McGrath Announces Results for Second Quarter 2023

July 27, 2023 at 16:01 PM EDT

McGrath RentCorp (“McGrath” or the “Company”) (Nasdaq: MGRC), a leading business-to-business rental company in North America, today announced total revenues from continuing operations for the quarter ended June 30, 2023 of $203.0 million, an increase of 32%, compared to the second quarter of 2022. The Company reported net income from continuing operations of $28.0 million, or $1.14 per diluted share, for the second quarter of 2023, compared to net income from continuing operations of $23.5 million, or $0.96 per diluted share, for the second quarter of 2022.

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

Rental revenues increased 24% to $117.8 million.
Total revenues increased 32% to $203.0 million.
Adjusted EBITDA¹ increased 33% to $77.0 million.
Dividend rate of $0.465 per share for the second quarter of 2023. On an annualized basis, this dividend represents a 2.0% yield on the July 26, 2023 close price of $92.16 per share.

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

“We were very pleased with our second quarter results. Our 24% increase in companywide rental revenues was driven by strong modular segment performance. Modular rental revenues grew 37%, with over half of the growth attributable to our Vesta Modular and several smaller Portable Storage acquisitions completed earlier this year. Before acquisitions, the modular segment rental revenues grew organically by a robust 14%.

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

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

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

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

DIVISION HIGHLIGHTS:

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

MOBILE MODULAR

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

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

TRS-RENTELCO

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

Rental revenues decreased 4% to $28.6 million, with depreciation expense and other direct costs comparable to the previous period, resulting in a 10% decrease in gross profit on rental revenues to $10.8 million. The rental revenue decrease was the result of lower average rental equipment on rent compared to the prior year, partly offset by higher average monthly rental rates.
Sales revenues increased 17% to $7.5 million and gross profit on sales revenues increased 12% to $4.1 million.
Selling and administrative expenses increased $0.5 million, or 8%, to $7.1 million, primarily due to higher allocated corporate expenses.

FINANCIAL OUTLOOK:

Based upon the Company's year-to-date results and current outlook for the remainder of the year, the Company is revising its financial outlook. For the full-year 2023, the Company expects:

		Previous (Continuing Operations)	Current (Continuing Operations)
●	Total revenue:	$790 to $820 million	$805 to $830 million
●	Adjusted EBITDA^{1, 2}:	$300 to $315 million	$306 to $320 million
●	Gross rental equipment capital expenditures:	$190 to $210 million	$190 to $200 million

1.		Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs. A reconciliation of actual net income to Adjusted EBITDA and Adjusted EBITDA to net cash provided by operating activities can be found at the end of this release. Adjusted EBITDA from continuing operations for the quarter ended June 30, 2023, excludes the income from discontinued operations from the divestiture of Adler Tanks.
2.		Information reconciling forward-looking Adjusted EBITDA to the comparable GAAP financial measures is unavailable to the Company without unreasonable effort because certain items required for such reconciliations are outside of the Company’s control and/or cannot be reasonably predicted, such as the provision for income taxes. Therefore, no reconciliation to the most comparable GAAP measures is provided. The Company provides Adjusted EBITDA guidance because it believes that Adjusted EBITDA, when viewed with the Company’s results under GAAP, provides useful information for the reasons noted in the reconciliation of actual Adjusted EBITDA to the most directly comparable GAAP measures at the end of this release.

ABOUT MCGRATH:

McGrath RentCorp (Nasdaq: MGRC) is a leading business-to-business rental company in North America with a strong record of profitable business growth. Founded in 1979, McGrath’s operations are centered on modular solutions through its Mobile Modular and Mobile Modular Portable Storage businesses. In addition, its TRS-RenTelco business offers electronic test equipment rental solutions. The Company’s rental product offerings and services are part of the circular supply economy, helping customers work more efficiently, and sustainably manage their environmental footprint. With over 40 years of experience, McGrath’s success is driven by a focus on exceptional customer experiences. This focus has underpinned the Company’s long-term financial success and supported over 30 consecutive years of annual dividend increases to shareholders, a rare distinction among publicly listed companies.

McGrath is headquartered in Livermore, California. Additional information about McGrath and its businesses is available at mgrc.com and investors.mgrc.com.

You should read this press release in conjunction with the financial statements and notes thereto included in the Company’s latest Forms 10-K, 10-Q and other SEC filings. You can visit the Company’s web site at www.mgrc.com to access information on McGrath RentCorp, including the latest Forms 10-K, 10-Q and other SEC filings.

CONFERENCE CALL NOTE:

As previously announced in its press release of June 29, 2023, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on July 27, 2023 to discuss the second quarter 2023 results. To participate in the teleconference, dial 1-800-245-3047 (in the U.S.), or 1-203-518-9765 (outside the U.S.), or to listen only, access the simultaneous webcast at the investor relations section of the Company’s website at https://investors.mgrc.com/. A replay will be available for 7 days following the call by dialing 1-800-839-3413 (in the U.S.), or 1-402-220-7236 (outside the U.S.). In addition, a live audio webcast and replay of the call may be found in the investor relations section of the Company’s website at https://investors.mgrc.com/events-and-presentations.

FORWARD-LOOKING STATEMENTS:

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, regarding McGrath RentCorp’s expectations, strategies, prospects or targets are forward looking statements. These forward-looking statements also can be identified by the use of forward-looking terminology such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plan,” “predict,” “project,” or “will,” or the negative of these terms or other comparable terminology. In particular, Mr. Hanna’s statements about (i) the overall demand conditions, (ii) the progress with the strategic transformation of McGrath's business portfolio (iii) success with the integration of Vesta and additional business opportunities stemming from the acquisition, (iv) the outlook on future opportunities and the overall growth across the business, and (v) statements regarding the full year 2023 in the “Financial Outlook” section, are forward-looking.

These forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties that could cause our actual results to differ materially from those projected including: health of the education and commercial markets in our modular building division; unforeseen liabilities and integration challenges associated with the Vesta, Brekke Storage, Dixie Storage and Inland Storage acquisitions; competition within the modular business; the activity levels in the semiconductor and general purpose and communications test equipment markets at TRS-RenTelco; continued execution of our strategic performance improvement initiatives; our ability to successfully increase prices to offset cost increases; and our ability to effectively manage our rental assets, as well as the other factors disclosed under “Risk Factors” in the Company’s Form 10-K and other SEC filings.

Forward-looking statements are made only as of the date hereof. Except as otherwise required by law, we assume no obligation to update any of the forward-looking statements contained in this press release.

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share amounts)	2023			2022			2023			2022
Revenues
Rental	$	117,840		$	94,667		$	228,087		$	184,717
Rental related services		33,857			22,046			60,989			41,078
Rental operations		151,697			116,713			289,076			225,795
Sales		47,801			35,870			71,461			51,089
Other		3,532			785			6,211			1,537
Total revenues		203,030			153,368			366,748			278,421
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment		22,597			20,082			44,430			39,944
Rental related services		23,825			15,780			43,093			29,540
Other		30,560			29,516			61,695			54,370
Total direct costs of rental operations		76,982			65,378			149,218			123,854
Costs of sales		31,438			21,034			45,553			29,576
Total costs of revenues		108,420			86,412			194,771			153,430
Gross profit		94,610			66,956			171,977			124,991
Selling and administrative expenses		47,026			33,809			104,524			66,414
Income from operations		47,584			33,147			67,453			58,577
Other (expense) income:
Interest expense		(9,945	)		(2,426	)		(17,409	)		(4,702	)
Foreign currency exchange (loss) gain		(18	)		(181	)		208			(168	)
Income from continuing operations before provision for income taxes		37,621			30,540			50,252			53,707
Provision for income taxes from continuing operations		9,669			6,996			10,782			12,505
Income from continuing operations		27,952			23,544			39,470			41,202

Discontinued operations:
Income from discontinued operations before provision for income taxes		—			3,327			1,709			4,715
Provision for income taxes from discontinued operations		—			734			453			987
Gain on sale of discontinued operations, net of tax		2,630			—			61,513			—
Income from discontinued operations		2,630			2,593			62,769			3,728

Net income	$	30,582		$	26,137		$	102,239		$	44,930

Earnings per share from continuing operations:
Basic	$	1.14		$	0.96		$	1.61		$	1.68
Diluted	$	1.14		$	0.96		$	1.61		$	1.68
Earnings per share from discontinued operations:
Basic	$	0.11		$	0.11		$	2.57		$	0.15
Diluted	$	0.11		$	0.11		$	2.56		$	0.15
Earnings per share:
Basic	$	1.25		$	1.07		$	4.18		$	1.83
Diluted	$	1.25		$	1.07		$	4.17		$	1.83
Shares used in per share calculation:
Basic		24,479			24,360			24,448			24,323
Diluted		24,512			24,509			24,527			24,522
Cash dividends declared per share	$	0.465		$	0.455		$	0.930		$	0.910

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

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

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended June 30, 2023
(dollar amounts in thousands)	Mobile Modular			TRS-RenTelco			Enviroplex			Adler Tanks (Discontinued)		Consolidated
Revenues
Rental	$	89,257		$	28,583		$	—		$	—	$	117,840
Rental related services		33,190			667			—			—		33,857
Rental operations		122,447			29,250			—			—		151,697
Sales		39,357			7,521			923			—		47,801
Other		2,458			1,074			—			—		3,532
Total revenues		164,262			37,845			923			—		203,030

Costs and Expenses
Direct costs of rental operations:
Depreciation		10,285			12,312			—			—		22,597
Rental related services		23,084			741			—			—		23,825
Other		25,082			5,478			—			—		30,560
Total direct costs of rental operations		58,451			18,531			—			—		76,982
Costs of sales		27,207			3,431			800			—		31,438
Total costs of revenues		85,658			21,962			800			—		108,420

Gross Profit (Loss)
Rental		53,890			10,793			—			—		64,683
Rental related services		10,106			(74	)		—			—		10,032
Rental operations		63,996			10,719			—			—		74,715
Sales		12,150			4,090			123			—		16,363
Other		2,458			1,074			—			—		3,532
Total gross profit		78,604			15,883			123			—		94,610
Selling and administrative expenses		38,296			7,126			1,604			—		47,026
Income (loss) from operations	$	40,308		$	8,757		$	(1,481	)	$	—		47,584
Interest expense													(9,945	)
Foreign currency exchange loss													(18	)
Provision for income taxes													(9,669	)
Net income												$	27,952

Other Information
Adjusted EBITDA ¹	$	56,824		$	21,538		$	(1,394	)	$	—	$	76,968
Average rental equipment ²	$	1,321,767		$	393,891
Average monthly total yield ³		2.25	%		2.40	%
Average utilization ⁴		79.1	%		58.2	%
Average monthly rental rate ⁵		2.84	%		4.16	%

1.		Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs. Adjusted EBITDA for the quarter ended June 30, 2023, excludes the gain on sale of discontinued operations from the divestiture of Adler Tanks.
2.		Average rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.
3.		Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
4.		Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment.
5.		Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended June 30, 2022
(dollar amounts in thousands)	Mobile Modular			TRS-RenTelco			Enviroplex			Adler Tanks (Discontinued)		Consolidated
Revenues
Rental	$	64,949		$	29,718		$	—		$	15,957	$	110,624
Rental related services		21,233			813			—			6,773		28,819
Rental operations		86,182			30,531			—			22,730		139,443
Sales		24,816			6,404			4,650			601		36,471
Other		379			406			—			332		1,117
Total revenues		111,377			37,341			4,650			23,663		177,031

Costs and Expenses
Direct costs of rental operations:
Depreciation		7,749			12,333			—			3,982		24,064
Rental related services		15,116			664			—			5,073		20,853
Other		24,073			5,443			—			3,309		32,825
Total direct costs of rental operations		46,938			18,440			—			12,364		77,742
Costs of sales		14,760			2,765			3,509			418		21,452
Total costs of revenues		61,698			21,205			3,509			12,782		99,194

Gross Profit
Rental		33,127			11,942			—			8,666		53,735
Rental related services		6,117			149			—			1,700		7,966
Rental operations		39,244			12,091			—			10,366		61,701
Sales		10,056			3,639			1,141			183		15,019
Other		379			406			—			332		1,117
Total gross profit		49,679			16,136			1,141			10,881		77,837
Selling and administrative expenses		25,755			6,614			1,440			6,979		40,788
Income (loss) from operations	$	23,924		$	9,522		$	(299	)	$	3,902		37,049
Interest expense													(3,001	)
Foreign currency exchange loss													(181	)
Provision for income taxes													(7,730	)
Net income												$	26,137

Other Information
Adjusted EBITDA ¹	$	35,773		$	22,128		$	(230	)	$	8,620	$	66,291
Average rental equipment ²	$	1,019,927		$	382,068
Average monthly total yield ³		2.12	%		2.59	%
Average utilization ⁴		78.1	%		64.5	%
Average monthly rental rate ⁵		2.72	%		4.02	%

1.		Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs. Adjusted EBITDA for the quarter ended June 30, 2023, excludes the gain on sale of discontinued operations from the divestiture of Adler Tanks.
2.		Average rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.
3.		Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
4.		Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment.
5.		Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Six months ended June 30, 2023
(dollar amounts in thousands)	Mobile Modular			TRS-RenTelco			Enviroplex			Adler Tanks (Discontinued)		Consolidated
Revenues
Rental	$	170,370		$	57,717		$	—		$	6,520	$	228,087
Rental related services		59,442			1,547			—			2,584		60,989
Rental operations		229,812			59,264			—			9,104		289,076
Sales		56,962			12,635			1,864			269		71,461
Other		4,145			2,066			—			65		6,211
Total revenues		290,919			73,965			1,864			9,438		366,748

Costs and Expenses
Direct costs of rental operations:
Depreciation		19,729			24,701			—			1,325		44,430
Rental related services		41,691			1,402			—			2,020		43,093
Other		50,992			10,703			—			1,270		61,695
Total direct costs of rental operations		112,412			36,806			—			4,614		149,218
Costs of sales		38,281			5,656			1,616			159		45,553
Total costs of revenues		150,693			42,462			1,616			4,773		194,771

Gross Profit
Rental		99,649			22,313			—			3,926		121,962
Rental related services		17,751			145			—			564		17,896
Rental operations		117,400			22,458			—			4,490		139,858
Sales		18,681			6,979			248			110		25,908
Other		4,145			2,066			—			65		6,211
Total gross profit		140,226			31,503			248			4,665		171,977
Selling and administrative expenses		84,810			16,577			3,137			2,582		104,524
Income (loss) from operations	$	55,416		$	14,926		$	(2,889	)	$	2,083		67,453
Interest expense													(17,783	)
Foreign currency exchange loss													208
Provision for income taxes													(11,235	)
Net income												$	38,643

Other Information
Adjusted EBITDA ¹	$	99,269		$	42,173		$	(2,724	)	$	3,682	$	142,400
Average rental equipment ²	$	1,241,287		$	395,049
Average monthly total yield ³		2.29	%		2.42	%
Average utilization ⁴		79.4	%		58.7	%
Average monthly rental rate ⁵		2.88	%		4.15	%

1.		Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs. Adjusted EBITDA for the quarter ended June 30, 2023, excludes the gain on sale of discontinued operations from the divestiture of Adler Tanks.
2.		Average rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.
3.		Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
4.		Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment.
5.		Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.

MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Six months ended June 30, 2022
(dollar amounts in thousands)	Mobile Modular			TRS-RenTelco			Enviroplex			Adler Tanks (Discontinued)		Consolidated
Revenues
Rental	$	126,487		$	58,230		$	—		$	30,148	$	214,865
Rental related services		39,594			1,484			—			12,058		53,136
Rental operations		166,081			59,714			—			42,206		268,001
Sales		35,191			10,331			5,567			1,258		52,347
Other		750			787			—			519		2,056
Total revenues		202,022			70,832			5,567			43,983		322,404

Costs and Expenses
Direct costs of rental operations:
Depreciation		15,582			24,362			—			7,994		47,938
Rental related services		28,296			1,244			—			9,456		38,996
Other		44,235			10,135			—			6,278		60,648
Total direct costs of rental operations		88,113			35,741			—			23,728		147,582
Costs of sales		21,089			4,265			4,222			920		30,496
Total costs of revenues		109,202			40,006			4,222			24,648		178,078

Gross Profit
Rental		66,670			23,733			—			15,876		106,279
Rental related services		11,298			240			—			2,602		14,140
Rental operations		77,968			23,973			—			18,478		120,419
Sales		14,102			6,066			1,345			338		21,851
Other		750			787			—			519		2,056
Total gross profit		92,820			30,826			1,345			19,335		144,326
Selling and administrative expenses		50,447			13,204			2,763			13,501		79,915
Income (loss) from operations	$	42,373		$	17,622		$	(1,418	)	$	5,834		64,411
Interest expense													(5,821	)
Foreign currency exchange loss													(168	)
Provision for income taxes													(13,492	)
Net income												$	44,930

Other Information
Adjusted EBITDA ¹	$	66,178		$	42,781		$	(1,276	)	$	15,327	$	123,010
Average rental equipment ²	$	1,013,361		$	374,364
Average monthly total yield ³		2.08	%		2.59	%
Average utilization ⁴		77.6	%		64.6	%
Average monthly rental rate ⁵		2.68	%		4.02	%

1.		Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs. Adjusted EBITDA for the quarter ended June 30, 2023, excludes the gain on sale of discontinued operations from the divestiture of Adler Tanks.
2.		Average rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.
3.		Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
4.		Average utilization is calculated by dividing the average month end costs of rental equipment on rent by the average month end total costs of rental equipment.
5.		Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.

Reconciliation of Adjusted EBITDA to the most directly comparable GAAP measures

To supplement the Company’s financial data presented on a basis consistent with accounting principles generally accepted in the United States of America (“GAAP”), the Company presents “Adjusted EBITDA”, which is defined by the Company as net income before interest expense, provision for income taxes, depreciation, amortization, share-based compensation and transaction costs. The Company presents Adjusted EBITDA as a financial measure as management believes it provides useful information to investors regarding the Company’s liquidity and financial condition and because management, as well as the Company’s lenders, use this measure in evaluating the performance of the Company.

Management uses Adjusted EBITDA as a supplement to GAAP measures to further evaluate the Company’s period-to-period operating performance, compliance with financial covenants in the Company’s revolving lines of credit and senior notes and the Company’s ability to meet future capital expenditure and working capital requirements. Management believes the exclusion of non-cash charges, including share-based compensation and transaction costs, is useful in measuring the Company’s cash available for operations and performance of the Company. Because management finds Adjusted EBITDA useful, the Company believes its investors will also find Adjusted EBITDA useful in evaluating the Company’s performance.

Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows, or other consolidated income or cash flow data prepared in accordance with GAAP or as a measure of the Company’s profitability or liquidity. Adjusted EBITDA is not in accordance with or an alternative for GAAP and may be different from non-GAAP measures used by other companies. Unlike EBITDA, which may be used by other companies or investors, Adjusted EBITDA does not include share-based compensation charges and transaction costs. The Company believes that Adjusted EBITDA is of limited use in that it does not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP and does not accurately reflect real cash flow. In addition, other companies may not use Adjusted EBITDA or may use other non-GAAP measures, limiting the usefulness of Adjusted EBITDA for purposes of comparison. The Company’s presentation of Adjusted EBITDA should not be construed as an inference that the Company will not incur expenses that are the same as or similar to the adjustments in this presentation. Therefore, Adjusted EBITDA should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures. The Company compensates for the limitations of Adjusted EBITDA by relying upon GAAP results to gain a complete picture of the Company’s performance. Because Adjusted EBITDA is a non-GAAP financial measure as defined by the SEC, the Company includes in the tables below reconciliations of Adjusted EBITDA to the most directly comparable financial measures calculated and presented in accordance with GAAP.

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

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

1.		Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and transaction costs. Adjusted EBITDA for the six months ended June 30, 2023, excludes the gain on sale of discontinued operations from the divestiture of Adler Tanks. Total Adjusted EBITDA attributed to discontinued operations for the six months ended June 30, 2023 and 2022, was $3,682 and $15,173, respectively.
2.		Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by total revenues for the period.
3.		Transaction costs include acquisition and divestiture related legal and professional fees and other costs specific to these transactions.

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McGrath Announces Results for Second Quarter 2023

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