Earnings Release FY 2015

McGrath RentCorp Announces Results for Fourth Quarter 2015

Rental Revenues Decrease 1%
Net Income Down 17%
EPS Decreases 9% to $0.48 for the Quarter
Company Announces 2% Dividend Increase; 24^th Consecutive Year Increase

LIVERMORE, Calif., Feb. 25, 2016 (GLOBE NEWSWIRE) -- McGrath RentCorp (NASDAQ:MGRC) (the "Company"), a diversified business to business rental company, today announced total revenues for the quarter ended December 31, 2015 of $105.3 million, a decrease of 6%, compared to $111.8 million in the fourth quarter of 2014. The Company reported net income of $11.5 million, or $0.48 per diluted share for the fourth quarter of 2015, compared to net income of $13.9 million, or $0.53 per diluted share, in the fourth quarter of 2014.

Total revenues for the year ended December 31, 2015 were $404.5 million, compared to $408.1 million in 2014. Rental revenues increased 2% to $273.7 million in 2015, compared to $269.6 million in 2014. Net income for the year ended December 31, 2015 decreased 11% to $40.5 million, compared to net income of $45.7 million in the prior year. Diluted earnings per share decreased 9% to $1.59 in 2015 from $1.75 in 2014.

The Company's effective tax for the fourth quarter 2015 was 37.8% compared to 42.7% in the fourth quarter 2014. This decrease was driven by the full year 2015 effective tax rate decreasing to 39.0% as compared to 40.3% for 2014, which decreased the provision for income taxes in 2015 by $0.8 million and increased earnings by $0.03 per diluted share in the fourth quarter results. The decreased effective tax rate in 2015 was primarily a result of lower business levels in states with higher tax rates. The Company estimates an effective tax rate of 39.5% for calendar year 2016.

The Company also announced that the board of directors declared a quarterly cash dividend of $0.255 per share for the quarter ending March 31, 2016, an increase of 2% over the prior year period. On an annualized basis, the 2016 dividend represents a 3.9% yield, based on the February 24, 2016 closing stock price. The cash dividend will be payable on April 29, 2016 to all shareholders of record on April 15, 2016.

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

"Our fourth quarter results reflect the continuing recovery of our modular division; however, these favorable results were more than offset by continuing weakness in our electronics business, and the headwinds of 'new normal' crude oil pricing impacting our liquid and solid containment rental business. The diversity of our portfolio of rental businesses tends to provide some downside protection when one or more businesses experience market turbulence.

Modular division-wide rental revenues for the quarter increased $4.9 million, or 18%, to $31.7 million from a year ago. This is the eleventh consecutive year over year quarterly rental revenue increase. During the fourth quarter, we experienced a 2% increase in division-wide year over year first month's rental revenue bookings for modular buildings compared to very strong fourth quarter 2014 booking levels. For all of 2015, booking levels were up 16% over 2014. Modular division average rental equipment utilization based on original acquisition cost for the quarter increased to 77.5% from 74.9% a year ago. This is our highest quarterly average utilization level since the fourth quarter of 2008. Modular division EBIT, or income from operations, for the quarter increased to $10.4 million, or by 18%, from the same period a year ago. Gross margin on rental revenues decreased to 54% for the quarter from 57% last year. The gross margin decrease is due to $2.3 million higher building preparation expenses during the quarter compared to the same period in 2014. These higher costs were associated with favorable order demand and preparing equipment for late December, 2015 and first quarter, 2016 shipments. Despite the higher inventory center costs, EBIT margin for the quarter increased to 21% compared to 20% a year ago.

Mobile Modular Portable Storage continued to make good progress during the fourth quarter in building its customer following, increasing booking levels and growing rental revenues from a year ago. First month's rent booking levels and rental revenues for the fourth quarter grew by 28% and 29%, respectively, from the same period a year ago. We are working hard to make each of our portable storage operating geographies increasingly successful. We are on track towards building a meaningfully sized storage container rental business with attractive operating metrics.

Rental revenues for TRS-RenTelco, our electronics division, declined by $2.8 million for the quarter, or 11%, to $22.6 million from a year ago. The year over year reduction in rental revenues was driven primarily by lower communications test equipment business activity and a more competitive environment. In fact, communications test equipment rental revenues declined by approximately 21% for the quarter compared to the same period a year ago. General-purpose related test equipment rental revenues improved by approximately 4% year over year. Average equipment utilization was 61.2% for the fourth quarter, compared to 63.3% for the same period in 2014. Average rental rates also declined for the quarter to 4.67% from 5.10% a year ago, led by the business activity mix shift from communications to general-purpose test equipment as well as a more competitive communications test equipment marketplace. EBIT for the quarter declined by $3.8 million, or 36%, from the same period in 2014. The reduction in rental revenue of $2.8 million was the primary contributor to lower year over year EBIT along with lower gross profit on equipment sales of $1.3 million and higher laboratory costs of $0.3 million, partially offset by lower depreciation expense of $0.6 million. It's important to note that rental equipment depreciation expense typically makes up between 70 to 75% of direct rental costs. Despite having made favorable strides in lowering rental equipment depreciation expense by selling underutilized equipment during a period of topline rental revenue decline, there is only so much depreciation expense that can readily and responsibly be taken out of the business within any given quarter. Depreciation expense as a percentage of rental revenues was 43% for the quarter, compared to 40% a year ago. We are also being impacted negatively by the higher mix of underutilized communications test equipment as compared to general-purpose test equipment. In particular, with communications test equipment having much shorter depreciable lives than for general-purpose test equipment, there is significantly higher monthly depreciation expense, but also higher rental rates than for general-purpose test equipment. As a result, when communications test equipment is underutilized it impacts profitability more significantly than for general-purpose test equipment due to higher carrying costs without its matching higher rental rates and revenues.

Rental revenues at Adler Tank Rentals, our liquid and solid containment tank and box division, declined by $3.2 million for the quarter, or 16%, to $16.4 million from a year ago. Adler Tank Rentals services a wide variety of market segments including industrial plant, petrochemical, pipeline, oil & gas, waste management, environmental field service and construction. Average utilization and total original cost of rental equipment were 54% and $307 million, respectively, for the quarter compared to 65.1% and $298 million a year ago. Fourth quarter average equipment on rent declined to $166 million from $194 million a year ago and we ended the fourth quarter at $153 million. Average monthly rental rates also declined to 3.28% for the quarter from 3.35% in 2014. The reduction in both utilization and rental rates from a year ago are directly related to lower crude oil prices and the significant decline in wellhead related drilling and completions activity. Upstream oil and natural gas rental revenue declined from 21% of total Adler rental revenues in the fourth quarter of 2014 to 11% for the same period in 2015. These dynamics have put increasing downward pressure on 21K multi-purpose tank utilization and rental rates in upstream, midstream and downstream energy sectors, as well as in other market verticals. EBIT for the quarter decreased $2.3 million, or 35%, to $4.3 million from a year ago. The higher percentage decrease in EBIT at 35% as compared to rental revenues at 16% was primarily a result of higher equipment depreciation and SG&A expenses as a percentage of rental revenues of 25% and 41%, respectively, from 20% and 36% a year ago, partially offset by higher gross margin on rental related services for the quarter. We remain cautious in our outlook for our liquid and solid containment rental business for the foreseeable future as market forces drive a material reset of both the oil and natural gas industries.

The Company continued to repurchase its shares during the fourth quarter. For all of 2015, the Company repurchased slightly over 2.4 million shares, or approximately 9% of its outstanding common stock, at $26.56 per average share. There are very compelling factors supporting our buyback activity in 2015. Over the past few years, we have been through a significant investment cycle in the Company. During this period, we launched our portable storage business, expanded our modular business to the mid-Atlantic region from Georgia to Washington D.C., entered the liquid and solid containment rental industry through the acquisition of Adler Tank Rentals and created a national footprint for the business. We have also managed the turnaround and continuing recovery of our modular business to improving financial health from having lost approximately $1.00 of annual EPS due to the effects of the Great Recession. Historically, our modular division has been our largest earnings engine. We are well on our way to creating a portfolio of meaningful-sized, well run rental businesses whose combined annual earnings horsepower we would expect to be materially greater than we have experienced to date. As both a business manager and an investor in McGrath RentCorp, I can fully appreciate the challenges associated with getting our different rental businesses all performing at favorable levels consistently. Cyclical challenges as we are currently experiencing in our electronics business, as well as structural change presently unfolding in the oil industry and negatively impacting our liquid and solid containment division, will occur from time to time. However, these economic factors shouldn't overshadow the significant potential future financial performance of these rental businesses. The Company's management and board are confident in the foundation for growth in place today supporting greater shareholder value in our future. Our buyback efforts in 2015 are a clear signal we believe the longer-term intrinsic value of McGrath RentCorp has not been reflected in our share price this past year.

We enter 2016 with a great many unknowns and forecasting challenges regarding the oil industry's evolving structural changes and their near-term impact to our liquid and solid containment rental business. Further, it would be naïve of us not to factor in some downward pressure on both our modular and portable storage businesses in the more oil economy dependent geographies in which we operate. Add to this the cyclical challenges we are currently experiencing in the wireless communications vertical of our electronics business. On the positive side, our modular business overall is recovering nicely with a long runway of increasing earnings potential in front of it, including the very important California educational market. The near-term net out of these challenges and opportunities is that we believe our earnings performance in 2016 will likely be comparable to our 2015 results. What's most important for the management of McGrath RentCorp entering 2016 is to operate its businesses smartly and cost-effectively, increase the return on rental assets it already owns, build up its supply of dry powder (capital), and to take advantage of high-return investment opportunities.

Last, the Company has just declared a quarterly cash dividend of $0.255 per share, for the quarter ending March 31, 2016, an increase of 2% over the prior year period. This marks the 24th consecutive year in which McGrath RentCorp has raised its dividend. On an annualized basis, this dividend represents a 3.9% yield, based on yesterday's closing stock price. We are very pleased to continue our practice of providing a quarterly return on investment to our shareholders."

All comparisons presented below are for the quarter ended December 31, 2015 to the quarter ended December 31, 2014 unless otherwise indicated.

MOBILE MODULAR

For the fourth quarter of 2015, the Company's Mobile Modular division reported a $1.6 million increase in income from operations, or 18%, to $10.4 million. Rental revenues increased 18% to $31.7 million, depreciation expense increased 14% to $5.0 million and other direct costs increased 32% to $9.5 million, which resulted in an increase in gross profit on rental revenues of 13% to $17.2 million. Rental related services revenues increased 20% to $11.7 million, with gross profit on rental related services revenues increasing 25% to $3.4 million. Sales revenues decreased 14% to $6.6 million, with gross profit on sales revenues decreasing 17% to $1.8 million, primarily due to lower used equipment sales in the fourth quarter of 2015. Selling and administrative expenses increased 7% to $12.1 million, primarily due to increased employee head count, salaries and benefit costs and higher allocated corporate expenses.

TRS-RENTELCO

For the fourth quarter of 2015, the Company's TRS-RenTelco division reported a $3.8 million decrease in income from operations, or 36%, to $6.7 million. Rental revenues decreased 11% to $22.6 million, depreciation expense decreased 6% to $9.6 million and other direct costs increased 10% to $3.5 million, which resulted in a decrease in gross profit on rental revenues of 21% to $9.5 million. Sales revenues decreased 18% to $6.0 million. Gross profit on sales revenues decreased 33% to $2.6 million, with gross margin percentage decreasing to 43% from 53%, primarily due to lower margins on new and used equipment sales in the fourth quarter of 2015. Selling and administrative expenses was flat at $5.9 million.

ADLER TANKS

For the fourth quarter of 2015, the Company's Adler Tanks division reported a $2.3 million decrease in income from operations, or 35%, to $4.3 million. Rental revenues decreased 16% to $16.4 million, depreciation expense increased 3% to $4.0 million and other direct costs decreased 14% to $2.5 million, which resulted in a decrease in gross profit on rental revenues of 23% to $9.8 million. Rental related services revenues decreased 9% to $6.4 million, with gross profit on rental related services increasing 22% to $1.2 million. Selling and administrative expenses decreased 5% to $6.7 million, primarily due to lower allocated corporate expenses.

OTHER HIGHLIGHTS

• Debt decreased $0.7 million during the quarter to $381.4 million, with the Company's funded debt (notes payable) to equity ratio increasing from 0.98 to 1 at September 30, 2015 to 1.00 to 1 at December 31, 2015. In November 2015 the Company issued $60 million of "Series C" senior notes at an interest rate of 3.84%. The notes mature in seven years with interest payable semi-annually. As of December 31, 2015, the Company had capacity to borrow an additional $208.6 million under its lines of credit.
• Share Repurchases of the Company's common stock during the fourth quarter 2015 were 551,685 shares for an aggregate repurchase price of $15.2 million, or an average repurchase price of $27.50 per share. There were no repurchases of the Company's common stock made during the fourth quarter of 2014.
• Dividend rate increased 2% to $0.25 per share for the fourth quarter of 2015 compared to the fourth quarter of 2014. On an annualized basis, this dividend represents a 3.8% yield on the February 24, 2016 close price of $26.34 per share.
• Adjusted EBITDA decreased 11% to $42.9 million for the fourth quarter of 2015 compared to the fourth quarter of 2014. At December 31, 2015, the Company's ratio of funded debt to the last twelve months actual Adjusted EBITDA was 2.32 to 1, compared to 2.26 to 1 at September 30, 2015. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization and share-based compensation. A reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA to net cash provided by operating activities can be found at the end of this 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, 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.

FINANCIAL OUTLOOK

Entering 2016 the level of uncertainty in some of the markets served by the Company is high and it is challenging to develop the outlook for the year. Overall, comparing 2016 with 2015, the Company currently expects operating profits to be higher at Mobile Modular, roughly flat at TRS-RenTelco and lower at Adler Tanks. In 2016 total Company operating profit, adjusted EBITDA and earnings per diluted share are expected to be comparable to 2015.

For the full-year 2016, the Company expects:

• Rental revenues to be flat to up 3% over 2015.
• Sales revenues to be comparable to 2015.
• Rental equipment depreciation expense to be between $73 and $75 million.
• "Other" direct costs of rental operations, primarily for rental equipment maintenance and repair, to be between $62 and $64 million.
• Selling and administrative costs to be between $106 and $108 million.
• Full year interest expense to be between $12 and $13 million.
• Effective tax rate to be 39.5%
• Diluted share count to be between 23.9 and 24.1 million shares.

These forward-looking statements reflect McGrath RentCorp's expectations as of February 25, 2016. Actual 2016 results may be materially different and affected by many factors, including those factors outlined in the "forward-looking statements" paragraph at the end of this press release.

ABOUT MCGRATH RENTCORP

Founded in 1979, McGrath RentCorp is a diversified business-to-business rental company. The Company's Mobile Modular division rents and sells modular buildings to fulfill customers' temporary and permanent classroom and office space needs in California, Texas, Florida, and the Mid-Atlantic from Washington D.C. to Georgia. The Company's TRS-RenTelco division rents and sells electronic test equipment and is one of the leading rental providers of general purpose and communications test equipment in the Americas. The Company's Adler Tank Rentals subsidiary rents and sells containment solutions for hazardous and nonhazardous liquids and solids with operations today serving key markets throughout the United States. In 2008, the Company entered the portable storage container rental business under the trade name Mobile Modular Portable Storage. Today, the business is located in the key markets of California, Texas, Florida, Northern Illinois, New Jersey and most recently entered the North Carolina region. For more information on McGrath RentCorp and its operating units, please visit our websites:

Corporate - https://www.mgrc.com Tanks and Boxes - https://www.adlertankrentals.comModular Buildings - https://www.mobilemodular.comPortable Storage - https://www.mobilemodularcontainers.comElectronic Test Equipment - https://www.trs-rentelco.comSchool Facilities Manufacturing - https://www.enviroplex.com

CONFERENCE CALL NOTE

As previously announced in its press release of January 21, 2016, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on February 25, 2016 to discuss the fourth quarter 2015 results. To participate in the teleconference, dial 1-888-587-0615 (in the U.S.), or 1-719-325-2323 (outside the U.S.), or visit the investor relations section of the Company's website at https://www.mgrc.com. Telephone replay of the call will be available for 7 days following the call by dialing 1-888-203-1112 (in the U.S.), or 1-719-457-0820 (outside the U.S.). The pass code for the call replay is 4343650. 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://http://mgrc.com/Investor/EventsAndArchive

FORWARD-LOOKING STATEMENTS

Statements in this press release which are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, regarding McGrath RentCorp's business strategy, future operations, financial position, estimated revenues or losses, projected costs, prospects, plans and objectives are forward looking statements. These forward-looking statements appear in a number of places and can be identified by the use of forward-looking terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "future," "intend," "hopes," "goals" or "certain" or the negative of these terms or other variations or comparable terminology. In particular, the statements made in this press release about the following topics are forward looking statements: optimism about the Company's ability to create a portfolio of meaningful-sized, well run rental businesses with collectively materially greater annual earnings horsepower than current results, the Company's estimated 2016 effective tax rate, continuing recovery of the Company's modular division with attractive operating metrics, including the recovery of the California educational market, belief that diversity of the Company's portfolio of rental businesses tends to provide some downside protection when one or more businesses experience market turbulence, belief in the longer-term intrinsic value of the Company not being reflected in its share price more recently, anticipation that the Company's earnings performance in 2016 will likely be comparable to its 2015 results, and full year 2016 outlook in the section entitled "Financial Outlook."

Management cautions that forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements including, without limitation, the following: the extent of and timetable for the recovery underway in our modular building division; the state of the wireless communications network upgrade environment; the utilization levels 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; the extent of economic recovery, particularly in California, including the impact on funding for school facility projects and residential and commercial construction sectors; our customers' need and ability to rent our products; failure by third parties to manufacture and deliver our products in a timely manner and to our specifications; our ability to successfully integrate and operate acquisitions, as well as manage expansions; our ability to effectively manage our rental assets; 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; effect on our businesses from reductions to the price of oil or gas or the volatility of the oil industry generally; new or modified statutory or regulatory requirements; success of our strategic growth initiatives; risks associated with doing business with government entities; seasonality of our businesses; intense industry competition including increasing price pressure; our ability to timely deliver, install and redeploy our rental products; significant increases in raw materials, labor, and other costs; and risks associated with operating internationally.

Our future business, financial condition and results of operations could differ materially from those anticipated by such forward-looking statements and are subject to risks and uncertainties including the risks set forth above, those discussed in Part II-Item 1A "Risk Factors" and elsewhere in our Form 10-K for the year ended December 31, 2015, and those that may be identified from time to time in our reports and registration statements filed with the SEC. Forward-looking statements are made only as of the date of this press release and are based on management's reasonable assumptions; however, these assumptions can be wrong or affected by known or unknown risks and uncertainties. Readers should not place undue reliance on these forward-looking statements and are cautioned that any such forward-looking statements are not guarantees of future performance. Except as otherwise required by law, we do not undertake any duty to update any of the forward-looking statements after the date of this press release to conform such statements to actual results or to changes in our expectations.

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

Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities

FOR INFORMATION CONTACT:
Keith E. Pratt
Chief Financial Officer
925 606 9200

Source: McGrath RentCorp

Released February 25, 2016