Earnings Release Q1 2018

McGrath RentCorp Announces Results for First Quarter 2018

LIVERMORE, Calif., May 01, 2018 (GLOBE NEWSWIRE) -- McGrath RentCorp (NASDAQ:MGRC) (the "Company"), a diversified business to business rental company, today announced total revenues for the quarter ended March 31, 2018 of $105.1 million, an increase of 11%, compared to the first quarter of 2017. The Company reported net income of $14.5 million, or $0.59 per diluted share for the first quarter of 2018, compared to net income of $8.0 million, or $0.33 per diluted share, in the first quarter of 2017. The first quarter of 2018 includes a net income benefit associated with the Tax Cuts and Jobs Act ("the Tax Act") that was enacted in December 2017. The Tax Act reduces the U.S. federal corporate statutory rate from 35% to 21%, which contributed $0.11 to earnings per diluted share in the first quarter 2018.

FIRST QUARTER 2018 COMPANY HIGHLIGHTS:

• Income from operations increased 39% year-over-year to $22.0 million.
• Rental revenues increased 9% year-over-year to $74.3 million.
• Adjusted EBITDA¹ increased 18% year-over-year to $42.8 million.
• Dividend rate increased 31% year-over-year to $0.34 per share for the first quarter of 2018. On an annualized basis, this dividend represents a 2.3% yield on the April 30, 2018 close price of $58.93 per share.

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

"Our first quarter results are a positive start to the year. Overall operating profit increased by 39%, driven by growth in rental gross profit of $5.0 million and sales gross profit of $1.3 million. Demand was broad based across each of our divisions as the economy continued to show positive momentum.

Mobile Modular rental revenues for the quarter increased 10% from a year ago, primarily driven by 9% improvement in average rental rates. Rental revenue growth continued to be healthy across commercial and education markets. Portable Storage rental revenues grew by 15% on strong demand from construction projects. Modular sales revenues increased significantly year-over-year, primarily due to higher used equipment sales.

TRS-RenTelco rental revenues for the quarter increased 9%, primarily driven by 7% higher average rental equipment and improved utilization. Demand for both communications and general purpose test equipment continued the healthy trends experienced in late 2017.

Adler Tank Rentals rental revenues for the quarter increased 8% from a year ago. Rental revenue growth occurred across a mix of vertical markets, including upstream oil and natural gas, which increased from 6% to 10% of total rental revenues. Utilization improved as average equipment on rent increased 11%. Due to ongoing competitive price pressure, average rental rates declined slightly.

We continue to execute on our performance improvement initiatives. We are driving better performance from our fleet without significant new equipment investments and we are encouraged by our progress.

Now that our first quarter is completed, we have established a good foundation for the remainder of the year."

1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs and share-based compensation. A reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA to net cash provided by operating activities can be found at the end of this release.

DIVISION HIGHLIGHTS:

All comparisons presented below are for the quarter ended March 31, 2018 to the quarter ended March 31, 2017 unless otherwise indicated.

MOBILE MODULAR

For the first quarter of 2018, the Company's Mobile Modular division reported income from operations of $12.3 million, an increase of $3.7 million, or 42%. Rental revenues increased 10% to $37.0 million, depreciation expense decreased 2% to $5.2 million and other direct costs increased 7% to $10.3 million, which resulted in an increase in gross profit on rental revenues of 15% to $21.4 million. Rental related services revenues increased 3% to $11.9 million, with associated gross profit increasing 4% to $2.9 million. Sales revenues increased 55% to $4.6 million. Gross margin on sales increased to 36% from 30% in 2017 due to higher margins on used equipment sales, resulting in a twofold increase in gross profit on sales revenues to $1.7 million. Selling and administrative expenses increased 2% to $14.0 million, primarily due to increased salaries and employee benefit costs.

TRS-RENTELCO

For the first quarter of 2018, the Company's TRS-RenTelco division reported income from operations of $7.2 million, an increase of $1.5 million, or 27%. Rental revenues increased 9% to $21.5 million, depreciation expense increased 6% to $8.6 million and other direct costs increased 5% to $3.5 million, which resulted in an increase in gross profit on rental revenues of 14% to $9.4 million. Sales revenues increased 18% to $5.2 million. Gross margin on sales decreased to 52% from 57% in 2017 primarily due to lower margins on used equipment sales, resulting in an 8% increase in gross profit on sales revenues to $2.7 million. Selling and administrative expenses decreased 1% to $5.6 million.

ADLER TANKS

For the first quarter of 2018, the Company's Adler Tanks division reported income from operations of $3.2 million, an increase of $0.9 million, or 40%. Rental revenues increased 8% to $15.7 million, depreciation expense was flat at $3.9 million and other direct costs increased 2% to $2.4 million, which together resulted in an increase in gross profit on rental revenues of 13% to $9.3 million. Rental related services revenues decreased 11% to $5.1 million, with gross profit on rental related services decreasing 23% to $1.0 million. Selling and administrative expenses decreased 1% to $7.2 million.

FINANCIAL OUTLOOK:

Based upon the Company's year-to-date results and current outlook for the remainder of the year, the Company is raising its financial outlook and expects its 2018 total operating profit to increase 11% to 15% above 2017 results, as compared to our prior expectation of an 8% to 12% increase.

ABOUT MCGRATH RENTCORP:

Founded in 1979, McGrath RentCorp is a diversified business-to-business rental company with four rental divisions. Mobile Modular 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. TRS-RenTelco rents and sells electronic test equipment and is one of the leading rental providers of general purpose and communications test equipment in the Americas. Adler Tank Rentals rents and sells containment solutions for hazardous and nonhazardous liquids and solids with operations serving key markets throughout the United States. Mobile Modular Portable Storage provides portable storage solutions in the California, Texas, Florida, Northern Illinois, New Jersey, North Carolina and Georgia markets. For more information on McGrath RentCorp and its operating units, please visit our websites:

Corporate - https://www.mgrc.comModular Buildings - https://www.mobilemodular.comElectronic Test Equipment - https://www.trsrentelco.comTanks and Boxes - https://www.adlertankrentals.comPortable Storage - https://www.mobilemodularcontainers.comSchool Facilities Manufacturing - https://www.enviroplex.com

You should read this press release in conjunction with the financial statements and notes thereto included in the Company's latest Forms 10-K, 10-Q and other SEC filings. You can visit the Company's web site at https://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 April 2, 2018, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on May 1, 2018 to discuss the first quarter 2018 results. To participate in the teleconference, dial 1-844-707-0666 (in the U.S.), or 1-703-639-1220 (outside the U.S.), or to listen only, access the simultaneous webcast at the investor relations section of the Company's website at https://investors.mgrc.com/. A 7-day replay will be available following the call by dialing 1-855-859-2056 (in the U.S.), or 1-404-537-3406 (outside the U.S.). The pass code for the call replay is 6888595. 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 "believes," "expects," "will," or "anticipates" or the negative of these terms or other comparable terminology. In particular, Mr. Hanna's comment that the Company's businesses have established a good foundation for the remainder of 2018, and the full year 2018 outlook in the "Financial Outlook" section are forward-looking.

These forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties that could cause our actual results to differ materially from those projected including: the extent of the recovery underway in our modular building division; the state of the wireless communications network upgrade environment; the utilization levels and rental rates of our Adler Tanks liquid and sold containment tank and box rental assets; the potential for continuing softness in communications test equipment rental demand in our electronics division; continued execution of our performance improvement initiatives; and our ability to effectively manage our rental assets, as well as the factors disclosed under "Risk Factors" in the Company's Form 10-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.

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.

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, non-cash impairment costs 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

Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities

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

FOR INFORMATION CONTACT:
Keith E. Pratt
EVP & Chief Financial Officer
925-606-9200

Source: McGrath RentCorp

Released May 1, 2018