenues   89,135       95,028       64,055       13,906       262,124
 

Costs and Expenses

Direct Costs of Rental Operations:
Depreciation of Rental Equipment 10,437 28,280 8,519 47,236
Rental Related Services 15,246 2,698 9,872 27,816
Other   18,326       10,537       4,993             33,856
Total Direct Costs of Rental Operations 44,009 41,515 23,384 108,908
Costs of Sales   7,467       8,311       2,119       11,064       28,961
Total Costs of Revenue   51,476       49,826       25,503       11,064       137,869
 

Gross Profit

Rental 30,651 35,979 35,605 102,235
Rental Related Services   4,181       133       2,573             6,887
Rental Operations 34,832 36,112 38,178 109,122
Sales 2,482 7,781 252 2,842 13,357
Other   345       1,309       122             1,776
Total Gross Profit 37,659 45,202 38,552 2,842 124,255
Selling and Administrative Expenses   25,317       19,315       15,347       3,393       63,372
Income (Loss) from Operations $ 12,342     $ 25,887     $ 23,205     $ (551 ) 60,883
Interest Expense 6,867
Provision for Income taxes   21,175
Net Income $ 32,841
 

Other Information

Average Rental Equipment 1 $ 521,382 $ 266,148 $ 216,985
Average Monthly Total Yield 2 1.27 % 3.13 % 2.52 %
Average Utilization 3 66.3 % 65.8 % 72.0 %
Average Monthly Rental Rate 4 1.91 % 4.76 % 3.49 %
 

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 cost of Average Rental Equipment on rent by the total cost of Average 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, 2011

 

 

(dollar amounts in thousands)

 

Mobile
Modular

 

TRS-
RenTelco

 

Adler
Tanks

 

Enviroplex

 

Consolidated

Revenues

         
Rental $ 59,689 $ 70,370 $ 42,049 $ $ 172,108
Rental Related Services   17,886       2,273       8,457           28,616
Rental Operations 77,575 72,643 50,506 200,724
Sales 16,521 18,033 237 20,415 55,206
Other   314       1,070       104           1,488
Total Revenues   94,410       91,746       50,847       20,415     257,418
 

Costs and Expenses

Direct Costs of Rental Operations:
Depreciation of Rental Equipment 10,306 28,561 5,927 44,794
Rental Related Services 13,788 2,014 6,399 22,201
Other   17,263       9,902       3,314           30,479
Total Direct Costs of Rental Operations 41,357 40,477 15,640 97,474
Costs of Sales   12,083       9,754       154       15,401     37,392
Total Costs of Revenue   53,440       50,231       15,794       15,401     134,866
 

Gross Profit

Rental 32,120 31,907 32,808 96,835
Rental Related Services   4,098       259       2,058           6,415
Rental Operations 36,218 32,166 34,866 103,250
Sales 4,438 8,279 83 5,014 17,814
Other   314       1,070       104           1,488
Total Gross Profit 40,970 41,515 35,053 5,014 122,552
Selling and Administrative Expenses   24,027       18,920       11,704       2,587     57,238
Income from Operations $ 16,943     $ 22,595     $ 23,349     $ 2,427 65,314
Interest Expense 5,487
Provision for Income taxes   23,452
Net Income $ 36,375
 

Other Information

Average Rental Equipment 1 $ 501,323 $ 257,593 $ 148,939
Average Monthly Total Yield 2 1.32 % 3.04 % 3.14 %
Average Utilization 3 67.1 % 65.4 % 86.4 %
Average Monthly Rental Rate 4 1.97 % 4.64 % 3.63 %
 

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 cost of Average Rental Equipment on rent by the total cost of Average 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 non-cash stock-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 as well as the Company’s ability to meet future capital expenditure and working capital requirements. Management believes the exclusion of non-cash charges, including stock-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 generally accepted accounting principles in the United States 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 stock-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 Securities and Exchange Commission, 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,

  2012       2011     2012       2011     2012       2011  
Net Income $ 12,451 $ 15,355 $ 32,841 $ 36,375 $ 46,068 $ 49,118
Provision for Income Taxes 8,029 9,900 21,175 23,452 29,179 30,975
Interest   2,312     2,051     6,867     5,487     8,986     7,026  
Income from Operations 22,792 27,306 60,883 65,314 84,233 87,119
Depreciation and Amortization 18,326 17,110 53,665 49,746 71,314 66,054
Non-Cash Stock-Based Compensation   1,077     1,582     3,154     3,709     4,666     4,781  
Adjusted EBITDA 1 $ 42,195   $ 45,998   $ 117,702   $ 118,769   $ 160,213   $ 157,954  
 
Adjusted EBITDA Margin 2 42 % 44 % 45 % 46 % 46 % 47 %
 

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,

  2012       2011     2012       2011     2012       2011  
Adjusted EBITDA 1 $ 42,195 $ 45,998 $ 117,702 $ 118,769 $ 160,213 $ 157,954
Interest Paid (1,238 ) (1,048 ) (5,854 ) (3,705 ) (9,025 ) (5,481 )
Net Income Taxes (Paid) Refunds Received (1,417 ) (902 ) (4,633 ) 2,696 (5,849 ) 1,384
Gain on Sale of Used Rental Equipment (3,413 ) (3,217 ) (9,381 ) (9,713 ) (12,112 ) (13,296 )
Change in certain assets and liabilities:
Accounts Receivable, net (14,646 ) (10,811 ) (8,377 ) (13,153 ) (11,407 ) (730 )
Prepaid Expenses and Other Assets (1,240 ) 8,712 (10,729 ) (109 ) (13,846 ) 1,536
Accounts Payable and Other Liabilities (1,434 ) (136 ) 1,705 8,069 (2,362 ) 4,289
Deferred Income   6,928     (5,550 )   10,575     1,641     10,211     (6,710 )
Net Cash Provided by Operating Activities $ 25,735   $ 33,046   $ 91,008   $ 104,495   $ 115,823   $ 138,946  
 

1 Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization and non-cash stock-based compensation.
2 Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by total revenues for the period.

Contacts

McGrath RentCorp
Keith E. Pratt, 925-606-9200
Chief Financial Officer

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Contacts

McGrath RentCorp
Keith E. Pratt, 925-606-9200
Chief Financial Officer