McGrath RentCorp Announces Results for Third Quarter 2009

McGrath RentCorp (NASDAQ: MGRC), a diversified business to business rental company, today announced revenues for the quarter ended September 30, 2009, of $75.5 million, a decrease of 13%, compared to $86.3 million in the third quarter of 2008. The Company reported net income of $9.5 million, or $0.40 per diluted share for the third quarter of 2009, compared to net income of $11.6 million, or $0.48 per diluted share, in the third quarter of 2008.

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

"The continuing challenges of adverse macroeconomic conditions, an unsettled fiscal landscape in California and highly competitive market environments resulted in a 20% reduction in operating income to $17.3 million for the quarter from a year ago. However, we are beginning to see some signs of improvement with various portions of our rental equipment businesses. Despite these positive signs, we anticipate continued overall downward earnings pressure over the next few quarters.

Mobile Modular’s rental revenues decreased by 14% to $22.5 million and operating income declined by 11% to $12.1 million compared to the third quarter of 2008. The lower percentage decrease in operating income compared to rental revenues reflected reduced material and labor costs in our inventory centers and downsized sales and administrative staffing levels, offset by lower gross profit on equipment sales. The significant inventory center cost reductions allowed gross margin on rents to increase to 62% from 60% a year ago. While we believe we are doing a good job managing costs in our modular business, rental revenues softened during the quarter and fleet utilization dropped to 69.5% at quarter end compared to 80.8% a year ago. Our modular rental business continued to be challenged primarily by California’s financial difficulties and their impact on school modernization and other infrastructure project funding, and reduced business activity levels in residential and non-residential construction.

TRS-RenTelco’s rental revenues declined by 23% to $18.5 million and income from operations decreased by 50% to $3.4 million compared to the third quarter of 2008. The higher percentage decrease in operating income compared to rental revenues is primarily related to lower rental revenues and gross profit on equipment sales for the same year over year period. Sequentially, from the second quarter 2009, rental revenues and income from operations were up favorably from $17.8 million and $1.4 million, respectively. The larger increase in income from operations versus rental revenues from the second quarter of 2009 is chiefly related to increased rental revenues from existing underutilized equipment, which resulted in the majority of the rental revenue dropping to the income from operations line, a decrease in depreciation expense, operations staffing reductions and other cost cutting measures. During the quarter, we saw increasing rental revenue levels each month, which reflected increased business activity levels. We also continued to make progress during the quarter in selling lower utilized equipment which supported the reduction in depreciation expense. Improvements in business conditions and operating results over recent months have been encouraging, but we expect a normal seasonal slowdown in the business as year end approaches.

Adler Tanks’ rental revenues and income from operations were $5.0 million and $1.5 million, respectively, during the third quarter. Sequentially, from the second quarter of 2009, rental revenues and income from operations were up favorably from $3.7 million and $0.6 million. Adler experienced higher business activity levels, as measured by units shipped, in all of its regional markets during the third quarter. Average utilization for the quarter increased to approximately 61%, as compared to 53% for the second quarter of 2009. Although the marketplace continues to be very competitive, Adler benefited during the quarter from various larger quantity tank orders. We also expanded into the Florida market late in the third quarter. This is in keeping with our goal to roll out Adler operations to all of our existing modular inventory center locations in 2009 to support future growth. We believe the long-term prospects for Adler Tank Rentals becoming an increasing contributor to McGrath RentCorp’s earnings is very favorable.

Our goals for the balance of 2009 are to continue building our new rental initiatives while managing costs tightly, and paying down debt. Our debt level at the end of the third quarter was $262 million, a reduction of approximately 14% from $305 million at the end of 2008.”

All comparisons presented below are to the quarter ended September 30, 2008 unless otherwise indicated.

MOBILE MODULAR

For the third quarter of 2009, the Company’s Mobile Modular division reported an 11% decrease in income from operations to $12.1 million. Rental revenues decreased 14% to $22.5 million, which resulted in a decrease in gross profit on rental revenues of 11% to $14.0 million. Sales revenues decreased 18% to $10.5 million with gross profit on sales revenues decreasing 12% to $2.6 million due to lower new and used equipment sales revenues, partly offset by higher gross margins on used equipment sales in the third quarter 2009. Selling and administrative expenses decreased 13% to $6.7 million.

TRS-RENTELCO

For the third quarter of 2009, the Company’s TRS-RenTelco division reported a 50% decrease in income from operations to $3.4 million. Rental revenues decreased 23% to $18.5 million, which resulted in a decrease in gross profit on rental revenues of 38% to $6.0 million. Sales revenues decreased 32% to $4.4 million with gross profit on sales decreasing 47% to $1.6 million due to lower new and used equipment sales revenues having lower gross margins in 2009 compared to 2008. Selling and administrative expenses decreased 25% to $4.7 million.

ADLER TANKS

For the third quarter of 2009, the Company’s Adler Tanks division, which was acquired on December 11, 2008, reported income from operations of $1.5 million. Rental revenues were $5.0 million, with gross profit on rental revenues of $3.4 million. Rental related services revenues were $1.7 million, with gross profit on rental related services revenues of $0.4 million. Selling and administrative expenses were $2.3 million.

OTHER THIRD QUARTER HIGHLIGHTS

• Debt decreased $7.1 million during the quarter to $261.5 million, with the Company’s funded debt (notes payable) to equity ratio decreasing from 1.22 to 1 at December 31, 2008 to 1.00 to 1 as of September 30, 2009. As of September 30, 2009, the Company had capacity to borrow an additional $117.5 million under its lines of credit.
• Dividend rate increased 10% to $0.22 per share for the third quarter 2009 compared to the third quarter 2008. On an annualized basis, this dividend represents a 4.4% yield on the November 4, 2009 close price of $19.85.
• Adjusted EBITDA decreased 11% to $33.7 million for the third quarter of 2009. At September 30, 2009, the Company’s ratio of funded debt to the last twelve months actual Adjusted EBITDA was 2.00 to 1 compared to 2.15 to 1 at December 31, 2008. Adjusted EBITDA is defined as net income before minority interest in income of subsidiary, interest expense, provision for income taxes, depreciation, amortization and other non-cash stock-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.

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

FINANCIAL GUIDANCE

The Company is narrowing its previous 2009 full-year earnings guidance range of $1.30 to $1.40 per diluted share to an updated range of $1.30 to $1.35 per diluted share. This forward-looking statement reflects McGrath RentCorp’s expectations as of November 5, 2009. Actual 2009 full-year earnings per share results may be materially different since they are 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. Under the trade name Mobile Modular Management Corporation (Mobile Modular), it rents and sells modular buildings to fulfill customers’ temporary and permanent classroom and office space needs in California, Texas, Florida, North Carolina, Georgia, Maryland and Virginia. The Company’s TRS-RenTelco division rents and sells electronic test equipment and is one of the leading rental providers of general purpose and communications test equipment in the Americas. In 2008, the Company purchased the assets of Adler Tank Rentals, a New Jersey based supplier of rental containment solutions for hazardous and nonhazardous liquids and solids with operations today in the Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West. Also, in 2008, under the trade name TRS-Environmental, the Company entered the environmental test equipment rental business serving the Americas. In 2008, the Company also entered the portable storage container rental business in Northern California under the trade name Mobile Modular Portable Storage, and in 2009 expanded this business into Southern California, Texas and Florida. For more information on McGrath RentCorp, visit www.mgrc.com

CONFERENCE CALL NOTE

As previously announced in its press release of October 15, 2009, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on November 5, 2009 to discuss the third quarter 2009 results. To participate in the teleconference, dial 1-877-941-4774 (in the U.S.), or 1-480-629-9760 (outside the US), or visit the investor relations section of the Company’s website at www.mgrc.com. Telephone replay of the call will be available for 48 hours following the call by dialing 1-800-406-7325 (in the U.S.), or 1-303-590-3030 (outside the U.S.). The pass code for the call replay is 4166332.

FORWARD-LOOKING STATEMENTS

Statements in this press release which are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, regarding McGrath RentCorp’s business strategy, future operations, financial position, estimated revenues or losses, projected costs, prospects, plans and objectives are forward looking statements. These forward-looking statements appear in a number of places and can be identified by the use of forward-looking terminology such as "may,” "will,” "should,” "expect,” "plan,” "anticipate,” "believe,” "estimate,” "predict,” "future,” "intend,” "hopes,” "goals” or "certain” or the negative of these terms or other variations or comparable terminology. Our anticipation of continued overall downward earnings pressure over the next few quarters, our belief that we are beginning to see signs of improvement with various portions of our rental equipment businesses, our belief that business conditions and operating results over recent months have been improving, our belief that prospects for Adler Tank Rentals becoming a meaningful contributor to McGrath RentCorp’s earnings is very favorable, and our goals of rolling out Adler operations to all of our existing modular inventory center locations in 2009, building new rental initiatives while managing costs tightly, and paying down debt are all forward-looking statements.

Management cautions that forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements including, without limitation, the following: the continuation and deepening of the current recession and financial, budget and credit crises, particularly in California, including the impact on funding for school facility projects and residential and commercial construction sectors, our customers need and ability to rent our products, and the Company’s ability to access additional capital in the current uncertain capital and credit market; changes in state funding for education and the timing and impact of federal stimulus monies; the effectiveness of management’s strategies and decisions, general economic, stock market and business conditions, including in the states and countries where we sell or rent our products; continuing demand for our products; hiring, retention and motivation of key personnel; failure by third parties to manufacture and deliver our products in a timely manner and to our specifications; the cost of and our ability to successfully implement information system upgrades; our ability to finance expansion and to locate and consummate acquisitions and to successfully integrate, expand and operate Adler Tanks and other acquisitions; fluctuations in interest rates and the Company’s ability to manage credit risk; our ability to effectively manage our rental assets; the risk that we may be subject to litigation under environmental, health and safety and product liability laws and claims from employees, vendors and other third parties; fluctuations in the Company’s effective tax rate; changes in financial accounting standards; our failure to comply with internal control requirements; catastrophic loss to our facilities; effect on the Company’s Adler Tanks business from reductions to the price of oil; new or modified statutory or regulatory requirements; success of the Company’s strategic growth initiatives; risks associated with doing business with government entities; seasonality of our businesses; intense industry competition including increasing price pressure; our ability to timely deliver, install and redeploy our rental products; significant increases in raw materials, labor, and other costs; and risks associated with operating internationally, including unfavorable exchange rates for the U.S. dollar against our Canadian dollar denominated revenues.

Our future business, financial condition and results of operations could differ materially from those anticipated by such forward-looking statements and are subject to risks and uncertainties including the risks set forth above, those discussed in Part II—Item 1A "Risk Factors” and elsewhere in our Form 10-Q for the quarter ended September 30, 2009 filed with the SEC on November 5, 2009 and in our Form 10-K for the year ended December 31, 2008 filed with the SEC on February 25, 2009, and those that may be identified from time to time in our reports and registration statements filed with the SEC. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Forward-looking statements are made only as of the date of this press release and are based on management’s reasonable assumptions, however these assumptions can be wrong or affected by known or unknown risks and uncertainties. Readers should not place undue reliance on these forward-looking statements and are cautioned that any such forward-looking statements are not guarantees of future performance. We are under no duty to update any of the forward-looking statements after the date of this press release to conform such statements to actual results or to changes in our expectations.

Reconciliation of Adjusted EBITDA to the most directly comparable GAAP measures

To supplement the Company’s financial data presented on a basis consistent with generally accepted accounting principles ("GAAP”), the Company presents Adjusted EBITDA which is defined by the Company as net income before minority interest in income of subsidiary, interest expense, provision for income taxes, depreciation, amortization, and non-cash stock-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 and evaluate the Company’s ability to meet future capital expenditure and working capital requirements. Management believes the exclusion of non-cash charges, including stock-based compensation, is useful in measuring the Company’s cash available to operations and the performance of the Company. Because we find 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 in the United States 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 stock-based compensation charges and income from the minority interest in the Company’s Enviroplex subsidiary. 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. Therefore, Adjusted EBITDA should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures. The presentation of Adjusted EBITDA is not meant to be considered in isolation or as a substitute for the most directly comparable 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. Since Adjusted EBITDA is a non-GAAP financial measure as defined by the Securities and Exchange Commission, the Company includes in the tables below reconciliations of Adjusted EBITDA to the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States.