McGrath RentCorp Announces Results for Fourth Quarter 2021

McGrath RentCorp (NASDAQ: MGRC) (the “Company”), a diversified business-to-business rental company, today announced total revenues for the quarter ended December 31, 2021 of $175.9 million, an increase of 18%, compared to the fourth quarter of 2020. The Company reported net income of $28.4 million, or $1.16 per diluted share, for the fourth quarter of 2021, compared to net income of $31.2 million, or $1.27 per diluted share, for the fourth quarter of 2020.

Total revenues for the year ended December 31, 2021 increased to $616.8 million from $572.6 million in 2020, with adjusted EBITDA increasing $5.6 million, or 2%, to $246.6 million. Net income for the year ended December 31, 2021 was $89.7 million, or $3.66 per diluted share, compared to $102.0 million, or $4.16 per diluted share, in 2020.

The Company also announced that the board of directors declared a quarterly cash dividend of $0.455 per share for the quarter ending March 31, 2022, an increase of $0.02, or 5%, over the prior year period. The cash dividend will be payable on April 29, 2022 to all shareholders of record on April 15, 2022. This marks 31 consecutive years the Company has increased its annual dividend.

FOURTH QUARTER 2021 COMPANY HIGHLIGHTS:

• Rental revenues increased 20% year-over-year to $106.1 million.
• Total revenues increased 18% year-over-year to $175.9 million.
• Adjusted EBITDA¹ increased 12% year-over-year to $73.0 million.
• Dividend rate increased 4% year-over-year to $0.435 per share for the fourth quarter of 2021. On an annualized basis, this dividend represents a 2.4% yield on the February 22, 2022 close price of $72.98 per share.

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

“We were pleased with our fourth quarter results. Improved end market conditions in each of our three rental business segments enabled us to deliver a 20% increase in companywide rental revenues in the fourth quarter, compared to the prior year. Modular rental revenues grew 29%, with approximately three quarters of the growth attributable to our Design Space and Kitchens To Go acquisitions. Rental revenues at TRS-RenTelco and Adler Tanks grew 4% and 19%, respectively. We were also pleased with the high volume of modular new equipment sales during the quarter, as some previously delayed projects were completed by year end.

"2021 was a year of strategic growth investments, with particular emphasis on the modular acquisitions. We expanded our geographic coverage, added new customers and welcomed new team members. I am extremely grateful to our team members who worked tirelessly throughout 2021 to serve our customers and integrate our new acquisitions. With the major integration steps now complete we are very focused on revenue and profit growth, as reflected by our 12% adjusted EBITDA growth in the fourth quarter.

"We are encouraged by the positive rental demand trends since the start of the year. Year to date new order bookings at Mobile Modular are up significantly from a year ago. We are well positioned to continue growing this business as demand conditions continue to strengthen.

"Our strategic priorities for the next few years are centered on our modular business. We see significant opportunities to further expand our geographic coverage and to broaden the value we bring to customers with rental solutions, site related services and new modular equipment sales. As we demonstrated in 2021, we expect to utilize a disciplined combination of organic investments and acquisitions to deploy growth capital and accelerate these priorities. With an experienced leadership team, track record of execution, strong balance sheet and healthy free cash flow generation we are well positioned for long term growth.”

DIVISION HIGHLIGHTS:

All comparisons presented below are for the quarter ended December 31, 2021 to the quarter ended December 31, 2020 unless otherwise indicated.

MOBILE MODULAR

The Company’s Mobile Modular division reported income from operations of $26.1 million, an increase of $3.6 million, or 16%, with Adjusted EBITDA increasing $8.4 million, or 28%, to $38.4 million. Rental revenues increased 29% to $61.5 million, depreciation expense increased 32% to $7.6 million and other direct costs increased 38% to $15.1 million, which resulted in an increase in gross profit on rental revenues of 26% to $38.7 million. The rental revenue increase reflects in part the new Design Space and Kitchens To Go customers that contributed approximately three quarters of the increase. Rental related services revenues increased 8% to $17.6 million, primarily attributable to services performed during the lease and increased delivery and return delivery revenues at Portable Storage, with associated gross profit increasing 9% to $5.0 million. Sales revenues increased 68% to $20.2 million, due to increased new and used equipment sales. Gross margin on sales was 33% compared to 27% in 2020, resulting in an increase in gross profit on sales revenues of $3.3 million. Selling and administrative expenses increased $8.2 million, or 50%, primarily due to increased employee salaries and benefit costs totaling $2.7 million, mostly from the addition of Design Space and Kitchens To Go employees, $2.4 million higher allocated corporate expenses and $1.7 million higher amortization of intangible assets associated with the Design Space and Kitchens To Go acquisitions.

TRS-RENTELCO

The Company’s TRS-RenTelco division reported income from operations of $9.8 million, a decrease of $1.1 million, or 10%, with Adjusted EBITDA decreasing $0.4 million, or 2%, to $22.3 million. Rental revenues increased 4% to $29.1 million, depreciation expense increased 5% to $11.9 million and other direct costs increased 12% to $4.9 million, which resulted in gross profit on rental revenues comparable to the prior year. Rental revenue increases were primarily from increased demand for general purpose equipment. Sales revenues decreased 13% to $7.6 million while gross margin on sales improved to 51% in 2021 from 47% in 2020, which together resulted in a 7% decrease in gross profit on sales revenues to $3.8 million. Selling and administrative expenses increased 11% to $6.8 million, primarily due to increased marketing and administrative expenses and higher allocated corporate expenses.

ADLER TANKS

The Company’s Adler Tanks division reported income from operations of $2.8 million, an increase of 29%, with Adjusted EBITDA increasing $0.8 million, or 12%, to $7.8 million. Rental revenues increased 19% to $15.5 million, as a result of broad based regional and end market demand. Depreciation expense was comparable to the prior year and other direct costs increased 47% to $3.4 million, which resulted in an increased gross profit on rental revenues of 21%, to $8.1 million. Rental related services revenues increased 10% to $5.9 million, with gross profit on rental related services decreasing 13%, to $1.1 million. Selling and administrative expenses increased 16% to $6.7 million primarily due to increased employee salaries and benefit costs and higher allocated corporate expenses.

FINANCIAL OUTLOOK:

For the full-year 2022, the Company expects:

				2022 Outlook		2021 Actual
•		Total revenue:		$675 million to $705 million		$616.8 million
•		Adjusted EBITDA 1, 2:		$260 million to $275 million		$246.6 million
•		Gross rental equipment capital expenditures:		$117 million to $127 million		$114.1 million

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 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.
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 RENTCORP:

Founded in 1979, McGrath RentCorp (Nasdaq: MGRC) is a diversified business-to-business rental company providing modular buildings, electronic test equipment, portable storage and tank containment solutions across the United States and other select North American regions. The Company’s rental operations consist of four divisions: Mobile Modular rents and sells modular buildings to fulfill customers’ temporary and permanent classroom and office space needs; TRS-RenTelco rents and sells electronic test equipment; Adler Tank Rentals rents and sells containment solutions for hazardous and nonhazardous liquids and solids; and Mobile Modular Portable Storage provides portable storage rental solutions. For more information on McGrath RentCorp and its operating units, please visit our websites:

Corporate – www.mgrc.com
Modular Buildings – www.mobilemodular.com
Electronic Test Equipment – www.trsrentelco.com
Tanks and Boxes – www.adlertankrentals.com
Portable Storage – www.mobilemodularcontainers.com
School Facilities Manufacturing – 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 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 January 20, 2022, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on February 23, 2022 to discuss the fourth quarter 2021 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 replay will be available for 7 days 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 conference call replay is 8842099. 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 the expectation to deploy more rental equipment capital and to expand the breadth of products and services to the Company’s customers, optimism about the overall positive rental demand trends, to further expand geographic coverage through the utilization of organic investments and acquisitions, and that the Company is positioned for long term growth, as well as the statements regarding the full year 2022 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 duration of the ongoing COVID-19 pandemic and its economic impact, the extent and length of the restrictions associated with COVID-19 pandemic, the health of the education and commercial markets in our modular building division; the activity levels in the general purpose and communications test equipment markets at TRS-RenTelco; the utilization levels and rental rates of our Adler Tanks liquid and solid containment tank and box rental assets; continued execution of our 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 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 December 31,								Twelve Months Ended December 31,
(in thousands, except per share amounts)		2021				2020				2021				2020
Revenues
Rental		$	106,076			$	88,517			$	390,013			$	351,790
Rental related services			24,191				22,367				98,061				92,393
Rental operations			130,267				110,884				488,074				444,183
Sales			44,732				37,238				125,235				124,604
Other			912				858				3,524				3,767
Total revenues			175,911				148,980				616,833				572,554
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment			23,671				21,226				91,887				85,866
Rental related services			18,020				16,345				74,256				68,105
Other			23,373				17,647				91,069				73,818
Total direct costs of rental operations			65,064				55,218				257,212				227,789
Costs of sales			28,579				23,108				78,600				81,019
Total costs of revenues			93,643				78,326				335,812				308,808
Gross profit			82,268				70,653				281,021				263,746
Selling and administrative expenses			39,295				29,628				148,600				122,993
Income from operations			42,973				41,025				132,421				140,753
Other income (expense):
Interest expense			(3,247	)			(1,983	)			(10,455	)			(8,787	)
Foreign currency exchange (loss) gain			(25	)			267				(210	)			78
Income before provision for income taxes			39,701				39,309				121,756				132,044
Provision for income taxes			11,254				8,133				32,051				30,060
Net income		$	28,447			$	31,176			$	89,705			$	101,984
Earnings per share:
Basic		$	1.17			$	1.29			$	3.70			$	4.22
Diluted		$	1.16			$	1.27			$	3.66			$	4.16
Shares used in per share calculation:
Basic			24,252				24,119				24,220				24,157
Diluted			24,537				24,453				24,515				24,531
Cash dividends declared per share		$	0.435			$	0.420			$	1.74			$	1.68

MCGRATH RENTCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
		December 31,
(in thousands)		2021				2020
Assets
Cash		$	1,491			$	1,238
Accounts receivable, net of allowance for doubtful accounts of $2,125 in 2021 and $2,100 in 2020			159,499				123,316
Rental equipment, at cost:
Relocatable modular buildings			1,040,094				882,115
Electronic test equipment			361,391				333,020
Liquid and solid containment tanks and boxes			309,908				315,706
			1,711,393				1,530,841
Less: accumulated depreciation			(646,169	)			(592,725	)
Rental equipment, net			1,065,224				938,116
Property, plant and equipment, net			135,325				136,210
Prepaid expenses and other assets			54,945				41,549
Intangible assets, net			47,049				7,118
Goodwill			132,393				28,197
Total assets		$	1,595,926			$	1,275,744
Liabilities and Shareholders' Equity
Liabilities:
Notes payable		$	426,451			$	222,754
Accounts payable and accrued liabilities			136,313				108,334
Deferred income			58,716				45,975
Deferred income taxes, net			242,425				216,077
Total liabilities			863,905				593,140
Commitments and contingencies (Note 9)
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,260 shares as of December 31, 2021 and 24,128 shares as of December 31, 2020			108,610				106,289
Retained earnings			623,465				576,419
Accumulated other comprehensive loss			(54	)			(104	)
Total shareholders’ equity			732,021				682,604
Total liabilities and shareholders’ equity		$	1,595,926			$	1,275,744

MCGRATH RENTCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
		Twelve Months Ended December 31,
(in thousands)		2021				2020
Cash Flows from Operating Activities:
Net income		$	89,705			$	101,984
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			106,695				94,643
Deferred income taxes			26,348				(2,193	)
Provision for doubtful accounts			451				1,343
Share-based compensation			7,666				5,549
Gain on sale of used rental equipment			(25,441	)			(19,329	)
Foreign currency exchange loss (gain)			210				(78	)
Amortization of debt issuance costs			15				11
Change in:
Accounts receivable			(24,397	)			3,440
Prepaid expenses and other assets			(6,816	)			3,807
Accounts payable and accrued liabilities			12,226				316
Deferred income			9,082				(8,989	)
Net cash provided by operating activities			195,744				180,504
Cash Flows from Investing Activities:
Purchases of rental equipment			(114,145	)			(86,329	)
Purchases of property, plant and equipment			(2,680	)			(13,724	)
Cash paid for acquisition of businesses			(283,124	)			—
Cash paid for acquisition of Titan business assets			(6,585	)			—
Cash paid for acquisition of non-compete agreements			(2,500	)			—
Proceeds from sales of used rental equipment			57,337				47,052
Net cash used in investing activities			(351,697	)			(53,001	)
Cash Flows from Financing Activities:
Net borrowing (repayment) under bank lines of credit			143,729				(70,689	)
Borrowings under note purchase agreement			100,000				—
Principal payment of Series B senior notes			(40,000	)			—
Repurchase of common stock			—				(13,617	)
Taxes paid related to net share settlement of stock awards			(5,345	)			(4,376	)
Payment of dividends			(42,182	)			(39,769	)
Net cash provided by (used in) financing activities			156,202				(128,451	)
Effect of foreign currency exchange rate changes on cash			4				(156	)
Net increase (decrease) in cash			253				(1,104	)
Cash balance, beginning of period			1,238				2,342
Cash balance, end of period		$	1,491			$	1,238
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period		$	10,326			$	9,050
Net income taxes paid, during the period		$	9,087			$	34,903
Dividends accrued during the period, not yet paid		$	11,280			$	10,083
Rental equipment acquisitions, not yet paid		$	5,750			$	4,373

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 December 31, 2021
(dollar amounts in thousands)		Mobile Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	61,451			$	29,079			$	15,546			$	—			$	106,076
Rental related services			17,604				731				5,856				—				24,191
Rental operations			79,055				29,810				21,402				—				130,267
Sales			20,216				7,563				769				16,184				44,732
Other			431				361				120				—				912
Total revenues			99,702				37,734				22,291				16,184				175,911
Costs and Expenses
Direct costs of rental operations:
Depreciation			7,634				11,945				4,092				—				23,671
Rental related services			12,634				643				4,743				—				18,020
Other			15,120				4,881				3,372				—				23,373
Total direct costs of rental operations			35,388				17,469				12,207				—				65,064
Costs of sales			13,631				3,738				552				10,658				28,579
Total costs of revenues			49,019				21,207				12,759				10,658				93,643
Gross Profit
Rental			38,697				12,253				8,082				—				59,032
Rental related services			4,970				88				1,113				—				6,171
Rental operations			43,667				12,341				9,195				—				65,203
Sales			6,585				3,825				217				5,526				16,153
Other			431				361				120				—				912
Total gross profit			50,683				16,527				9,532				5,526				82,268
Selling and administrative expenses			24,627				6,770				6,689				1,209				39,295
Income from operations		$	26,056			$	9,757			$	2,843			$	4,317			$	42,973
Interest expense																			(3,247	)
Foreign currency exchange loss																			(25	)
Provision for income taxes																			(11,254	)
Net income																		$	28,447
Other Information
Adjusted EBITDA 1		$	38,412			$	22,345			$	7,817			$	4,386			$	72,960
Average rental equipment 2		$	988,067			$	362,760			$	309,841
Average monthly total yield 3			2.07	%			2.67	%			1.67	%
Average utilization 4			76.9	%			65.9	%			50.1	%
Average monthly rental rate 5			2.70	%			4.05	%			3.34	%

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. 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.
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 December 31, 2020
(dollar amounts in thousands)		Mobile Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	47,548			$	27,916			$	13,054			$	—			$	88,518
Rental related services			16,236				784				5,347				—				22,367
Rental operations			63,784				28,700				18,401				—				110,885
Sales			12,016				8,675				426				16,121				37,238
Other			351				438				68				—				857
Total revenues			76,151				37,813				18,895				16,121				148,980
Costs and Expenses
Direct costs of rental operations:
Depreciation			5,790				11,343				4,093				—				21,226
Rental related services			11,688				583				4,074				—				16,345
Other			10,989				4,371				2,287				—				17,647
Total direct costs of rental operations			28,467				16,297				10,454				—				55,218
Costs of sales			8,737				4,573				478				9,320				23,108
Total costs of revenues			37,204				20,870				10,932				9,320				78,326
Gross Profit
Rental			30,769				12,202				6,674				—				49,645
Rental related services			4,548				201				1,273				—				6,022
Rental operations			35,317				12,403				7,947				—				55,667
Sales			3,279				4,102				(52	)			6,801				14,130
Other			351				438				68				—				857
Total gross profit			38,947				16,943				7,963				6,801				70,654
Selling and administrative expenses			16,456				6,108				5,766				1,298				29,628
Income from operations		$	22,491			$	10,835			$	2,197			$	5,503				41,026
Interest expense																			(1,983	)
Foreign currency exchange gain																			267
Provision for income taxes																			(8,134	)
Net income																		$	31,176
Other Information
Adjusted EBITDA 1		$	30,024			$	22,767			$	6,983			$	5,567			$	65,341
Average rental equipment 2		$	834,599			$	333,505			$	314,647
Average monthly total yield 3			1.90	%			2.74	%			1.38	%
Average utilization 4			76.2	%			67.1	%			42.6	%
Average monthly rental rate 5			2.49	%			4.08	%			3.25	%

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. 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.
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)
Twelve months ended December 31, 2021
(dollar amounts in thousands)		Mobile Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	220,569			$	113,419			$	56,025			$	—			$	390,013
Rental related services			72,330				2,880				22,851				—				98,061
Rental operations			292,899				116,299				78,876				—				488,074
Sales			68,982				22,242				2,930				31,081				125,235
Other			1,435				1,653				436				—				3,524
Total revenues			363,316				140,194				82,242				31,081				616,833
Costs and Expenses
Direct costs of rental operations:
Depreciation			28,071				47,374				16,442				—				91,887
Rental related services			53,018				2,704				18,534				—				74,256
Other			60,429				19,148				11,492				—				91,069
Total direct costs of rental operations			141,518				69,226				46,468				—				257,212
Costs of sales			45,758				9,574				2,075				21,193				78,600
Total costs of revenues			187,276				78,800				48,543				21,193				335,812
Gross Profit
Rental			132,070				46,897				28,091				—				207,058
Rental related services			19,310				176				4,317				—				23,803
Rental operations			151,380				47,073				32,408				—				230,861
Sales			23,225				12,667				855				9,888				46,635
Other			1,435				1,653				436				—				3,524
Total gross profit			176,040				61,394				33,699				9,888				281,021
Selling and administrative expenses			92,603				25,152				25,542				5,303				148,600
Income from operations		$	83,436			$	36,243			$	8,157			$	4,585			$	132,421
Interest expense																			(10,455	)
Foreign currency exchange loss																			(210	)
Provision for income taxes																			(32,051	)
Net income																		$	89,705
Other Information
Adjusted EBITDA 1		$	128,044			$	85,723			$	27,961			$	4,844			$	246,572
Average rental equipment 2		$	925,951			$	351,895			$	312,150
Average monthly total yield 3			1.99	%			2.69	%			1.50	%
Average utilization 4			76.2	%			67.0	%			45.4	%
Average monthly rental rate 5			2.61	%			4.01	%			3.29	%

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. 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.
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)
Twelve months ended December 31, 2020
(dollar amounts in thousands)		Mobile Modular				TRS- RenTelco				Adler Tanks				Enviroplex				Consolidated
Revenues
Rental		$	188,719			$	109,083			$	53,988			$	—			$	351,790
Rental related services			67,527				3,080				21,786				—				92,393
Rental operations			256,246				112,163				75,774				—				444,183
Sales			63,863				26,618				1,386				32,737				124,604
Other			1,415				2,030				322				—				3,767
Total revenues			321,524				140,811				77,482				32,737				572,554
Costs and Expenses
Direct costs of rental operations:
Depreciation			22,967				46,472				16,427				—				85,866
Rental related services			48,910				2,419				16,776				—				68,105
Other			47,762				17,133				8,923				—				73,818
Total direct costs of rental operations			119,639				66,024				42,126				—				227,789
Costs of sales			46,011				13,923				1,277				19,808				81,019
Total costs of revenues			165,650				79,947				43,403				19,808				308,808
Gross Profit
Rental			117,990				45,478				28,638				—				192,106
Rental related services			18,617				661				5,010				—				24,288
Rental operations			136,607				46,139				33,648				—				216,394
Sales			17,852				12,695				109				12,929				43,585
Other			1,415				2,030				322				—				3,767
Total gross profit			155,874				60,864				34,079				12,929				263,746
Selling and administrative expenses			68,470				24,306				24,764				5,453				122,993
Income from operations		$	87,404			$	36,558			$	9,315			$	7,476			$	140,753
Interest expense																			(8,787	)
Foreign currency exchange gain																			78
Provision for income taxes																			(30,060	)
Net income																		$	101,984
Other Information
Adjusted EBITDA 1		$	119,202			$	85,082			$	29,010			$	7,729			$	241,023
Average rental equipment 2		$	825,614			$	336,399			$	314,797
Average monthly total yield 3			1.88	%			2.70	%			1.43	%
Average utilization 4			77.2	%			66.2	%			44.6	%
Average monthly rental rate 5			2.47	%			4.08	%			3.21	%

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. 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.
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 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 December 31,								Twelve Months Ended December 31,
		2021				2020				2021				2020
Net income		$	28,447			$	31,175			$	89,705			$	101,984
Provision for income taxes			11,254				8,134				32,051				30,060
Interest expense			3,247				1,983				10,455				8,787
Depreciation and amortization			27,648				23,394				106,695				94,643
EBITDA			70,596				64,686				238,906				235,474
Share-based compensation			2,364				655				7,666				5,549
Adjusted EBITDA 1		$	72,960			$	65,341			$	246,572			$	241,023
Adjusted EBITDA margin 2			41	%			44	%			40	%			42	%

Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities
(dollar amounts in thousands)		Three Months Ended December 31,								Twelve Months Ended December 31,
		2021				2020				2021				2020
Adjusted EBITDA 1		$	72,960			$	65,341			$	246,572			$	241,023
Interest paid			(3,849	)			(2,221	)			(10,326	)			(9,050	)
Income taxes paid, net of refunds received			(1,013	)			(10,199	)			(9,087	)			(34,903	)
Gain on sale of used rental equipment			(7,653	)			(5,219	)			(25,441	)			(19,329	)
Foreign currency exchange loss (gain)			25				(267	)			210				(78	)
Amortization of debt issuance costs			4				3				15				11
Change in certain assets and liabilities:
Accounts receivable, net			9,332				6,117				(23,946	)			4,783
Prepaid expenses and other assets			4,593				5,121				(6,816	)			3,807
Accounts payable and other liabilities			(3,896	)			2,871				15,481				3,229
Deferred income			(11,046	)			(12,580	)			9,082				(8,989	)
Net cash provided by operating activities		$	59,457			$	48,967			$	195,744			$	180,504

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.

 

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