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McGrath RentCorp$67.21$1.111.68%

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 McGrath RentCorp Announces Results for Fourth Quarter 2017
   Tuesday, February 27, 2018 4:01:34 PM ET

McGrath RentCorp (MGRC ) (the "Company"), a diversified business to business rental company, today announced total revenues for the quarter ended December 31, 2017 of $122.2 million, an increase of 16%, compared to the fourth quarter of 2016. The Company reported net income of $117.7 million, or $4.82 per diluted share for the fourth quarter of 2017, compared to net income of $9.7 million, or $0.40 per diluted share, in the fourth quarter of 2016. The fourth quarter of 2017 includes a net income benefit of $102.5 million, or $4.20 per diluted share, associated with the enactment of the Tax Cut and Jobs Act discussed below.

FOURTH QUARTER 2017 COMPANY HIGHLIGHTS:

-- Income from operations increased 18% year-over-year to $26.8 million.

-- Rental revenues increased 10% year-over-year to $77.7 million.

-- Adjusted EBITDA increased 15% to $49.4 million for the fourth quarter of 2017.

-- Dividend rate increased 2% year-over-year to $0.26 per share for the fourth quarter of 2017. On an annualized basis, this dividend represents a 2.1% yield on the February 26, 2018 close price of $48.52 per share.

-- United States Tax Reform - On December 22, 2017, the U.S. government enacted the Tax Cut and Jobs Act ("the Tax Act"), which among other things, reduces the federal income tax rate from 35% to 21% effective January 1, 2018, and requires mandatory repatriation of foreign earnings. As a result of the Tax Act, the Company re-measured its net deferred tax liabilities and recognized a net benefit of $102.8 million. In addition, a one-time transition income tax estimated at $0.3 million related to repatriation of foreign earnings was recorded. The Company’s 2018 effective tax rate is estimated to be approximately 27%.

The Company also announced that the board of directors declared a quarterly cash dividend of $0.34 per share for the quarter ending March 31, 2018, an increase of $0.08, or 31%, over the prior year period. On an annualized basis, the 2018 dividend represents a 2.8% yield, based on the February 26, 2018 closing stock price. The cash dividend will be payable on April 30, 2018 to all shareholders of record on April 16, 2018. This marks the 26th consecutive year the Company has increased its annual dividend.

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 performance. The Company’s 18% operating profit increase was driven by a $2.6 million increase in gross profit from rental operations, and an additional $2.6 million increase in sales gross profit.

Mobile Modular rental revenues for the quarter increased 9% from a year ago, primarily driven by 7% improvement in average rental rates. Rental revenue growth continued to be healthy across commercial and education markets, as well as in our Portable Storage business. Modular sales revenues increased significantly year over year, primarily due to higher used equipment sales.

TRS-RenTelco rental revenues for the quarter increased 7%, primarily driven by 5% higher average rental equipment and improved utilization. Test equipment rental revenues for general-purpose and communications increased by 8% and 7%, respectively.

Adler Tank Rentals rental revenues for the quarter increased 18% from a year ago. Rental revenue growth occurred across a broad mix of vertical markets, including upstream oil and natural gas, which increased from 8% to 10% of total rental revenues. Average equipment on rent increased 18%, and average utilization increased to 60%. Despite ongoing competitive price pressure, average rental rates remained flat.

For the full year, the Company’s operating profit grew by 20% compared to a year ago. Mobile Modular, TRS-RenTelco and Adler Tank Rentals delivered operating profit growth of 14%, 18% and 40%, respectively, compared to a year ago. Our teams executed effectively throughout 2017, and our performance improvement initiatives delivered results, despite some challenging market conditions. The improved Company performance and anticipated earnings and cash flow benefits from tax reform support the 31% dividend increase announced today.

Entering 2018, I believe that our businesses are well positioned and we will be working hard to build upon our solid 2017 performance."

__________________________

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

DIVISION HIGHLIGHTS:

All comparisons presented below are for the quarter ended December 31, 2017 to the quarter ended December 31, 2016 unless otherwise indicated.

MOBILE MODULAR

For the fourth quarter of 2017, the Company’s Mobile Modular division reported income from operations of $12.6 million, a decrease of $0.6 million, or 5%. Rental revenues increased 9% to $37.7 million, depreciation expense decreased $0.1 million to $5.3 million and other direct costs increased $4.8 million to $12.0 million, which resulted in a decrease in gross profit on rental revenues of 7% to $20.4 million. The increased other direct costs in 2017 was partly attributable to a $1.6 million impairment of rental assets, deemed beyond economic repair in the Southern California region. Rental related services revenues were flat at $12.2 million, with associated gross profit increasing 2% to $3.2 million. Sales revenues increased 74% to $7.4 million and gross margin on sales increased to 30% compared to 29% in 2016, resulting in increased gross profit on sales revenues of $1.0 million, or 79%. Selling and administrative expenses increased 1% to $13.4 million, primarily due to increased salaries and employee benefit costs and higher allocated corporate expenses.

TRS-RENTELCO

For the fourth quarter of 2017, the Company’s TRS-RenTelco division reported income from operations of $8.2 million, an increase of $1.9 million, or 29%. Rental revenues increased 7% to $22.2 million, depreciation expense increased 3% to $8.6 million and other direct costs decreased 7% to $3.5 million, which resulted in an increase in gross profit on rental revenues of 18% to $10.1 million. Sales revenues increased 20% to $5.4 million. Gross margin on sales decreased to 58% from 60% in 2016 primarily due to lower margins on used equipment sales, resulting in an 18% increase in gross profit on sales revenues to $3.2 million. Selling and administrative expenses increased 4% to $5.7 million, primarily due to increased salaries and employee benefit costs.

ADLER TANKS

For the fourth quarter of 2017, the Company’s Adler Tanks division reported income from operations of $4.1 million, an increase of $1.9 million, or 86%. Rental revenues increased 18% to $17.8 million, depreciation expense was flat at $3.9 million and other direct costs were flat at $3.1 million, which resulted in an increase in gross profit on rental revenues of 33% to $10.7 million. Rental related services revenues increased 10% to $6.6 million, with gross profit on rental related services decreasing 16% to $0.9 million. Selling and administrative expenses increased 13% to $7.7 million, primarily due to increased salaries and employee benefit costs.

FINANCIAL OUTLOOK:

For the full-year 2018, the Company expects:

-- Rental revenues to increase between 3% and 5% over 2017.

-- Sales revenues to be between flat and 10% lower compared to 2017.

-- Rental equipment depreciation expense to be between $70 and $72 million.

-- "Other" direct costs of rental operations, primarily for rental equipment maintenance and repair, to be between $64 and $66 million.

-- Selling and administrative costs to be between $113 and $115 million.

-- Operating profit to increase between 8% and 12% over 2017.

-- Full year interest expense to be approximately $12 million.

-- Effective tax rate to be approximately 27%.

-- Diluted share count to be between 24.4 and 24.6 million shares.

These forward-looking statements reflect McGrath RentCorp’s expectations as of February 27, 2018. Actual 2018 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 with four rental divisions. Mobile Modular rents and sells modular buildings to fulfill customers’ temporary and permanent classroom and office space needs in California, Texas, Florida, and the Mid-Atlantic from Washington D.C. to Georgia. TRS-RenTelco rents and sells electronic test equipment and is one of the leading rental providers of general purpose and communications test equipment in the Americas. Adler Tank Rentals rents and sells containment solutions for hazardous and nonhazardous liquids and solids with operations serving key markets throughout the United States. Mobile Modular Portable Storage provides portable storage solutions in the California, Texas, Florida, Northern Illinois, New Jersey, North Carolina and Georgia markets. For more information on McGrath RentCorp and its operating units, please visit our websites:

Corporate - 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 25, 2018, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on February 27, 2018 to discuss the fourth quarter 2017 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 www.mgrc.com. A 7-day replay will be available following the call by dialing 1-855-859-2056 (in the U.S.), or 1-404-537-3406 (outside the U.S.). The pass code for the call replay is 6597128. 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://www.mgrc.com/investors#events-archives .

FORWARD-LOOKING STATEMENTS:

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, regarding McGrath RentCorp’s expectations, strategies, prospects or targets are forward looking statements. These forward-looking statements also can be identified by the use of forward-looking terminology such as "believes," "expects," "will," or "anticipates" or the negative of these terms or other comparable terminology. In particular, Mr. Hanna’s comment that the Company’s businesses are well-positioned for 2018, and the full year 2018 outlook in the "Financial Outlook" section are forward-looking.

These forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties that could cause our actual results to differ materially from those projected including: the extent of the recovery underway in our modular building division; the state of the wireless communications network upgrade environment; the utilization levels and rental rates of our Adler Tanks liquid and sold containment tank and box rental assets; the potential for continuing softness in communications test equipment rental demand in our electronics division; 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)           2017             2016             2017             2016
Revenues
Rental                                             $     77,705     $     70,352     $     289,417    $     271,388
Rental related services                                  19,481           18,831           78,068           75,859
Rental operations                                        97,186           89,183           367,485          347,247
Sales                                                    24,334           15,494           91,500           74,410
Other                                                    707              606              3,049            2,423
Total revenues                                           122,227          105,283          462,034          424,080
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment                         17,795           17,607           69,908           72,197
Rental related services                                  15,273           13,970           60,029           59,044
Other                                                    18,678           14,785           65,472           60,130
Total direct costs of rental operations                  51,746           46,362           195,409          191,371
Costs of sales                                           15,792           9,598            60,280           48,542
Total costs of revenues                                  67,538           55,960           255,689          239,913
Gross profit                                             54,689           49,323           206,345          184,167
Selling and administrative expenses                      27,903           26,627           111,605          104,908
Income from operations                                   26,786           22,696           94,740           79,259
Other income (expense):
Interest expense                                         (2,898  )        (2,721  )        (11,622 )        (12,207   )
Foreign currency exchange gain (loss)                    61               (180    )        334              (121      )
Income before (benefit) provision for income taxes       23,949           19,795           83,452           66,931
(Benefit) provision for income taxes                     (93,775 )        10,061           (70,468 )        28,680
Net income                                         $     117,724    $     9,734      $     153,920    $     38,251
Earnings per share:
Basic                                              $     4.90       $     0.41       $     6.41       $     1.60
Diluted                                            $     4.82       $     0.40       $     6.34       $     1.60
Shares used in per share calculation:
Basic                                                    24,044           23,927           23,999           23,900
Diluted                                                  24,410           24,123           24,269           23,976
Cash dividends declared per share                  $     0.260      $     0.255      $     1.04       $     1.02

MCGRATH RENTCORP

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

                                                                                                           December 31,        December 31,
(in thousands)                                                                                             2017                2016
Assets
Cash                                                                                                       $      2,501        $      852
Accounts receivable, net of allowance for doubtful accounts of $1,920 in 2017                                     105,872             96,877
and $2,087 in 2016
Rental equipment, at cost:
Relocatable modular buildings                                                                                     775,400             769,190
Electronic test equipment                                                                                         262,325             246,325
Liquid and solid containment tanks and boxes                                                                      309,808             308,542
                                                                                                                  1,347,533           1,324,057
Less accumulated depreciation                                                                                     (485,213  )         (467,686  )
Rental equipment, net                                                                                             862,320             856,371
Property, plant and equipment, net                                                                                119,170             112,190
Prepaid expenses and other assets                                                                                 22,459              25,583
Intangible assets, net                                                                                            7,724               8,595
Goodwill                                                                                                          27,808              27,808
Total assets                                                                                               $      1,147,854    $      1,128,276
Liabilities and Shareholders’ Equity
Liabilities:
Notes payable                                                                                              $      303,414      $      326,266
Accounts payable and accrued liabilities                                                                          86,408              78,205
Deferred income                                                                                                   39,219              37,499
Deferred income taxes, net                                                                                        194,629             292,019
Total liabilities                                                                                                 623,670             733,989
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,052 shares as of December 31, 2017 and 23,948  shares as of December 31, 2016         102,947             101,821
Retained earnings                                                                                                 421,405             292,521
Accumulated other comprehensive loss                                                                              (168      )         (55       )
Total shareholders’ equity                                                                                        524,184             394,287
Total liabilities and shareholders’ equity                                                                 $      1,147,854    $      1,128,276

MCGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

                                                             Year Ended December 31,
(in thousands)                                               2017             2016
Cash Flows from Operating Activities :
Net income                                                   $   153,920      $   38,251
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization                                    78,416           81,179
Impairment of rental assets                                      1,639            --
Provision for doubtful accounts                                  1,480            1,892
Share-based compensation                                         3,198            3,091
Gain on sale of used rental equipment                            (17,733 )        (13,739 )
Foreign currency exchanges (gain) loss                           (334    )        121
Amortization of debt issuance costs                              50               51
Change in:
Accounts receivable                                              (10,475 )        (3,752  )
Income taxes receivable                                          --               11,000
Prepaid expenses and other assets                                3,124            3,219
Accounts payable and accrued liabilities                         4,015            10,426
Deferred income                                                  1,720            1,211
Deferred income taxes                                            (96,631 )        7,745
Net cash provided by operating activities                        122,389          140,695
Cash Flows from Investing Activities:
Purchases of rental equipment                                    (94,579 )        (79,038 )
Purchases of property, plant and equipment                       (14,617 )        (10,548 )
Proceeds from sales of used rental equipment                     38,344           29,406
Net cash used in investing activities                            (70,852 )        (60,180 )
Cash Flows from Financing Activities:
Net repayments under bank lines of credit                        (2,902  )        (35,066 )
Principal payments on Series A senior notes                      (20,000 )        (20,000 )
Proceeds from the exercise of stock options                      --               37
Taxes paid related to net share settlement of stock awards       (2,072  )        (1,287  )
Payment of dividends                                             (24,876 )        (24,448 )
Net cash used in financing activities                            (49,850 )        (80,764 )
Effect of foreign currency exchange rate changes on cash         (38     )        (2      )
Net increase (decrease) in cash                                  1,649            (251    )
Cash balance, beginning of period                                852              1,103
Cash balance, end of period                                  $   2,501        $   852
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period                             $   11,825       $   12,436
Net income taxes paid, during the period                     $   29,504       $   15,555
Dividends accrued during the period, not yet paid            $   6,260        $   6,147
Rental equipment acquisitions, not yet paid                  $   6,405        $   2,876
MCGRATH RENTCORP
BUSINESS SEGMENT DATA (unaudited)
Three months ended December 31, 2017
(dollar amounts in thousands)            Mobile                 TRS-                   Adler Tanks            Enviroplex            Consolidated
                                         Modular                RenTelco
Revenues
Rental                                   $         37,661       $         22,243       $         17,801       $         --          $         77,705
Rental related services                            12,165                 763                    6,553                  --                    19,481
Rental operations                                  49,826                 23,006                 24,354                 --                    97,186
Sales                                              7,434                  5,437                  786                    10,677                24,334
Other                                              178                    444                    85                     --                    707
Total revenues                                     57,438                 28,887                 25,225                 10,677                122,227
Costs and Expenses
Direct costs of rental operations:
Depreciation                                       5,296                  8,556                  3,943                  --                    17,795
Rental related services                            8,953                  652                    5,668                  --                    15,273
Other                                              12,000                 3,546                  3,132                  --                    18,678
Total direct costs of rental operations            26,249                 12,754                 12,743                 --                    51,746
Costs of  sales                                    5,193                  2,264                  671                    7,664                 15,792
Total costs of revenues                            31,442                 15,018                 13,414                 7,664                 67,538
Gross Profit
Rental                                             20,365                 10,141                 10,726                 --                    41,232
Rental related services                            3,212                  111                    885                    --                    4,208
Rental operations                                  23,577                 10,252                 11,611                 --                    45,440
Sales                                              2,241                  3,173                  115                    3,013                 8,542
Other                                              178                    444                    85                     --                    707
Total gross profit                                 25,996                 13,869                 11,811                 3,013                 54,689
Selling and administrative expenses                13,426                 5,696                  7,687                  1,094                 27,903
Income from operations                   $         12,570       $         8,173        $         4,124        $         1,919                 26,786
Interest expense                                                                                                                              (2,898    )
Foreign currency exchange gain                                                                                                                61
Benefit for income taxes                                                                                                                      93,775
Net income                                                                                                                          $         117,724
Other Information
Average rental equipment                 $         750,424      $         260,324      $         308,258
Average monthly total yield                        1.67      %            2.85      %            1.92      %
Average utilization                                77.3      %            63.6      %            60.2      %
Average monthly rental rate                        2.16      %            4.48      %            3.20      %
-- 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.
-- Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
-- 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.
-- 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, 2016
(dollar amounts in thousands)            Mobile                 TRS-                   Adler Tanks            Enviroplex            Consolidated
                                         Modular                RenTelco
Revenues
Rental                                   $         34,494       $         20,745       $         15,113       $         --          $         70,352
Rental related services                            12,172                 690                    5,969                  --                    18,831
Rental operations                                  46,666                 21,435                 21,082                 --                    89,183
Sales                                              4,261                  4,532                  367                    6,334                 15,494
Other                                              133                    441                    32                     --                    606
Total revenues                                     51,060                 26,408                 21,481                 6,334                 105,283
Costs and Expenses
Direct costs of rental operations:
Depreciation                                       5,359                  8,317                  3,931                  --                    17,607
Rental related services                            9,022                  675                    4,919                  --                    14,616
Other                                              7,182                  3,820                  3,137                  --                    14,139
Total direct costs of rental operations            21,563                 12,812                 11,987                 --                    46,362
Costs of  sales                                    3,010                  1,832                  447                    4,309                 9,598
Total costs of revenues                            24,573                 14,644                 12,434                 4,309                 55,960
Gross Profit
Rental                                             21,953                 8,608                  8,045                  --                    38,606
Rental related services                            3,150                  15                     1,050                  --                    4,215
Rental operations                                  25,103                 8,623                  9,095                  --                    42,821
Sales                                              1,251                  2,700                  (80       )            2,025                 5,896
Other                                              133                    441                    32                     --                    606
Total gross profit                                 26,487                 11,764                 9,047                  2,025                 49,323
Selling and administrative expenses                13,270                 5,452                  6,824                  1,081                 26,627
Income from operations                   $         13,217       $         6,312        $         2,223        $         944                   22,696
Interest expense                                                                                                                              (2,721    )
Foreign currency exchange loss                                                                                                                (180      )
Provision for income taxes                                                                                                                    (10,061   )
Net income                                                                                                                          $         9,734
Other Information
Average rental equipment                 $         739,728      $         248,841      $         306,681
Average monthly total yield                        1.55      %            2.78      %            1.64      %
Average utilization                                77.5      %            62.3      %            51.3      %
Average monthly rental rate                        2.01      %            4.46      %            3.20      %
-- 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.
-- Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
-- 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.
-- 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, 2017
(dollar amounts in thousands)            Mobile                 TRS-                   Adler Tanks            Enviroplex            Consolidated
                                         Modular                RenTelco
Revenues
Rental                                   $         142,584      $         82,812       $         64,021       $         --          $         289,417
Rental related services                            50,448                 2,858                  24,762                 --                    78,068
Rental operations                                  193,032                85,670                 88,783                 --                    367,485
Sales                                              37,435                 20,334                 2,362                  31,369                91,500
Other                                              799                    2,040                  210                    --                    3,049
Total revenues                                     231,266                108,044                91,355                 31,369                462,034
Costs and Expenses
Direct costs of rental operations:
Depreciation                                       21,247                 32,891                 15,770                 --                    69,908
Rental related services                            37,755                 2,589                  19,685                 --                    60,029
Other                                              41,290                 13,503                 10,679                 --                    65,472
Total direct costs of rental operations            100,292                48,983                 46,134                 --                    195,409
Costs of  sales                                    27,039                 8,772                  2,003                  22,466                60,280
Total costs of revenues                            127,331                57,755                 48,137                 22,466                255,689
Gross Profit
Rental                                             80,048                 36,418                 37,572                 --                    154,038
Rental related services                            12,693                 269                    5,076                  --                    18,038
Rental operations                                  92,741                 36,687                 42,648                 --                    172,076
Sales                                              10,395                 11,562                 360                    8,903                 31,220
Other                                              799                    2,040                  210                    --                    3,049
Total gross profit                                 103,935                50,289                 43,218                 8,903                 206,345
Selling and administrative expenses                55,583                 22,171                 29,542                 4,309                 111,605
Income from operations                   $         48,352       $         28,118       $         13,676       $         4,594                 94,740
Interest expense                                                                                                                              (11,622   )
Foreign currency exchange gain                                                                                                                334
Benefit for income taxes                                                                                                                      70,468
Net income                                                                                                                          $         153,920
Other Information
Average rental equipment                 $         747,478      $         252,332      $         307,558
Average monthly total yield                        1.59      %            2.74      %            1.73      %
Average utilization                                76.8      %            62.9      %            56.0      %
Average monthly rental rate                        2.07      %            4.35      %            3.10      %
-- 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.
-- Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
-- 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.
-- 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, 2016
(dollar amounts in thousands)            Mobile                 TRS-                   Adler Tanks            Enviroplex            Consolidated
                                         Modular                RenTelco
Revenues
Rental                                   $         130,496      $         82,307       $         58,585       $         --          $         271,388
Rental related services                            49,206                 2,846                  23,807                 --                    75,859
Rental operations                                  179,702                85,153                 82,392                 --                    347,247
Sales                                              29,393                 21,582                 1,314                  22,121                74,410
Other                                              417                    1,882                  124                    --                    2,423
Total revenues                                     209,512                108,617                83,830                 22,121                424,080
Costs and Expenses
Direct costs of rental operations:
Depreciation                                       21,001                 35,256                 15,940                 --                    72,197
Rental related services                            37,392                 2,640                  19,012                 --                    59,044
Other                                              35,683                 14,320                 10,127                 --                    60,130
Total direct costs of rental operations            94,076                 52,216                 45,079                 --                    191,371
Costs of  sales                                    21,620                 10,604                 1,342                  14,976                48,542
Total costs of revenues                            115,696                62,820                 46,421                 14,976                239,913
Gross Profit (Loss)
Rental                                             71,143                 32,730                 32,518                 --                    136,391
Rental related services                            14,484                 206                    4,795                  --                    19,485
Rental operations                                  85,627                 32,936                 37,313                 --                    155,876
Sales                                              7,772                  10,979                 (28       )            7,145                 25,868
Other                                              417                    1,882                  124                    --                    2,423
Total gross profit                                 93,816                 45,797                 37,409                 7,145                 184,167
Selling and administrative expenses                51,432                 21,896                 27,610                 3,970                 104,908
Income from operations                   $         42,384       $         23,901       $         9,799        $         3,175                 79,259
Interest expense                                                                                                                              (12,207   )
Foreign currency exchange loss                                                                                                                (121      )
Provision for income taxes                                                                                                                    (28,680   )
Net income                                                                                                                          $         38,251
Other Information
Average rental equipment                 $         724,333      $         254,019      $         307,416
Average monthly total yield                        1.50      %            2.70      %            1.59      %
Average utilization                                76.6      %            60.6      %            50.1      %
Average monthly rental rate                        1.96      %            4.45      %            3.17      %
-- 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.
-- Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
-- 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.
-- Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.

Reconciliation of Adjusted EBITDA to the most directly comparable GAAP measures

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

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

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

Reconciliation of Net Income to Adjusted EBITDA
(dollar amounts in thousands)                    Three Months Ended             Twelve Months Ended
                                                 December 31,                   December 31,
                                                 2017             2016          2017             2016
Net income                                       $   117,724      $   9,734     $   153,920      $   38,251
(Benefit) provision for income taxes                 (93,775 )        10,061        (70,468 )        28,680
Interest                                             2,898            2,721         11,622           12,207
Depreciation and amortization                        19,991           19,651        78,416           81,179
EBITDA                                               46,838           42,167        173,490          160,317
Impairment of rental assets                          1,639        --                1,639        --
Share-based compensation                             953              764           3,198            3,091
Adjusted EBITDA                                  $   49,430       $   42,931    $   178,327      $   163,408
Adjusted EBITDA margin                               40      %        41     %      39      %        39      %
Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities
(dollar amounts in thousands)               Three Months Ended                                Twelve Months Ended
                                            December 31,                                      December 31,
                                            2017                     2016                     2017                     2016
Adjusted EBITDA                             $          49,430        $          42,931        $          178,327       $          163,408
Interest paid                                          (3,262     )             (3,394     )             (11,825    )             (12,436    )
Income taxes paid, net of refunds received             (5,994     )             (7,804     )             (29,504    )             (15,555    )
Gain on sale of used rental equipment                  (4,727     )             (2,941     )             (17,733    )             (13,739    )
Foreign currency exchange loss (gain)                  (61        )             180                      (334       )             121
Amortization of debt financing cost                    12                       13                       50                       51
Change in certain assets and liabilities:
Accounts receivable, net                               1,541                    6,881                    (8,995     )             (1,860     )
Income taxes receivable                     --                       --                       --                                  11,000
Prepaid expenses and other assets                      4,385                    575                      3,124                    1,949
Accounts payable and other liabilities                 2,893                    3,633                    7,559                    7,220
Deferred income                                        (2,969     )             (4,655     )             1,720                    536
Net cash provided by operating activities   $          41,248        $          35,419        $          122,389       $          140,695
-- Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs and share-based compensation.
-- Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by total revenues for the period.

FOR INFORMATION CONTACT:

Keith E. Pratt

EVP & Chief Financial Officer

925-606-9200

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