McGrath RentCorp Announces Results for Second Quarter 2015
Rental revenues increase 2% EPS decreases 18% to $0.32 for the quarter
LIVERMORE, Calif., July 30, 2015 (GLOBE NEWSWIRE) -- McGrath RentCorp (NASDAQ: MGRC) (the "Company"), a diversified business-to-business rental company, today announced total revenues for the quarter ended June 30, 2015, of $96.0 million, an increase of less than 1%, compared to $95.7 million in the second quarter of 2014. The Company reported net income of $8.5 million, or $0.32 per diluted share for the second quarter of 2015, compared to net income of $10.2 million, or $0.39 per diluted share, in the second quarter of 2014. Second quarter 2014 results included a $0.8 million non-operating gain on sale of an excess property, which contributed $0.02 per diluted share.
Dennis Kakures, President and CEO of McGrath RentCorp, made the following comments regarding these results and future expectations:
"Our electronics rental business second quarter results were well below our expectations and chiefly responsible for the overall Company's year over year decline in second quarter EPS of $0.07 to $0.32 from $0.39 a year ago. The shortfall in TRS-RenTelco rental revenues for the quarter compared to a year ago, directly related to reduced communications test equipment business activity levels, was the primary factor behind TRSR's approximately $0.07 EPS reduction to overall Company earnings. The Company's quarterly results were also negatively impacted by Adler Tank Rentals' exposure to depressed crude oil prices and the related current industry oversupply of 21K tanks, resulting in approximately a $0.03 reduction in EPS for the quarter compared to a year ago. In addition, 2014 second quarter results included a non-operating gain on sale of an excess property which contributed $0.02 to EPS. Partially offsetting these year over year comparisons, our modular segment contributed approximately $0.05 more in EPS for the quarter compared to the same period a year ago. Our modular segment results were driven primarily by the continuing strong recovery of our modular building business, and secondarily by increasing profitability from our portable storage business.
Rental revenues for TRS-RenTelco, our electronics division, declined by $2.5 million for the quarter, or 10%, to $21.9 million from a year ago. The year over year reduction in rental revenues was driven entirely by lower communications test equipment business activity. We continued to experience a significantly slower wireless communications network upgrade environment compared to the first half of 2014. We had anticipated higher activity levels in this market vertical beginning in the second quarter that did not materialize. Although we anticipate some improvement in test equipment order activity in communications network upgrades in the second half of 2015, we have pared back our expectations significantly. General-purpose test equipment rental activity which had been slow throughout 2014 continued to improve during the second quarter. During the second quarter, the average rental billing level for these products was higher than for the same period a year ago. EBIT, or income from operations, for the quarter declined by $3.1 million, or 35%, from the same period in 2014. The reduction in rental revenue of $2.5 million was the primary contributor to lower year over year EBIT along with lower gross profit on equipment sales, higher laboratory costs and depreciation expense, partially offset by lower SG&A expenses. The higher percentage drop in year over year EBIT at 35% compared to rental revenues at 10% is primarily due to equipment mix and depreciation expense typically making up between 70 to 75% of direct rental costs. In other words, within any given quarter, we only have a limited amount of variable cost associated with rental revenue generation that can easily and responsibly be taken out of the business. In particular, with communications test equipment having much shorter depreciable lives than for general-purpose test equipment, there is a significantly higher monthly depreciation expense, but also much higher rental rates than for general-purpose test equipment. As a result, when communications test equipment is unutilized it impacts profitability more significantly than for general-purpose test equipment due to its higher carrying costs without its matching higher rental rates and revenues. Average equipment utilization was 59.5% for the second quarter, compared to 59.3% for the same period in 2014. Average rental rates for the second quarter of 2015 declined by 13% to 4.56% from 5.25% a year ago, primarily due to the on-rent equipment mix increasing for general-purpose and decreasing for communications test equipment. General-purpose test equipment has longer depreciable lives and lower rental rates than communications test equipment.
Rental revenues at Adler Tank Rentals, our liquid and solid containment tank and box division, declined by $1.0 million for the quarter, or 5% to $17.7 million from a year ago. Adler Tank Rentals serves a wide variety of market segments including industrial plant, petrochemical, pipeline, oil & gas, waste management, environmental field service and construction. Average utilization and total original cost of rental equipment were 60.6% and $303 million for the quarter compared to 63.2% and $287 million a year ago. Second quarter average equipment on rent at original cost was $183 million compared to $181 million for the same period in 2014. Period end equipment on rent at original cost rose to $188 million from $179 million a year ago. However, average monthly rental rates slid to 3.23% from 3.44%, or by 6% from a year ago. The reduction in rental rates is primarily due to lower crude oil prices and the significant decline in wellhead related drilling and completions activity, resulting in highly competitive upstream rental market conditions, in particular for 21K tanks. The oversupply of 21K tanks relative to demand in the oilfields is also putting downward pressure on rental pricing in midstream, downstream and other market verticals. Keep in mind, our 21K tanks are a multipurpose product and are the primary containment source utilized in virtually all market verticals from ground water collection to fracking to ethanol glycol (deicing fluid) storage. We remain cautious in our outlook for our liquid and solid containment rental business for the remainder of 2015 due to the current excess supply of 21K tanks in the marketplace. EBIT for the quarter decreased $1.2 million, or 18%, to $5.5 million from a year ago. The higher percentage decrease in EBIT at 18% as compared to rental revenues at 5% for the quarter was primarily a result of lower profit on rental related services, higher loss on equipment sales, and higher depreciation expense, partially offset by lower equipment preparation costs, all from a year ago.
Modular division-wide rental revenues for the quarter increased $5.0 million, or 22%, to $27.7 million from a year ago. This is the ninth consecutive year over year quarterly rental revenue increase. During the second quarter, we experienced a 29% increase in division-wide year over year first month's rental revenue bookings for modular buildings with a 28% increase in California and 29% outside the state. Second quarter 2015 modular division average utilization was 74.4%, an increase from 70.3% a year ago. Modular division EBIT for the quarter increased to $5.3 million, or by 77%, from the same period a year ago. EBIT margin increased to 13% from 8% a year ago. This favorable increase in EBIT profit and margin was driven primarily by higher rental revenues and rental revenue margin expansion. Gross margin on rental revenues increased to 44% for the quarter from 41% a year ago. Modular division EBIT results also benefited from higher profit on rental related services, offset by higher SG&A expenses and lower profit on equipment sales from last year's quarter. It should be noted that these results were generated despite a year over year 14% increase in building and container preparation, and inventory center related, costs associated with meeting continued strong order demand for both products.
Mobile Modular Portable Storage made good progress during the second quarter in building its customer following, increasing booking levels, and growing both rental revenues and profitability. First month's rent booking levels and rental revenues for the second quarter grew by 20% and 36%, respectively, from the same period a year ago. EBIT for our storage container rental business was up two-fold from the second quarter of 2014. We are targeting further geographic expansion during 2015. We are on track towards building a meaningful-sized storage container rental business with attractive operating metrics.
As a result of our electronic test equipment division earnings shortfall to date, coupled with a challenging outlook for communications market rental opportunities for the remainder of 2015, we are revising our 2015 full year EPS guidance to a range of $1.55 to $1.65 from $1.75 to $1.95. It's important to emphasize when there are shortfalls in rental revenues in our electronics business, and in particular related to communications test equipment products with shorter depreciable lives, the negative earnings impact can be significant as discussed above. Conversely, when this communications test equipment is utilized, the great majority of the rental revenue generated will drop to the pre-tax line.
Over the past few years, we have been through a significant investment cycle in the Company. During this period, we launched our portable storage business, expanded our modular business to the Mid-Atlantic region from Georgia to Washington D.C., entered the liquid and solid containment rental industry through the acquisition of Adler Tank Rentals and created a national footprint for the business, and shepherded the turnaround and early recovery of our legacy largest earnings engine modular business to improving financial health from having lost approximately $1.00 of annual EPS due to the effects of the Great Recession. Our electronics rental business performed well through the majority of this time frame, and will do so again in the future. As both a business manager and an investor in McGrath RentCorp, I can fully appreciate the challenges associated with getting four different rental businesses all performing at favorable levels consistently. We are well on our way to creating four large rental businesses with collectively materially greater annual earnings horsepower than we have experienced to date. Twenty-one consecutive quarters of year over year rental revenue growth should be a clear beacon of what we are building over time. Cyclical challenges with our different rental businesses will occur from time to time; however, as our meaningful modular rental business earnings platform continues to recover, and our newest investments continue to grow and improve their key metrics, the impact of downturns in any one specific vertical market, within any one business should be considerably less of an impact on overall Company results. The Company's management is confident in the foundation for growth in place today supporting greater shareholder value in our future. Last, as noted in our Q1 2015 10Q, in March, 2015 the Company entered into a share repurchase plan in accordance with Rule 10b5-1 and continues to be active in repurchasing its shares."
All comparisons presented below are for the quarter ended June 30, 2015 to the quarter ended June 30, 2014 unless otherwise indicated.
MOBILE MODULAR
For the second quarter of 2015, the Company's Mobile Modular division reported a 77% increase in income from operations to $5.3 million. Rental revenues increased 22% to $27.7 million, depreciation expense increased 18% to $4.7 million and other direct costs increased 14% to $10.7 million, which resulted in an increase in gross profit on rental revenues of 32% to $12.2 million. Rental related services revenues increased 31% to $10.5 million, with gross profit on rental related services revenues increasing 38% to $3.1 million. Sales revenues decreased 41% to $3.8 million with gross profit on sales revenues decreasing 23% to $1.1 million, primarily due to lower new equipment sales revenues in the second quarter of 2015. Selling and administrative expenses increased 12% to $11.3 million primarily due to increased employee headcount, salaries and benefit costs and higher allocated corporate expenses.
TRS-RENTELCO
For the second quarter of 2015, the Company's TRS-RenTelco division reported a 35% decrease in income from operations to $5.9 million. Rental revenues decreased 10% to $21.9 million, depreciation expenses increased 2% to $10.3 million and other direct costs increased 7% to $3.3 million, which resulted in a decrease in gross profit on rental revenues of 26% to $8.3 million. Sales revenues decreased 24% to $4.8 million in 2015. Gross profit on sales revenues decreased 18% to $2.7 million, with gross margin percentage increasing to 55% from 51% in 2014, due to higher gross margins on new and used equipment sales revenues. Selling and administrative expenses decreased 8% to $5.5 million, primarily due to lower allocated corporate expenses.
ADLER TANKS
For the second quarter of 2015, the Company's Adler Tanks division reported an 18% decrease in income from operations to $5.5 million. Rental revenues decreased 5% to $17.7 million, other direct costs decreased 18% to $2.2 million and depreciation expense increased 5% to $4.0 million, which resulted in a decrease in gross profit on rental revenues of 6% to $11.6 million. Rental related services revenues decreased 5% to $5.9 million, with gross profit on rental related services decreasing 19% to $1.1 million. Selling and administrative expenses were flat at $6.9 million.
OTHER HIGHLIGHTS
- Debt increased $16.3 million during the quarter to $337.2 million, with the Company's funded debt (notes payable) to equity ratio increasing to 0.79 to 1 at June 30, 2015 compared to 0.75 to 1 at March 31, 2015. As of June 30, 2015, the Company had capacity to borrow an additional $192.8 million under its lines of credit.
- Dividend rate increased 2% to $0.25 per share for the second quarter 2015 compared to the second quarter 2014. On an annualized basis, this dividend represents a 3.6% yield on the July 29, 2015 close price of $27.67.
- Adjusted EBITDA decreased 4% to $38.7 million for the second quarter of 2015 compared to the second quarter of 2014. At June 30, 2015, the Company's ratio of funded debt to the last twelve months actual Adjusted EBITDA was 2.00 to 1 compared to 1.88 to 1 at March 31, 2015. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization and share-based compensation. A reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA to net cash provided by operating activities can be found at the end of this press release.
You should read this press release in conjunction with the financial statements and notes thereto included in the Company's latest Forms 10-K and 10-Q and other SEC filings. You can visit the Company's web site at www.mgrc.com to access information on McGrath RentCorp, including the latest Forms 10-K and 10-Q and other SEC filings.
FINANCIAL GUIDANCE
The Company revises its previous 2015 full-year earnings guidance range of $1.75 to $1.95 to an updated range of $1.55 to $1.65 per diluted share.
For the full-year 2015, the Company expects 2% to 5% growth in rental revenues over 2014. Sales revenue is expected to be approximately 20% lower than 2014. Rental equipment depreciation expense is expected to increase to between $76 and $78 million, driven by rental fleet growth. "Other" direct costs of rental operations, primarily for rental equipment maintenance and repair, are expected to increase to between $60 and $62 million in 2015. Selling and administrative costs are expected to increase to between $100 and $103 million to support business growth. Full year interest expense is expected to be between $9.5 and $10.5 million. The Company expects the 2015 effective tax rate to be 39.5% and the diluted share count to be between 26.0 and 26.2 million shares. These forward-looking statements reflect McGrath RentCorp's expectations as of July 30, 2015. Actual 2015 full-year earnings per share results may be materially different and affected by many factors, including those factors outlined in the "forward-looking statements" paragraph at the end of this press release.
ABOUT MCGRATH RENTCORP
Founded in 1979, McGrath RentCorp is a diversified business-to-business rental company. The Company's Mobile Modular division rents and sells modular buildings to fulfill customers' temporary and permanent classroom and office space needs in California, Texas, Florida, and the Mid-Atlantic from Washington D.C. to Georgia. The Company's TRS-RenTelco division rents and sells electronic test equipment and is one of the leading rental providers of general purpose and communications test equipment in the Americas. The Company's Adler Tank Rentals subsidiary rents and sells containment solutions for hazardous and nonhazardous liquids and solids with operations today serving key markets throughout the United States. In 2008, the Company entered the portable storage container rental business under the trade name Mobile Modular Portable Storage. Today, the business is located in the key markets of California, Texas, Florida, Northern Illinois, New Jersey and most recently entered the North Carolina region. For more information on McGrath RentCorp and its operating units, please visit our websites:
Corporate – www.mgrc.com Tanks and Boxes – www.AdlerTankRentals.com Modular Buildings – www.MobileModularRents.com Portable Storage – www.MobileModularRents-PortableStorage.com Electronic Test Equipment – www.TRS-RenTelco.com School Facilities Manufacturing – www.Enviroplex.com
CONFERENCE CALL NOTE
As previously announced in its press release of July 9, 2015, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on July 30, 2015 to discuss the second quarter 2015 results. To participate in the teleconference, dial 1-888-503-8175 (in the U.S.), or 1-719-325-2429 (outside the US), or visit the investor relations section of the Company's website at www.mgrc.com. Telephone replay of the call will be available for 7 days following the call by dialing 1-888-203-1112 (in the U.S.), or 1-719-457-0820 (outside the U.S.). The pass code for the call replay is 8555107. In addition, a live audio webcast and replay of the call may be found in the investor relations section of the Company's website at http://mgrc.com/Investor/EventsAndArchive
FORWARD-LOOKING STATEMENTS
Statements in this press release which are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, regarding McGrath RentCorp's business strategy, future operations, financial position, estimated revenues or losses, projected costs, prospects, plans and objectives are forward looking statements. These forward-looking statements appear in a number of places and can be identified by the use of forward-looking terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "future," "intend," "hopes," "goals" or "certain" or the negative of these terms or other variations or comparable terminology. In particular, the statements made in this press release about the following topics are forward looking statements: anticipation of improvement in test equipment order activity in communication network upgrades in the second half of 2015; further geographic expansion of the Mobile Modular Portable Storage business during 2015; the Company being on track towards building a meaningful-sized storage container rental business with attractive operating metrics; anticipation of electronics business performing well again in the future; anticipation of creating four large rental businesses with collectively materially greater annual earnings horsepower, which would lessen the negative impact of downturns in any one specific vertical market; the continued recovery of the modular business; anticipation of newest investments continuing to grow and improve their key metrics; anticipation of continuing share repurchase activities; and updated 2015 full-year guidance.
Management cautions that forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements including, without limitation, the following: the extent of and timetable for the recovery underway in our modular building division; the scope of recovery of the electronics division, including general-purpose equipment and communications equipment rentals, during the remainder of 2015; the utilization levels of our Adler Tanks liquid and sold containment tank and box rental assets, including as a result of the impact from the precipitous decline in crude oil prices; the extent of economic recovery, particularly in California, including the impact on funding for school facility projects and residential and commercial construction sectors; our customers' need and ability to rent our products; failure by third parties to manufacture and deliver our products in a timely manner and to our specifications; our ability to successfully integrate and operate acquisitions, as well as manage expansions; our ability to effectively manage our rental assets, as well as building preparation and transportation costs relating to our rental assets; the risk that we may be subject to litigation under environmental, health and safety and product liability laws and claims from employees, vendors and other third parties; new or modified statutory or regulatory requirements; success of our strategic growth initiatives; risks associated with doing business with government entities; seasonality of our businesses; intense industry competition including increasing price pressure; our ability to timely deliver, install and redeploy our rental products; significant increases in raw materials, labor, and other costs; and risks associated with operating internationally.
Our future business, financial condition and results of operations could differ materially from those anticipated by such forward-looking statements and are subject to risks and uncertainties including the risks set forth above, those discussed in Part II—Item 1A "Risk Factors" and elsewhere in our Form 10-K for the year ended December 31, 2014, and those that may be identified from time to time in our reports and registration statements filed with the SEC. Forward-looking statements are made only as of the date of this press release and are based on management's reasonable assumptions; however, these assumptions can be wrong or affected by known or unknown risks and uncertainties. Readers should not place undue reliance on these forward-looking statements and are cautioned that any such forward-looking statements are not guarantees of future performance. Except as otherwise required by law, we do not undertake any duty to update any of the forward-looking statements after the date of this press release to conform such statements to actual results or to changes in our expectations.
| MCGRATH RENTCORP CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | ||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||
| (in thousands, except per share amounts) | 2015 | 2014 | 2015 | 2014 |
| Revenues | ||||
| Rental | $ 67,305 | $ 65,809 | $ 132,807 | $ 128,239 |
| Rental related services | 17,227 | 15,146 | 32,594 | 28,658 |
| Rental operations | 84,532 | 80,955 | 165,401 | 156,897 |
| Sales | 10,968 | 14,170 | 19,755 | 25,208 |
| Other | 526 | 620 | 1,058 | 1,200 |
| Total revenues | 96,026 | 95,745 | 186,214 | 183,305 |
| Costs and Expenses | ||||
| Direct costs of rental operations: | ||||
| Depreciation of rental equipment | 19,016 | 17,924 | 37,698 | 35,821 |
| Rental related services | 12,901 | 11,366 | 24,800 | 21,673 |
| Other | 16,226 | 15,188 | 31,437 | 28,738 |
| Total direct costs of rental operations | 48,143 | 44,478 | 93,935 | 86,232 |
| Costs of sales | 6,965 | 9,188 | 12,274 | 16,356 |
| Total costs of revenues | 55,108 | 53,666 | 106,209 | 102,588 |
| Gross profit | 40,918 | 42,079 | 80,005 | 80,717 |
| Selling and administrative expenses | 24,453 | 23,840 | 49,665 | 47,251 |
| Income from operations | 16,465 | 18,239 | 30,340 | 33,466 |
| Other income (expense): | ||||
| Interest expense | (2,347) | (2,335) | (4,738) | (4,538) |
| Gain on sale of property, plant and equipment | — | 812 | — | 812 |
| Foreign currency exchange gain (loss) | (85) | 78 | (253) | (10) |
| Income before provision for income taxes | 14,033 | 16,794 | 25,349 | 29,730 |
| Provision for income taxes | 5,543 | 6,589 | 10,013 | 11,654 |
| Net income | $ 8,490 | $ 10,205 | $ 15,336 | $ 18,076 |
| Earnings per share: | ||||
| Basic | $ 0.33 | $ 0.39 | $ 0.59 | $ 0.70 |
| Diluted | $ 0.32 | $ 0.39 | $ 0.58 | $ 0.69 |
| Shares used in per share calculation: | ||||
| Basic | 26,142 | 25,912 | 26,117 | 25,851 |
| Diluted | 26,273 | 26,220 | 26,272 | 26,223 |
| Cash dividends declared per share | $ 0.250 | $ 0.245 | $ 0.500 | $ 0.490 |
| MCGRATH RENTCORP CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | ||
| June 30, | December 31, | |
| (in thousands) | 2015 | 2014 |
| Assets | ||
| Cash | $ 739 | $ 1,167 |
| Accounts receivable, net of allowance for doubtful accounts of $2,047 in 2015 and $2,038 in 2014 | 93,974 | 101,294 |
| Rental equipment, at cost: | ||
| Relocatable modular buildings | 699,781 | 664,340 |
| Electronic test equipment | 269,668 | 261,995 |
| Liquid and solid containment tanks and boxes | 307,795 | 303,303 |
| 1,277,244 | 1,229,638 | |
| Less accumulated depreciation | (420,755) | (403,888) |
| Rental equipment, net | 856,489 | 825,750 |
| Property, plant and equipment, net | 110,422 | 108,628 |
| Prepaid expenses and other assets | 33,417 | 41,424 |
| Intangible assets, net | 9,901 | 10,336 |
| Goodwill | 27,808 | 27,808 |
| Total assets | $ 1,132,750 | $1,116,407 |
| Liabilities and Shareholders' Equity | ||
| Liabilities: | ||
| Notes payable | $ 337,177 | $ 322,478 |
| Accounts payable and accrued liabilities | 76,636 | 71,357 |
| Deferred income | 29,726 | 29,139 |
| Deferred income taxes, net | 262,388 | 268,902 |
| Total liabilities | 705,927 | 691,876 |
| Shareholders' equity: | ||
| Common stock, no par value - authorized 40,000 shares -- issued and outstanding 26,106 shares as of June 30, 2015 and 26,051 shares as of December 31, 2014 | 109,232 | 106,469 |
| Retained earnings | 317,620 | 318,164 |
| Accumulated other comprehensive loss | (29) | (102) |
| Total shareholders' equity | 426,823 | 424,531 |
| Total liabilities and shareholders' equity | $ 1,132,750 | $1,116,407 |
| MCGRATH RENTCORP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||||
| Six Months Ended June 30, | ||||
| (in thousands) | 2015 | 2014 | ||
| Cash Flows from Operating Activities: | ||||
| Net income | $ 15,336 | $ 18,076 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation and amortization | 42,171 | 39,982 | ||
| Provision for doubtful accounts | 690 | 1,014 | ||
| Share-based compensation | 1,953 | 1,984 | ||
| Gain on sale of used rental equipment | (5,565) | (6,444) | ||
| Gain on sale of property, plant and equipment | — | (812) | ||
| Foreign currency exchange loss | 253 | 10 | ||
| Change in: | ||||
| Accounts receivable | 6,630 | (2,448) | ||
| Prepaid expenses and other assets | 8,007 | (2,287) | ||
| Accounts payable and accrued liabilities | 1,715 | 2,236 | ||
| Deferred income | 587 | 2,080 | ||
| Deferred income taxes | (6,514) | 1,781 | ||
| Net cash provided by operating activities | 65,263 | 55,172 | ||
| Cash Flows from Investing Activities: | ||||
| Purchase of rental equipment | (71,237) | (68,105) | ||
| Purchase of property, plant and equipment | (5,832) | (6,101) | ||
| Proceeds from sale of used rental equipment | 11,815 | 13,757 | ||
| Proceeds from sale of property, plant and equipment | — | 2,501 | ||
| Net cash used in investing activities | (65,254) | (57,948) | ||
| Cash Flows from Financing Activities: | ||||
| Net repayments under bank lines of credit | 34,699 | (3,003) | ||
| Borrowing under Series B senior notes | — | 40,000 | ||
| Principal payment on Series A senior notes | (20,000) | (20,000) | ||
| Proceeds from the exercise of stock options | 1,458 | 302 | ||
| Excess tax benefit from exercise and disqualifying disposition of stock options | 313 | 1,173 | ||
| Taxes paid related to net share settlement of stock awards | (584) | (3,378) | ||
| Repurchase of common stock | (3,132) | — | ||
| Payment of dividends | (13,176) | (12,833) | ||
| Net cash provided by (used in) financing activities | (422) | 2,261 | ||
| Effect of exchange rate changes on cash | (15) | 26 | ||
| Net decrease in cash | (428) | (489) | ||
| Cash balance, beginning of period | 1,167 | 1,630 | ||
| Cash balance, end of period | $ 739 | $ 1,141 | ||
| Supplemental Disclosure of Cash Flow Information: | ||||
| Interest paid, during the period | $ 4,896 | $ 4,198 | ||
| Net income taxes paid, during the period | $ 1,490 | $ 8,526 | ||
| Dividends accrued during the period, not yet paid | $ 6,588 | $ 6,425 | ||
| Rental equipment acquisitions, not yet paid | $ 8,390 | $ 12,033 | ||
| MCGRATH RENTCORP BUSINESS SEGMENT DATA (unaudited) Three Months Ended June 30, 2015 | |||||
| (dollar amounts in thousands) | Mobile Modular | TRS- RenTelco | Adler Tanks | Enviroplex | Consolidated |
| Revenues | |||||
| Rental | $ 27,680 | $ 21,889 | $ 17,736 | $ — | $ 67,305 |
| Rental related services | 10,488 | 794 | 5,945 | — | 17,227 |
| Rental operations | 38,168 | 22,683 | 23,681 | — | 84,532 |
| Sales | 3,831 | 4,832 | 416 | 1,889 | 10,968 |
| Other | 121 | 386 | 19 | — | 526 |
| Total revenues | 42,120 | 27,901 | 24,116 | 1,889 | 96,026 |
| Costs and Expenses | |||||
| Direct costs of rental operations: | |||||
| Depreciation of rental equipment | 4,719 | 10,325 | 3,972 | — | 19,016 |
| Rental related services | 7,388 | 692 | 4,821 | — | 12,901 |
| Other | 10,740 | 3,278 | 2,208 | — | 16,226 |
| Total direct costs of rental operations | 22,847 | 14,295 | 11,001 | — | 48,143 |
| Costs of sales | 2,711 | 2,165 | 742 | 1,347 | 6,965 |
| Total costs of revenues | 25,558 | 16,460 | 11,743 | 1,347 | 55,108 |
| Gross Profit (Loss) | |||||
| Rental | 12,221 | 8,286 | 11,556 | — | 32,063 |
| Rental related services | 3,100 | 102 | 1,124 | — | 4,326 |
| Rental operations | 15,321 | 8,388 | 12,680 | — | 36,389 |
| Sales | 1,120 | 2,667 | (326) | 542 | 4,003 |
| Other | 121 | 386 | 19 | — | 526 |
| Total gross profit | 16,562 | 11,441 | 12,373 | 542 | 40,918 |
| Selling and administrative expenses | 11,286 | 5,493 | 6,901 | 773 | 24,453 |
| Income (loss) from operations | $ 5,276 | $ 5,948 | $ 5,472 | $ (231) | 16,465 |
| Interest expense | (2,347) | ||||
| Foreign currency exchange loss | (85) | ||||
| Provision for income taxes | (5,543) | ||||
| Net Income | $ 8,490 | ||||
| Other Information | |||||
| Average rental equipment 1 | $ 655,479 | $ 269,225 | $302,697 | ||
| Average monthly total yield 2 | 1.41% | 2.71% | 1.95% | ||
| Average utilization 3 | 74.4% | 59.5% | 60.6% | ||
| Average monthly rental rate 4 | 1.89% | 4.56% | 3.23% | ||
| 1 Average rental equipment represents the cost of rental equipment excluding accessory equipment. For Mobile Modular and Adler Tanks, Average rental equipment also excludes new equipment inventory. | |||||
| 2 Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period. | |||||
| 3 Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment. | |||||
| 4 Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent, for the period. | |||||
| MCGRATH RENTCORP BUSINESS SEGMENT DATA (unaudited) Three Months Ended June 30, 2014 | |||||
| (dollar amounts in thousands) | Mobile Modular | TRS- RenTelco | Adler Tanks | Enviroplex | Consolidated |
| Revenues | |||||
| Rental | $ 22,679 | $ 24,424 | $ 18,706 | $ — | $ 65,809 |
| Rental related services | 8,011 | 895 | 6,240 | — | 15,146 |
| Rental operations | 30,690 | 25,319 | 24,946 | — | 80,955 |
| Sales | 6,489 | 6,374 | 165 | 1,142 | 14,170 |
| Other | 136 | 444 | 40 | — | 620 |
| Total revenues | 37,315 | 32,137 | 25,151 | 1,142 | 95,745 |
| Costs and Expenses | |||||
| Direct costs of rental operations: | |||||
| Depreciation of rental equipment | 4,011 | 10,148 | 3,765 | — | 17,924 |
| Rental related services | 5,768 | 754 | 4,844 | — | 11,366 |
| Other | 9,441 | 3,068 | 2,679 | — | 15,188 |
| Total direct costs of rental operations | 19,220 | 13,970 | 11,288 | — | 44,478 |
| Costs of sales | 5,025 | 3,104 | 243 | 816 | 9,188 |
| Total costs of revenues | 24,245 | 17,074 | 11,531 | 816 | 53,666 |
| Gross Profit (Loss) | |||||
| Rental | 9,227 | 11,208 | 12,262 | — | 32,697 |
| Rental related services | 2,243 | 141 | 1,396 | — | 3,780 |
| Rental operations | 11,470 | 11,349 | 13,658 | — | 36,477 |
| Sales | 1,464 | 3,270 | (78) | 326 | 4,982 |
| Other | 136 | 444 | 40 | — | 620 |
| Total gross profit | 13,070 | 15,063 | 13,620 | 326 | 42,079 |
| Selling and administrative expenses | 10,090 | 5,967 | 6,940 | 843 | 23,840 |
| Income (loss) from operations | $ 2,980 | $ 9,096 | $ 6,680 | $ (517) | 18,239 |
| Interest expense | (2,335) | ||||
| Gain on sale of property, plant and equipment | 812 | ||||
| Foreign currency exchange gain | 78 | ||||
| Provision for income taxes | (6,589) | ||||
| Net income | $ 10,205 | ||||
| Other Information | |||||
| Average rental Equipment 1 | $ 585,468 | $ 261,301 | $286,798 | ||
| Average monthly total yield 2 | 1.29% | 3.12% | 2.17% | ||
| Average utilization 3 | 70.3% | 59.3% | 63.2% | ||
| Average monthly rental rate 4 | 1.84% | 5.25% | 3.44% | ||
| 1 Average rental equipment represents the cost of rental equipment excluding accessory equipment. For Mobile Modular and Adler Tanks, Average rental equipment also excludes new equipment inventory. | |||||
| 2 Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period. | |||||
| 3 Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment. | |||||
| 4 Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent, for the period. | |||||
| MCGRATH RENTCORP BUSINESS SEGMENT DATA (unaudited) Six Months Ended June 30, 2015 | |||||
| (dollar amounts in thousands) | Mobile Modular | TRS- RenTelco | Adler Tanks | Enviroplex | Consolidated |
| Revenues | |||||
| Rental | $ 54,088 | $ 44,000 | $ 34,719 | $ — | $ 132,807 |
| Rental related services | 19,591 | 1,450 | 11,553 | — | 32,594 |
| Rental operations | 73,679 | 45,450 | 46,272 | — | 165,401 |
| Sales | 7,091 | 9,772 | 691 | 2,201 | 19,755 |
| Other | 234 | 773 | 51 | — | 1,058 |
| Total revenues | 81,004 | 55,995 | 47,014 | 2,201 | 186,214 |
| Costs and Expenses | |||||
| Direct costs of rental operations: | |||||
| Depreciation of rental equipment | 9,280 | 20,477 | 7,941 | — | 37,698 |
| Rental related services | 14,169 | 1,390 | 9,241 | — | 24,800 |
| Other | 20,265 | 6,673 | 4,499 | — | 31,437 |
| Total direct costs of rental operations | 43,714 | 28,540 | 21,681 | — | 93,935 |
| Costs of sales | 5,024 | 4,704 | 953 | 1,593 | 12,274 |
| Total costs of revenues | 48,738 | 33,244 | 22,634 | 1,593 | 106,209 |
| Gross Profit (Loss) | |||||
| Rental | 24,543 | 16,850 | 22,279 | — | 63,672 |
| Rental related services | 5,422 | 60 | 2,312 | — | 7,794 |
| Rental operations | 29,965 | 16,910 | 24,591 | — | 71,466 |
| Sales | 2,067 | 5,068 | (262) | 608 | 7,481 |
| Other | 234 | 773 | 51 | — | 1,058 |
| Total gross profit | 32,266 | 22,751 | 24,380 | 608 | 80,005 |
| Selling and administrative expenses | 22,642 | 11,611 | 13,819 | 1,593 | 49,665 |
| Income (loss) from operations | $ 9,624 | $ 11,140 | $ 10,561 | $ (985) | 30,340 |
| Interest expense | (4,738) | ||||
| Foreign currency exchange loss | (253) | ||||
| Provision for income taxes | (10,013) | ||||
| Net Income | $ 15,336 | ||||
| Other Information | |||||
| Average rental equipment 1 | $ 648,446 | $ 266,528 | $301,580 | ||
| Average monthly total yield 2 | 1.39% | 2.75% | 1.92% | ||
| Average utilization 3 Average monthly rental rate 4 | 74.3% 1.87% | 59.8% 4.60% | 60.9% 3.15% | ||
| 1 Average rental equipment represents the cost of rental equipment excluding accessory equipment. For Mobile Modular and Adler Tanks, Average rental equipment also excludes new equipment inventory. | |||||
| 2 Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period. | |||||
| 3 Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment. | |||||
| 4 Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent, for the period. | |||||
| MCGRATH RENTCORP BUSINESS SEGMENT DATA (unaudited) Six Months Ended June 30, 2014 | |||||
| (dollar amounts in thousands) | Mobile Modular | TRS- RenTelco | Adler Tanks | Enviroplex | Consolidated |
| Revenues | |||||
| Rental | $ 44,212 | $ 48,184 | $ 35,843 | $ — | $ 128,239 |
| Rental related services | 15,328 | 1,617 | 11,713 | — | 28,658 |
| Rental operations | 59,540 | 49,801 | 47,556 | — | 156,897 |
| Sales | 11,161 | 11,109 | 691 | 2,247 | 25,208 |
| Other | 254 | 868 | 78 | — | 1,200 |
| Total revenues | 70,955 | 61,778 | 48,325 | 2,247 | 183,305 |
| Costs and Expenses | |||||
| Direct costs of rental operations: | |||||
| Depreciation of rental equipment | 7,842 | 20,539 | 7,440 | — | 35,821 |
| Rental related services | 11,103 | 1,382 | 9,188 | — | 21,673 |
| Other | 17,914 | 5,878 | 4,946 | — | 28,738 |
| Total direct costs of rental operations | 36,859 | 27,799 | 21,574 | — | 86,232 |
| Costs of sales | 8,322 | 5,841 | 691 | 1,502 | 16,356 |
| Total costs of revenues | 45,181 | 33,640 | 22,265 | 1,502 | 102,588 |
| Gross Profit | |||||
| Rental | 18,456 | 21,767 | 23,457 | — | 63,680 |
| Rental related services | 4,225 | 235 | 2,525 | — | 6,985 |
| Rental operations | 22,681 | 22,002 | 25,982 | — | 70,665 |
| Sales | 2,839 | 5,268 | — | 745 | 8,852 |
| Other | 254 | 868 | 78 | — | 1,200 |
| Total gross profit | 25,774 | 28,138 | 26,060 | 745 | 80,717 |
| Selling and administrative expenses | 19,830 | 12,004 | 13,836 | 1,581 | 47,251 |
| Income (loss) from operations | $ 5,944 | $ 16,134 | $ 12,224 | $ (836) | 33,466 |
| Interest expense | (4,538) | ||||
| Gain on sale of property, plant and equipment | 812 | ||||
| Foreign currency exchange gain | (10) | ||||
| Provision for income taxes | (11,654) | ||||
| Net income | $ 18,076 | ||||
| Other Information | |||||
| Average rental Equipment 1 | $ 577,951 | $ 264,249 | $283,819 | ||
| Average monthly total yield 2 | 1.27% | 3.04% | 2.10% | ||
| Average utilization 3 | 70.2% | 58.3% | 61.8% | ||
| Average monthly rental rate 4 | 1.82% | 5.21% | 3.41% | ||
| 1 Average rental equipment represents the cost of rental equipment excluding accessory equipment. For Mobile Modular and Adler Tanks, Average rental equipment also excludes new equipment inventory. | |||||
| 2 Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period. | |||||
| 3 Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment. | |||||
| 4 Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent, for the period. | |||||
Reconciliation of Adjusted EBITDA to the most directly comparable GAAP measures
To supplement the Company's financial data presented on a basis consistent with accounting principles generally accepted in the United States of America ("GAAP"), the Company presents "Adjusted EBITDA" which is defined by the Company as net income before interest expense, provision for income taxes, depreciation, amortization, and share-based compensation. The Company presents Adjusted EBITDA as a financial measure as management believes it provides useful information to investors regarding the Company's liquidity and financial condition and because management, as well as the Company's lenders, use this measure in evaluating the performance of the Company.
Management uses Adjusted EBITDA as a supplement to GAAP measures to further evaluate the Company's period-to-period operating performance, compliance with financial covenants in the Company's revolving lines of credit and senior notes and the Company's ability to meet future capital expenditure and working capital requirements. Management believes the exclusion of non-cash charges, including share-based compensation, is useful in measuring the Company's cash available for operations and performance of the Company. Because management finds Adjusted EBITDA useful, the Company believes its investors will also find Adjusted EBITDA useful in evaluating the Company's performance.
Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows, or other consolidated income or cash flow data prepared in accordance with GAAP or as a measure of the Company's profitability or liquidity. Adjusted EBITDA is not in accordance with or an alternative for GAAP, and may be different from non−GAAP measures used by other companies. Unlike EBITDA, which may be used by other companies or investors, Adjusted EBITDA does not include share-based compensation charges. The Company believes that Adjusted EBITDA is of limited use in that it does not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP and does not accurately reflect real cash flow. In addition, other companies may not use Adjusted EBITDA or may use other non-GAAP measures, limiting the usefulness of Adjusted EBITDA for purposes of comparison. The Company's presentation of Adjusted EBITDA should not be construed as an inference that the Company will not incur expenses that are the same as or similar to the adjustments in this presentation. Therefore, Adjusted EBITDA should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures. The Company compensates for the limitations of Adjusted EBITDA by relying upon GAAP results to gain a complete picture of the Company's performance. Because Adjusted EBITDA is a non-GAAP financial measure as defined by the SEC, the Company includes in the tables below reconciliations of Adjusted EBITDA to the most directly comparable financial measures calculated and presented in accordance with GAAP.
| Reconciliation of Net Income to Adjusted EBITDA | ||||||
| (dollar amounts in thousands) | Three Months Ended June 30, | Six Months Ended June 30, | Twelve Months Ended June 30, | |||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Net income | $ 8,490 | $10,205 | $15,336 | $18,076 | $ 42,969 | $ 42,410 |
| Provision for income taxes | 5,543 | 6,589 | 10,013 | 11,654 | 29,211 | 27,340 |
| Interest | 2,347 | 2,335 | 4,738 | 4,538 | 9,480 | 8,865 |
| Depreciation and amortization | 21,265 | 20,050 | 42,171 | 39,982 | 83,314 | 79,186 |
| EBITDA | 37,645 | 39,179 | 72,258 | 74,250 | 164,974 | 157,801 |
| Share-based compensation | 1,022 | 1,029 | 1,953 | 1,984 | 3,823 | 3,409 |
| Adjusted EBITDA 1 | $38,667 | $40,208 | $74,211 | $76,234 | $168,797 | $161,210 |
| Adjusted EBITDA margin 2 | 40% | 42% | 40% | 42% | 41% | 42% |
| Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities | ||||||
| (dollar amounts in thousands) | Three Months Ended June 30, | Six Months Ended June 30, | Twelve Months Ended June 30, | |||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Adjusted EBITDA 1 | $38,667 | $40,208 | $74,211 | $76,234 | $168,797 | $161,210 |
| Interest paid | (2,888) | (3,041) | (4,896) | (4,198) | (9,722) | (8,680) |
| Net income taxes paid | (1,174) | (8,187) | (1,490) | (8,526) | (15,239) | (12,821) |
| Gain on sale of used rental equipment | (2,696) | (3,944) | (5,565) | (6,444) | (14,489) | (13,279) |
| Gain on sale of property, plant and equipment | — | (812) | — | (812) | — | (812) |
| Foreign currency exchange (gain) loss | 65 | (78) | 253 | 10 | 574 | 4 |
| Change in certain assets and liabilities: | ||||||
| Accounts receivable, net | (4,613) | (6,013) | 7,320 | (1,434) | (4,890) | (1,798) |
| Prepaid expenses and other assets | 1,870 | (4,874) | 8,007 | (2,287) | (3,358) | (2,330) |
| Accounts payable and other liabilities | 1,032 | (534) | (13,164) | 549 | 7,811 | 934 |
| Deferred income | 367 | 4,395 | 587 | 2,080 | 3,643 | 147 |
| Net cash provided by operating activities | $30,630 | $17,120 | $65,263 | $55,172 | $133,077 | $122,575 |
| 1 Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, and share-based compensation. | ||||||
| 2 Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by total revenues for the period. | ||||||
CONTACT: Keith E. Pratt
Chief Financial Officer
925 606 9200
Source: McGrath RentCorp