What changed in this filing

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Item 1. Financial Statements

2022-10-27 compared with 2022-07-28 · 722 added, 89 removed, 325 unchanged (71% of the section changed)

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Results of review of interim financial statements

We have reviewed the accompanying condensed consolidated balance sheet of McGrath RentCorp (a California Corporation), and subsidiaries (the “Company”) as of June 30, 2022, and the related condensed consolidated statements of income, comprehensive income, and shareholders’ equity, for the three-month and six-month periods ended June 30, 2022 and 2021, cash flows for the six-month periods ended June 30, 2022 and 2021 and the related notes (collectively referred to as the “interim financial statements”).

We have reviewed the accompanying condensed consolidated balance sheet of McGrath RentCorp (a California Corporation) and subsidiaries (the “Company”) as of September 30, 2022, and the related condensed consolidated statements of income, comprehensive income, and shareholders’

equity for the three-month and nine-month periods ended September 30, 2022 and 2021, cash flows for the nine-month periods ended September 30, 2022 and 2021, and the related notes (collectively referred to as the “interim financial statements”).

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company as of December 31, 2021, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the year then ended (not presented herein);

equity, and cash flows for the year then ended (not presented herein);

and in our report dated February 23, 2022, we expressed an unqualified opinion on those consolidated financial statements.

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Basis for review results

These interim financial statements are the responsibility of the Company’s management.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

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San Francisco, California

July 28, 2022

October 27, 2022

MCGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except per share amounts)

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

Other comprehensive income (loss):

Other comprehensive income:

Foreign currency translation adjustment, net of tax impact

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CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

(in thousands)

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Total liabilities

Shareholders’ equity:

Shareholders’

Common stock, no par value - Authorized 40,000 shares

Issued and outstanding - 24,378 shares as of June 30, 2022 and 24,260 shares as of December 31, 2021

Issued and outstanding - 24,382 shares as of September 30, 2022 and 24,260 shares as of December 31, 2021

Retained earnings

Accumulated other comprehensive income (loss)

Total shareholders’ equity

Total liabilities and shareholders’ equity

Total shareholders’

Total liabilities and shareholders’

The accompanying notes are an integral part of these condensed consolidated financial statements.

McGrath RentCorp

CONDENSED Consolidated Statements OF SHAREHOLDERS’ EQUITY

CONDENSED Consolidated Statements OF SHAREHOLDERS’

Comprehensive

Shareholders’

(in thousands, except per share amounts)

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Balance at June 30, 2022

Share-based compensation

Common stock issued under stock plans, net of shares

withheld for employee taxes

Taxes paid related to net share settlement of stock awards

Dividends accrued of $ 0.455 per share

Other comprehensive income

Balance at September 30, 2022

The accompanying notes are an integral part of these condensed consolidated financial statements.

Comprehensive

Shareholders’

(in thousands, except per share amounts)

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Balance at June 30, 2021

Share-based compensation

Common stock issued under stock plans, net of shares

withheld for employee taxes

Taxes paid related to net share settlement of stock awards

Dividends accrued of $ 0.435 per share

Other comprehensive income

Balance at September 30, 2021

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CONDENSED Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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Cash Flows from Financing Activities:

Net borrowings under bank lines of credit

Net (payments) borrowings under bank lines of credit

Borrowings under note purchase agreement

Principal payment of Series B senior notes

Taxes paid related to net share settlement of stock awards

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Effect of foreign currency exchange rate changes on cash

Net (decrease) increase in cash

Net increase in cash

Cash balance, beginning of period

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2022

September 30, 2022

CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The condensed consolidated financial statements for the three and six months ended June 30, 2022 and 2021 have not been audited, but in the opinion of management, all adjustments (consisting of normal recurring accruals, consolidating and eliminating entries) necessary for the fair presentation of the consolidated financial position, results of operations and cash flows of McGrath RentCorp (the “Company”) have been made.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to those rules and regulations.

The consolidated results for the three and six months ended June 30, 2022 should not be considered as necessarily indicative of the consolidated results for the entire fiscal year.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K, filed with the SEC on February 23, 2022 for the year ended December 31, 2021 (the “2021 Annual Report”).

The condensed consolidated financial statements for the three and nine months ended September 30, 2022 and 2021 have not been audited, but in the opinion of management, all adjustments (consisting of normal recurring accruals, consolidating and eliminating entries) necessary for the fair presentation of the consolidated financial position, results of operations and cash flows of McGrath RentCorp (the “Company”) have been made.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

The consolidated results for the three and nine months ended September 30, 2022 should not be considered as necessarily indicative of the consolidated results for the entire fiscal year.

NEW ACCOUNTING PRONOUNCEMENTS

In March 2022, the FASB issued Accounting Standards Update (“ASU”) 2022-02, Financial Instruments—Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures, which eliminates the separate recognition and measurement guidance for troubled debt restructurings by creditors.

In addition, the ASU requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of FASB ASC 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost.

This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

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REVENUE RECOGNITION

The Company’s accounting for revenues is governed by two accounting standards.

The majority of the Company’s revenues are considered lease or lease related and are accounted for in accordance with Accounting Standards Codification (ASC) 842, Leases.

The Company’s accounting for revenues is governed by two accounting standards.

The majority of the Company’s revenues are considered lease or lease related and are accounted for in accordance with Accounting Standards Codification (ASC) 842, Leases.

Revenues determined to be non-lease related are accounted for in accordance with ASC 606, Revenue from Contracts with Customers.

The Company accounts for revenues when approval and commitment from both parties have been obtained, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

The Company typically recognizes non-lease related revenues at a point in time because the customer does not simultaneously consume the benefits of the Company’s promised goods and services, or performance obligations, and obtains control when delivery and installation are complete.

For contracts that have multiple performance obligations, the transaction price is allocated to each performance obligation in the contract based on the Company’s best estimate of the standalone selling prices of each distinct performance obligation in the contract.

The standalone selling price is typically determined based upon the expected cost plus an estimated margin of each performance obligation.

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The Company does not typically offer variable payment terms or accept non-monetary consideration.

Amounts billed and due from the Company’s customers are classified as Accounts receivable on the Company’s consolidated balance sheet.

For certain sales of modular buildings, progress payments from the customer are received during the manufacturing of new equipment, or the preparation of used equipment.

The advance payments are not considered a significant financing component because the payments are used to meet working capital needs during the contract and to protect the Company from the customer failing to adequately complete their obligations under the contract.

These contract liabilities are included in Deferred income on the Company’s consolidated balance sheet and totaled $ 34.3 million and $ 16.8 million at June 30, 2022 and December 31, 2021, respectively.

Sales revenues totaling $ 4.2 million and $ 6.5 million were recognized during the three and six months ended June 30, 2022, which were included in the contract liability balance at December 31, 2021.

These contract liabilities are included in Deferred income on the Company’s consolidated balance sheet and totaled $ 35.8 million and $ 16.8 million at September 30, 2022 and December 31, 2021, respectively.

Sales revenues totaling $ 2.4 million and $ 8.8 million were recognized during the three and nine months ended September 30, 2022, which were included in the contract liability balance at December 31, 2021.

For certain modular building sales, the customer retains a small portion of the contract price until full completion of the contract, which results in revenue earned in excess of billings.

These unbilled contract assets are included in Accounts receivable on the Company’s consolidated balance sheet and totaled $ 1.8 million and $ 1.3 million at June 30, 2022 and December 31, 2021, respectively.

These unbilled contract assets are included in Accounts receivable on the Company’s consolidated balance sheet and totaled $ 1.0 million and $ 1.3 million at September 30, 2022 and December 31, 2021, respectively.

Lease Revenues

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Rental related services revenues are primarily associated with relocatable modular buildings and liquid and solid containment tanks and boxes leases.

For modular building leases, rental related services revenues for modifications, delivery, installation, dismantle and return delivery are lease related because the payments are considered minimum lease payments that are an integral part of the negotiated lease agreement with the customer.

For modular building leases, rental related services revenues for modifications, delivery, installation, dismantle and return

delivery are lease related because the payments are considered minimum lease payments that are an integral part of the negotiated lease agreement with the customer.

These revenues are recognized on a straight-line basis over the term of the lease.

Certain leases are

accounted for as finance leases.

Certain leases are accounted for as finance leases.

For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and the unearned interest is recognized over the lease term on a basis which results in a constant rate of return on the unrecovered lease investment.

Other revenues include interest income on finance leases and rental income on facility leases.

In the three and six months ended June 30, 2022, the Company’s lease revenues were $ 126.8 million and $ 245.3 million, respectively, consisting of $ 125.8 million and $ 243.6 million of operating lease revenues, respectively, and $ 1.0 million and $ 1.7 million of finance lease revenues, respectively.

In the three and nine months ended September 30, 2022, the Company’s lease revenues were $ 136.5 million and $ 381.8 million, respectively, consisting of $ 136.2 million and $ 379.7 million of operating lease revenues, respectively, and $ 0.3 million and $ 2.1 million of finance lease revenues, respectively.

The Company has entered into finance leases to finance certain equipment sales to customers.

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For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and the unearned interest is recognized over the lease term on a straight-line basis, which results in a constant rate of return on the unrecovered lease investment.

The Company’s finance lease revenues for the three and six months ended June 30, 2022 include $ 0.9 million and $ 1.5 million of sales revenues, respectively, and $ 0.1 million and $ 0.2 million of interest income, respectively.

The Company’s finance lease revenues for the three and nine months ended September 30, 2022 include $ 0.2 million and $ 1.8 million of sales revenues, respectively, and $ 0.1 million and $ 0.3 million of interest income, respectively.

Non-Lease Revenues

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Sales taxes charged to customers are reported on a net basis and are excluded from revenues and expenses.

The following table disaggregates the Company’s revenues by lease (within the scope of ASC 842) and non-lease revenues (within the scope of ASC 606) and the underlying service provided for the three months ended June 30, 2022 and 2021:

(in thousands)

Three Months Ended June 30,

Three Months Ended September 30,

Rental related services

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Total revenues

Six Months Ended June 30,

Nine Months Ended September 30,

Rental related services

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The Company typically provides limited 90 -day warranties for certain sales of used rental equipment and one-year warranties on equipment manufactured by Enviroplex.

Although the Company’s policy is to provide reserves for warranties when required for specific circumstances, warranty costs have not been significant to date.

The Company’s incremental cost of obtaining lease contracts, which consists of salesperson commissions, are deferred and amortized over the initial lease term for modular leases.

Although the Company’s policy is to provide reserves for warranties when required for specific circumstances, warranty costs have not been significant to date.

The Company’s incremental cost of obtaining lease contracts, which consists of salesperson commissions, are deferred and amortized over the initial lease term for modular leases.

Incremental costs for obtaining a contract for all other operating segments are expensed in the period incurred because the lease term is typically less than 12 months.

EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed as net income divided by the weighted-average number of shares of common stock outstanding for the period.

Diluted EPS is computed assuming conversion of all potentially dilutive securities including the dilutive effect of stock options, unvested restricted stock awards and other potentially dilutive securities.

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

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calculating diluted earnings per share

There were 7,315 anti-dilutive securities excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2022 and no anti-dilutive securities excluded for the same period in 2021.

There were no anti-dilutive securities excluded from the computation of diluted earnings per share for the three months ended September 30, 2022, and 7,315 anti-dilutive securities in the form of common stock excluded for the nine months ended September 30, 2022.

There were no anti-dilutive securities excluded for the same periods in 2021.

The Company has in the past made purchases of shares of its common stock from time to time in over-the-counter market (NASDAQ) transactions, through privately negotiated, large block transactions and through a share repurchase plan, in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934.

In August 2015, the Company’s Board of Directors authorized the Company to repurchase up to 2,000,000 shares of the Company's outstanding common stock (the “Repurchase Plan”).

The amount and time of the specific repurchases are subject to prevailing market conditions, applicable legal requirements and other factors, including management’s discretion.

In August 2015, the Company’s Board of Directors authorized the Company to repurchase up to 2,000,000 shares of the Company's outstanding common stock (the “Repurchase Plan”).

The amount and time of the specific repurchases are subject to prevailing market conditions, applicable legal requirements and other factors, including management’s discretion.

All shares repurchased by the Company are canceled and returned to the status of authorized but unissued shares of common stock.

There can be no assurance that any authorized shares will be repurchased, and the Repurchase Plan may be modified, extended or terminated by the Company’s Board of Directors at any time.

There were no shares repurchased during the three and six months ended June 30, 2022 and 2021.

As of June 30, 2022, 1,309,805 shares remained authorized for repurchase under the Repurchase Plan.

There can be no assurance that any authorized shares will be repurchased, and the Repurchase Plan may be modified, extended or terminated by the Company’s Board of Directors at any time.

There were no shares repurchased during the three and nine months ended September 30, 2022 and 2021.

As of September 30, 2022, 1,309,805 shares remained authorized for repurchase under the Repurchase Plan.

INTANGIBLE ASSETS

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Net book value

June 30, 2022

September 30, 2022

Customer relationships

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Trade name - non-amortizing

The Company assesses potential impairment of its goodwill and intangible assets when there is evidence that events or circumstances have occurred that would indicate the recovery of an asset’s carrying value is unlikely.

The Company also assesses potential impairment of its goodwill and intangible assets with indefinite lives on an annual basis regardless of whether there is evidence of impairment.

If indicators of impairment were to be present in intangible assets used in operations and future discounted cash flows were not expected to be sufficient to recover the asset’s carrying amount, an impairment loss would be charged to expense in the period identified.

The amount of an impairment loss that would be recognized is the excess of the asset’s carrying value over its fair value.

Factors the Company considers important, which may cause impairment include, among others, significant changes in the manner of use of the acquired asset, negative industry or economic trends, and significant underperformance relative to historical or projected operating results.

The Company last conducted a qualitative analysis of its goodwill and intangible assets in the fourth quarter 2021, with no indicators of impairment.

In addition, no impairment triggering events occurred during the six months ended June 30, 2022.

In addition, no impairment triggering events occurred during the nine months ended September 30, 2022.

Determining fair value of a reporting unit is judgmental and involves the use of significant estimates and assumptions.

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Intangible assets with finite useful lives are amortized over their respective useful lives.

Amortization expense in the six months ended June 30, 2022 and 2021, was $ 3.0 million and $ 1.7 million, respectively.

Based on the carrying values at June 30, 2022 and assuming no subsequent impairment of the underlying assets, the amortization expense is expected to be $ 3.0 million for the remainder of fiscal year 2022, $ 5.9 million annually in 2023 through 2025, $ 5.4 million in 2026 and $ 5.2 million in 2027.

Amortization expense in the nine months ended September 30, 2022 and 2021, was $ 4.4 million and $ 4.2 million, respectively.

Based on the carrying values at September 30, 2022 and assuming no subsequent impairment of the underlying assets, the amortization expense is expected to be $ 1.5 million for the remainder of fiscal year 2022, $ 5.9 million annually in 2023 through 2025, $ 5.4 million in 2026 and $ 5.2 million in 2027.

SEGMENT REPORTING

The Company’s four reportable segments are (1) its modular building and portable storage container rental segment (“Mobile Modular”);

(2) its electronic test equipment segment (“TRS-RenTelco”);

(3) its containment solutions for the storage of hazardous and non-hazardous liquids and solids segment (“Adler Tanks”);

and (4) its classroom manufacturing segment selling modular buildings used primarily as classrooms in California (“Enviroplex”).

The operations of each of these segments are described in Part I – Item 1, “Business,” and the accounting policies of the segments are described in “Note 1 – Summary of Significant Accounting Policies” in the Company’s 2021 Annual Report.

Management focuses on several key measures to evaluate and assess each segment’s performance, including rental revenue growth, gross profit and gross margins, income from operations, income before provision for income taxes and adjusted EBITDA.

The Company’s four reportable segments are (1) its modular building and portable storage container rental segment (“Mobile Modular”);

(2) its electronic test equipment segment (“TRS-RenTelco”);

(3) its containment solutions for the storage of hazardous and non-hazardous liquids and solids segment (“Adler Tanks”);

and (4) its classroom manufacturing segment selling modular buildings used primarily as classrooms in California (“Enviroplex”).

The operations of each of these segments are described in Part I –

Item 1, “Business,”

and the accounting policies of the segments are described in “Note 1 –

Summary of Significant Accounting Policies”

in the Company’s 2021 Annual Report.

Excluding interest expense, allocations of revenue and expense not directly associated with one of these segments are generally allocated to Mobile Modular, TRS-RenTelco and Adler Tanks based on their pro-rata share of direct revenues.

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The Company does not report total assets by business segment.

Summarized financial information for the six months ended June 30, 2022 and 2021 for the Company’s reportable segments is shown in the following table:

Summarized financial information for the nine months ended September 30, 2022 and 2021 for the Company’s reportable segments is shown in the following table:

(dollar amounts in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Rental revenues

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Interest (expense) income allocation

Income (loss) before provision for income taxes

Income before provision for income taxes

Adjusted EBITDA

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Average utilization 2

Gross Enviroplex sales revenues were $ 6,423 and $ 10,211 for the six months ended June 30, 2022 and 2021, respectively.

There were $ 856 and $ 855 inter-segment sales to Mobile Modular in the six months ended June 30, 2022 and 2021, respectively, which required elimination in consolidation.

Gross Enviroplex sales revenues were $ 16,401 and $ 15,909 for the nine months ended September 30, 2022 and 2021, respectively.

There were $ 856 and $ 1,012 inter-segment sales to Mobile Modular in the nine months ended September 30, 2022 and 2021, respectively, which required elimination in consolidation.

Utilization is calculated each month by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding accessory equipment, and for Mobile Modular and Adler Tanks, excluding new equipment inventory.

The Average utilization for the period is calculated using the average costs of rental equipment.

No single customer accounted for more than 10% of total revenues for the six months ended June 30, 2022 and 2021.

Revenues from foreign country customers accounted for 4 % and 5 % of the Company’s total revenues for the same periods, respectively.

On May 17, 2021, the Company completed the purchase of substantially all of the assets of Design Space Modular Buildings PNW, LP (“Design Space”) for $ 267.3 million in cash consideration on the closing date.

No single customer accounted for more than 10% of total revenues for the nine months ended September 30, 2022 and 2021.

Revenues from foreign country customers accounted for 4 % of the Company’s total revenues for the same periods.

Design Space provides modular buildings and portable storage containers rental and sale solutions to customers in the West and Pacific Northwest states in the U.S.

The acquisition was accounted for as a purchase of a “business” in accordance with criteria in ASC 805, Business Combinations, using the purchase method of accounting.

The acquisition was accounted for as a purchase of a “business”

in accordance with criteria in ASC 805, Business Combinations, using the purchase method of accounting.

Under the purchase method of accounting, the total purchase price is assigned to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values on the closing date.

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The financial results of Design Space were a part of the Mobile Modular segment since May 17, 2021, including $ 1.7 million of transaction costs.

On April 1, 2021 the Company completed the purchase of assets of GRS Holding LLC, DBA Kitchens To Go (“Kitchens To Go”) for $ 18.3 million in cash consideration.

Kitchens To Go provides interim and permanent modular kitchen solutions for foodservice providers that require flexible facilities to continue or expand operations.

The acquisition was accounted for as a purchase of a “business” in accordance with criteria in ASC 805 using the purchase method of accounting.

The acquisition was accounted for as a purchase of a “business”

in accordance with criteria in ASC 805 using the purchase method of accounting.

The financial results of Kitchens To Go were a part of the Mobile Modular segment since April 1, 2021, including $ 0.3 million of transaction costs.

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The value assigned to identifiable intangible assets was determined based on discounted estimated future cash flows associated with such assets to their present value.

The combined acquired goodwill of $ 104,196 reflects the strategic fit of Design Space and Kitchens to Go with the Company’s modular business operations.

The Company will amortize the acquired customer relationships, tradename, non-compete and customer backlog over their expected useful lives of 8 years, 8 years, 5 years and 6 months, respectively.

The combined acquired goodwill of $ 104,196 reflects the strategic fit of Design Space and Kitchens to Go with the Company’s modular business operations.

The Company amortizes the acquired customer relationships, tradename and non-compete over their expected useful lives of 8 years , 8 years and 5 years , respectively.

As of the nine months ended September 30, 2022, the customer backlog has been amortized in full.

Goodwill is expected to have an indefinite life and will be subject to future impairment testing.

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The pro forma results include the effects of the amortization of the purchased intangible assets and depreciation expense of acquired rental equipment valuation step up, interest expense on the debt incurred to finance the acquisitions.

A pro forma adjustment has been made to reflect the income taxes that would have been recorded at the combined federal and state statutory rate of 28 % on the acquisitions’ combined net income.

The pro forma results for the six months ended June 30, 2021 have been adjusted to include transaction related costs.

A pro forma adjustment has been made to reflect the income taxes that would have been recorded at the combined federal and state statutory rate of 28 % on the acquisitions’

combined net income.

The pro forma results for the nine months ended September 30, 2021 have been adjusted to include transaction related costs.

This pro forma data is presented for informational purposes only and does not purport to be indicative of the results of the future operations or the results that would have occurred had the acquisitions taken place in the periods noted below:

Six months ended June 30,

Nine months ended September 30,

(dollar amounts in thousands, except for per share amounts)

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Actual diluted earnings per share

On December 31, 2021 the Company completed the purchase of the assets of Titan Storage Containers, LLC (“Titan”) for $ 6.6 million in cash consideration on the closing date and $ 0.3 million remaining liability to the seller.

The acquisition was accounted for as a purchase of “assets” in accordance with criteria in ASC 805 and the assessment of the fair value of the purchased assets was allocated primarily to rental equipment totaling $ 6.2 million and rolling stock assets totaling $ 0.8 million, partially offset by accrued liabilities of $ 0.2 million.

The rolling stock assets include delivery trucks, delivery trailers, trucks and forklifts.

On December 31, 2021 the Company completed the purchase of the assets of Titan Storage Containers, LLC (“Titan”) for $ 6.9 million in cash consideration.

The acquisition was accounted for as a purchase of “assets”

in accordance with criteria in ASC 805 and the assessment of the fair value of the purchased assets was allocated primarily to rental equipment totaling $ 6.2 million and rolling stock assets totaling $ 0.8 million, partially offset by accrued liabilities of $ 0.2 million.

The rolling stock assets included delivery trucks, delivery trailers, trucks and forklifts.

Supplemental pro forma prior year information has not been provided as the historical financial results of Titan were not significant.

Incremental transaction costs associated with the asset purchase were not significant.

SUBSEQUENT EVENTS

On July 15 th , 2022, the Company entered into an amended and restated credit agreement with Bank of America, N.A., as Administrative Agent, Swing Line Lender, L/C Issuer and lender, and other lenders named therein (the “Credit Facility”).

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Form 10-Q, including the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contains forward-looking statements under federal securities laws.

Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties.

Our actual results could differ materially from those indicated by forward-looking statements as a result of various factors.

These factors include, but are not limited to, those set forth under this Item, those discussed in Part II—Item 1a, “Risk Factors”

and elsewhere in this Form 10-Q and those that may be identified from time to time in our reports and registration statements filed with the SEC.

This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes included in Part I—Item 1 of this Form 10-Q and the Consolidated Financial Statements and related Notes and the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 23, 2022 (the “2021 Annual Report”).

In preparing the following MD&A, we presume that readers have access to and have read the MD&A in our 2021 Annual Report, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K.

We undertake no duty to update any of these forward-looking statements after the date of filing of this Form 10-Q to conform such forward-looking statements to actual results or revised expectations, except as otherwise required by law.

The full impact of the COVID-19 pandemic continues to evolve as of the date of this report.

Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce.

The following discussions are subject to the future effects of the COVID-19 pandemic and its variants.

The Company, incorporated in 1979, is a leading rental provider of relocatable modular buildings for classroom and office space, electronic test equipment for general purpose and communications needs, and liquid and solid containment tanks and boxes.

The Company’s primary emphasis is on equipment rentals.

The Company is comprised of four reportable business segments:

(1) its modular building and portable storage container rental segment (“Mobile Modular”);

(2) its electronic test equipment segment (“TRS-RenTelco”);

(3) its containment solutions for the storage of hazardous and non-hazardous liquids and solids segment (“Adler Tanks”);

and (4) its classroom manufacturing segment selling modular buildings used primarily as classrooms in California (“Enviroplex”).

The Mobile Modular business segment includes the results of operations of the Mobile Modular Portable Storage division, which represented approximately 11% of the Company’s total revenues in the nine months ended September 30, 2022.

Mobile Modular Portable Storage offers portable storage units and high security portable office units for rent, lease and purchase.

Kitchens To Go was acquired on April 1, 2021, with its results included in the Mobile Modular segment since that date.

Design Space was acquired on May 17, 2021, with its results included in the Mobile Modular segment since that date.

See Note 7 to the Condensed Consolidated Financial Statements for the nine months ended September 30, 2022, for more details about the acquisitions.

In the nine months ended September 30, 2022, Mobile Modular, TRS-RenTelco, Adler Tanks and Enviroplex contributed 64%, 26%, 9% and 1% of the Company’s income before provision for taxes (the equivalent of “pretax income”), respectively, compared to 64%, 30%, 5% and 1% for the same period in 2021.

The Company generates its revenues primarily from the rental of its equipment on operating leases and from sales of equipment occurring in the normal course of business.

The Company requires significant capital outlay to purchase its rental inventory and recovers its investment through rental and sales revenues.

Rental revenues and certain other service revenues negotiated as part of lease agreements with customers and related costs are recognized on a straight-line basis over the terms of the leases.

Sales revenues and related costs are recognized upon delivery and installation of the equipment to customers.

Sales revenues are less predictable and can fluctuate from quarter to quarter and year to year depending on customer demands and requirements.

Generally, rental revenues less cash operating costs recover the equipment’s capitalized cost in a short period of time relative to the equipment’s potential rental life and when sold, sale proceeds are usually above its net book value.

The Company’s modular revenues (consisting of revenues from Mobile Modular, Mobile Modular Portable Storage, Kitchens To Go and Enviroplex) are derived from rentals and sales to commercial and education customers.

Modular revenues are affected by demand for classrooms, which in turn is affected by shifting and fluctuating school populations, the levels of state funding to public schools, the need for temporary classroom space during reconstruction of older schools and changes in policies regarding class size.

As a result of any reduced funding, lower expenditures by these schools may result in certain planned programs to increase the number of classrooms, such as those that the Company provides, to be postponed or terminated.

However, reduced expenditures may also result in schools reducing their long-term facility construction projects in favor of using the Company’s modular classroom solutions.

At this time, the Company can provide no assurances as to whether public schools will either reduce or increase their demand for the Company's modular classrooms as a result of fluctuations in state funding of public schools.

Looking forward, the Company believes that any

interruption in the passage of facility bonds or contraction of class size reduction programs by public schools may have a material adverse effect on both rental and sales revenues of the Company.

(For more information, see “

Business –

Relocatable Modular Buildings –

Classroom Rentals and Sales to Public Schools (K-12) ”

in the Company’s 2021 Annual Report and “

Risk Factors –

Significant reductions of, or delays in, funding to public schools have caused the demand and pricing for our modular classroom units to decline, which has in the past caused, and may cause in the future, a reduction in our revenues and profitability ”

in Part II –

Other Information of this Form 10-Q.)

Revenues of TRS-RenTelco are derived from the rental and sale of general purpose and communications test equipment to a broad range of companies, from Fortune 500 to middle and smaller market companies primarily in the aerospace, defense, communications, manufacturing and semiconductor industries.

Electronic test equipment revenues are primarily affected by the business activity within these industries related to research and development, manufacturing, and communication infrastructure installation and maintenance.

Revenues of Adler Tanks are derived from the rental and sale of fixed axle tanks (“tanks”) and vacuum containers, dewatering containers and roll-off containers (collectively referred to as “boxes”).

These tanks and boxes are rented to a broad range of industries and applications including oil and gas exploration and field services, refinery, chemical and industrial plant maintenance, environmental remediation and field services, infrastructure building construction, marine services, pipeline construction and maintenance, tank terminals services, wastewater treatment, and waste management and landfill services for the containment of hazardous and non-hazardous liquids and solids.

The Company’s rental operations include rental and rental related service revenues which comprised approximately 81% of consolidated revenues in the nine months ended September 30, 2022 and 2021.

Of the total rental operations revenues for the nine months ended September 30, 2022, Mobile Modular, TRS-RenTelco and Adler Tanks comprised 62%, 22% and 16%, respectively, compared to 60%, 24% and 16%, respectively, in the same period of 2021.

The Company’s direct costs of rental operations include depreciation of rental equipment, rental related service costs, impairment of rental equipment (if applicable), and other direct costs of rental operations (which include direct labor, supplies, repairs, insurance, property taxes, license fees, cost of sub-rentals and amortization of certain lease costs).

The Company’s Mobile Modular, TRS-RenTelco and Adler Tanks business segments sell modular units, electronic test equipment and liquid and solid containment tanks and boxes, respectively, which are either new or previously rented.

In addition, Enviroplex sells new modular buildings used primarily as classrooms in California.

For the nine months ended September 30, 2022 and 2021, sales and other revenues of modular, electronic test equipment and liquid and solid containment tanks and boxes comprised approximately 19% of the Company’s consolidated revenues.

Of the total sales and other revenues for the nine months ended September 30, 2022 and 2021, Mobile Modular and Enviroplex together comprised 80% and 78%, respectively, TRS-RenTelco comprised 17% and 19%, respectively, and Adler Tanks comprised 3% in both periods.

The Company’s cost of sales includes the carrying value of the equipment sold and the direct costs associated with the equipment sold, such as delivery, installation, modifications and related site work.

Selling and administrative expenses primarily include personnel and benefit costs, which include share-based compensation, depreciation and amortization, bad debt expense, advertising costs, and professional service fees.

The Company believes that sharing of common facilities, financing, senior management, and operating and accounting systems by all of the Company’s operations results in an efficient use of overhead.

Historically, the Company’s operating margins have been impacted favorably to the extent its costs and expenses are leveraged over a large installed customer base.

However, there can be no assurances as to the Company’s ability to maintain a large installed customer base or ability to sustain its historical operating margins.

Recent Developments

Amended and Restated Credit Agreement

On August 19, 2022, the Company entered into an amended and restated Credit Facility Letter Agreement and a Credit Line Note in favor of MUFG Union Bank, N.A., which provides for a $20.0 million line of credit facility related to its cash management services (“Sweep Service Facility”).

The Sweep Service Facility matures on the earlier of July 15, 2027, or the date the Company ceases to utilize MUFG Union Bank, N.A.

for its cash management services.

The Sweep Service Facility replaced the Company’s prior $12.0 million sweep service facility, dated as of March 30, 2020.

On September 15, 2022, the Company announced that the Board of Directors declared a quarterly cash dividend of $0.455 per common share for the quarter ended September 30, 2022, an increase of 5% over the prior year’s comparable quarter.

The outbreak of a new strain of coronavirus, COVID-19, which began in December 2019, has continued to spread globally including to every state in the United States.

The Center for Disease Control ("CDC") and World Health Organization ("WHO")

recognized this outbreak as a pandemic, which has caused shutdowns to businesses and cities worldwide while disrupting supply chains, business operations, travel, consumer confidence and business sentiment.

The Company has taken a number of precautionary health and safety measures to safeguard its employees and customers, while maintaining business continuity.

The Company has implemented remote work policies and enhanced cleaning and hygiene protocols in all of its facilities, products and vehicles.

The Company is continuing to monitor and assess orders issued by federal, state and local governments to ensure compliance with evolving COVID-19 guidelines.

The Company also continues to monitor the impact of COVID-19 on its existing customers who themselves may be impacted by governmental shutdowns and other impacts due to the governmental orders.

While the Company has not seen a significant impact from COVID-19 in the financial results for the three and nine months ended September 30, 2022 as set forth in the below sections discussing the results of operations for the three and nine months ended September 30, 2022, the Company is currently unable to determine or predict the full nature, duration or scope of the overall impact the COVID-19 pandemic and related business and operational pressures will have on its business, results of operations, liquidity or capital resources.

The Company will continue to actively monitor the situation and may take further actions that alter its business operations as may be required by federal, state or local authorities or that the Company determines are in the best interests of employees, customers and shareholders.

Results of Operations

Three Months Ended September 30, 2022 Compared to

Three Months Ended September 30, 2021

Consolidated revenues for the three months ended September 30, 2022 increased 16% to $200.5 million from $173.3 million in the same period in 2021.

Consolidated net income for the three months ended September 30, 2022 increased 32% to $30.6 million, from $23.3 million for the same period in 2021.

Earnings per diluted share for the three months ended September 30, 2022 increased 31% to $1.25 from $0.95 for the same period in 2021.

For the three months ended September 30, 2022, on a consolidated basis:

Gross profit increased $13.6 million, or 18%, to $89.4 million in 2022.

Mobile Modular’s gross profit increased $6.9 million, or 14%, primarily due to higher gross profit on rental, sales, and rental related services revenues.

TRS-RenTelco’s gross profit increased $2.5 million, or 16%, primarily due to higher gross profit on rental revenues.

Adler Tanks’

gross profit increased $3.5 million, or 38%, primarily due to higher gross profit on rental and rental related services revenues.

Enviroplex’s gross profit increased $0.8 million, or 52%, primarily due to $4.4 million higher sales revenues in 2022, partly offset by lower gross margins of 23%, compared to 27% in 2021.

Selling and administrative expenses increased $4.2 million, or 11%, to $44.1 million, primarily due to increased headcount and employees’

salaries and benefit costs totaling $2.6 million and $2.3 million higher marketing and administrative costs, partly offset by $1.0 million lower amortization of intangibles.

Interest expense increased $1.0 million, or 32%, to $4.2 million, due to 43% higher net average interest rates of 3.85% in 2022 compared to 2.69% in 2021, partly offset by 8% lower average debt levels of the Company.

Pre-tax income contribution by Mobile Modular, TRS-RenTelco and Adler Tanks was 61%, 25% and 11%, respectively, compared to 65%, 27% and 7%, respectively, for the comparable 2021 period.

These results are discussed on a segment basis below.

Enviroplex pre-tax income contribution was 3% and 1% in 2022 and 2021, respectively.

The provision for income taxes resulted in an effective tax rate of 25.3% and 28.7% for the quarters ended September 30, 2022 and 2021, respectively.

The lower rate in 2022 was primarily attributable to increased business activities in lower tax rate states.

Adjusted EBITDA increased $8.8 million, or 13%, to $74.7 million in 2022.

Mobile Modular

For the three months ended September 30, 2022, Mobile Modular’s total revenues increased $15.4 million, or 14%, to $125.8 million compared to the same period in 2021, primarily due to higher rental, rental related services, and sales revenues.

The revenue increase, together with higher gross profit on rental, sales and rental related services revenues, partly offset by higher selling and administrative expenses, resulted in a 16% increase in pre-tax income to $25.0 million for the three months ended September 30, 2022, from $21.6 million for the same period in 2021.

The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.

Mobile Modular –

Three Months Ended 9/30/22 compared to Three Months Ended 9/30/21 (Unaudited)

(dollar amounts in thousands)

Three Months Ended

September 30,

Increase (Decrease)

Rental related services

Rental operations

Total revenues

Costs and Expenses

Direct costs of rental operations:

Depreciation of rental equipment

Rental related services

Total direct costs of rental operations

Costs of sales

Total costs of revenues

Rental related services

Rental operations

Total gross profit

Selling and administrative expenses

Income from operations

Interest expense allocation

Pre-tax income

Other Selected Information

Adjusted EBITDA

Average rental equipment 1

Average rental equipment on rent

Average monthly total yield 2

Average utilization 3

Average monthly rental rate 4

Period end rental equipment 1

Period end utilization 3

Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.

Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period.

Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding new equipment inventory and accessory equipment.

Average utilization for the period is calculated using the average month end 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.

Mobile Modular’s gross profit for the three months ended September 30, 2022 increased $6.9 million, or 14%, to $56.6 million.

For the three months ended September 30, 2022 compared to the same period in 2021:

Gross Profit on Rental Revenues –

Rental revenues increased $9.9 million, or 17%, due to 11% higher average rental equipment on rent and 5% higher average monthly rental rates in 2022.

As a percentage of rental revenues, depreciation was 11% in 2022 and 13% in 2021, and other direct costs were 33% in 2022 and 28% in 2021, which resulted in gross margin percentages of 56% in 2022 compared to 59% in 2021.

The higher rental revenues and lower rental margins, resulted in gross profit on rental revenues increasing $3.4 million, or 10%, to $38.5 million in 2022.

Gross Profit on Rental Related Services –

Rental related services revenues increased $2.9 million, or 12%, compared to 2021.

The increase in rental related services revenues was primarily attributable to higher amortization of modular building delivery and return delivery and dismantle revenues and increased delivery and return delivery revenues at Portable Storage.

The higher revenues and higher gross margin percentage of 27% in 2022, compared to 24% in 2021, resulted in rental related services gross profit increasing $1.4 million, or 24%, to $7.4 million in 2022.

Gross Profit on Sales –

Sales revenues increased $2.6 million, or 10%, compared to 2021, due to higher used equipment sales.

The higher gross margin percentage of 35% in 2022 compared to 31% in 2021, and higher sales revenue resulted in gross profit on sales increasing $2.0 million, or 24%, to $10.2 million.

The higher gross margin on sales in 2022 was primarily due to increased margins on used sales.

Sales occur routinely as a normal part of Mobile Modular’s rental business;

however, these sales and related gross margins can fluctuate from quarter to quarter and year to year depending on customer requirements, equipment availability and funding.

For the three months ended September 30, 2022, selling and administrative expenses increased $2.7 million, or 10%, to $28.8 million, primarily due to $1.6 million higher allocated corporate expenses and increased employee salaries and benefit costs totaling $1.2 million.

For the three months ended September 30, 2022, TRS-RenTelco’s total revenues increased $3.5 million to $38.5 million compared to the same period in 2021, primarily due to higher rental and sales revenues.

Higher selling and administrative expenses and an increase in gross profit resulted in a 16% increase in pre-tax income to $10.1 million for the three months ended September 30, 2022, from $8.7 million for the same period in 2021.

The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.

TRS-RenTelco –

Three Months Ended 9/30/22 compared to Three Months Ended 9/30/21 (Unaudited)

(dollar amounts in thousands)

Three Months Ended

September 30,

Increase (Decrease)

Rental related services

Rental operations

Total revenues

Costs and Expenses

Direct costs of rental operations:

Depreciation of rental equipment

Rental related services

Total direct costs of rental operations

Costs of sales

Total costs of revenues

Rental related services

Rental operations

Total gross profit

Selling and administrative expenses

Income from operations

Interest expense allocation

Foreign currency exchange loss

Pre-tax income

Other Selected Information

Adjusted EBITDA

Average rental equipment 1

Average rental equipment on rent

Average monthly total yield 2

Average utilization 3

Average monthly rental rate 4

Period end rental equipment 1

Period end utilization 3

Average and Period end rental equipment represents the cost of rental equipment, excluding accessory equipment.

Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period.

Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding accessory equipment.

Average utilization for the period is calculated using the average month end 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.

nm = Not meaningful

TRS-RenTelco’s gross profit for the three months ended September 30, 2022 increased $2.5 million, or 16%, to $18.0 million.

For the three months ended September 30, 2022 compared to the same period in 2021:

Gross Profit on Rental Revenues –

Rental revenues increased $2.6 million, or 9%, depreciation expense increased $0.3 million, or 2%, and other direct costs increased $0.4 million or 7%, resulting in a 16% increase in gross profit on rental revenues to $14.0 million.

As a percentage of rental revenues, depreciation was 39% and 42% in 2022 and 2021, respectively, and other direct costs were 17% for both periods, which resulted in a gross margin percentage of 44% and 41% in 2022 and 2021, respectively.

The rental revenues increase was due to 5% higher average rental equipment on rent and 3% higher average monthly rental rates in 2022 as compared to 2021.

Gross Profit on Sales –

Sales revenues increased $0.7 million, or 16%, to $5.5 million in 2022.

Gross profit on sales increased 12%, to $3.4 million, with a gross margin percentage of 61% in 2022, compared to 63% in 2021.

Sales occur as a normal part of TRS-RenTelco’s rental business;

however, these sales and related gross margins can fluctuate from quarter to quarter depending on customer requirements and related mix of equipment sold, equipment availability and funding.

For the three months ended September 30, 2022, selling and administrative expenses increased $0.7 million, or 12%, to $6.7 million, primarily due to higher allocated corporate expenses.

For the three months ended September 30, 2022, Adler Tanks’

total revenues increased $3.9 million, or 18%, to $26.2 million compared to the same period in 2021, due to higher rental, rental related services, and other revenues.

Higher gross profit on rental, rental related services and other revenues, partly offset by an increase in selling and administrative expenses, resulted in a $2.5 million increase in pre-tax income to $4.6 million for the three months ended September 30, 2022, compared to the same period in 2021.

The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.

Adler Tanks –

Three Months Ended 9/30/22 compared to Three Months Ended 9/30/21 (Unaudited)

(dollar amounts in thousands)

Three Months Ended

September 30,

Increase (Decrease)

Rental related services

Rental operations

Total revenues

Costs and Expenses

Direct costs of rental operations:

Depreciation of rental equipment

Rental related services

Total direct costs of rental operations

Costs of sales

Total costs of revenues

Rental related services

Rental operations

Total gross profit

Selling and administrative expenses

Income from operations

Interest expense allocation

Pre-tax income

Other Selected Information

Adjusted EBITDA

Average rental equipment 1

Average rental equipment on rent

Average monthly total yield 2

Average utilization 3

Average monthly rental rate 4

Period end rental equipment 1

Period end utilization 3

Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.

Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period.

Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding new equipment inventory and accessory equipment.

Average utilization for the period is calculated using the average month end 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 .

nm = Not meaningful

Adler Tanks’

gross profit for the three months ended September 30, 2022 increased $3.5 million, or 38%, to $12.6 million.

For the three months ended September 30, 2022 compared to the same period in 2021:

Gross Profit on Rental Revenues –

Rental revenues increased $2.6 million, or 18%, primarily due to 12% higher average equipment on rent and 5% higher average rental rates in 2022 compared to 2021.

As a percentage of rental revenues, depreciation was 23% in 2022 and 28% in 2021, and other direct costs were 20% and 21% in 2022 and 2021, respectively, which resulted in gross margin percentages of 57% and 51% in 2022 and 2021, respectively.

The higher rental revenues and higher rental margins resulted in an increase in gross profit on rental revenues of $2.4 million, or 32%, to $10.0 million in 2022 compared to 2021.

Gross Profit on Rental Related Services –

Rental related services revenues increased $0.8 million, or 13%, to $7.2 million compared to 2021.

The higher rental related services revenues with higher gross margin percentage of 25% in 2022 compared to 18% in 2021, resulted in rental related services gross profit increasing 52% to $1.8 million in 2022.

For the three months ended September 30, 2022, selling and administrative expenses increased $0.8 million, or 13%, to $7.1 million compared to the same period in 2021, primarily due to higher allocated corporate expenses and higher employee salaries and benefit costs.

Nine Months Ended September 30, 2022 Compared to

Nine Months Ended September 30, 2021

Consolidated revenues for the nine months ended September 30, 2022 increased to $522.9 million from $440.9 million for the same period in 2021.

Consolidated net income for the nine months ended September 30, 2022 increased 23% to $75.5 million, from $61.3 million for the same period in 2021.

Earnings per diluted share for the nine months ended September 30, 2022 increased 23% to $3.08 from $2.50 for the same period in 2021.

For the nine months ended September 30, 2022, on a consolidated basis:

Gross profit increased $35.0 million, or 18%, to $233.8 million in 2022.

Mobile Modular’s gross profit increased $24.0 million, or 19%, primarily due to higher gross profit on rental, sales and rental related services revenues.

TRS-RenTelco’s gross profit increased $4.0 million, or 9%, primarily due to higher gross profit on rental and sales revenues.

Adler Tanks’

gross profit increased $7.8 million, or 32%, primarily due to higher gross profit on rental, rental related services and other revenues.

Enviroplex’s gross profit decreased $0.8 million, primarily due to lower gross profit margins on sales revenues.

Selling and administrative expenses increased 14% to $124.0 million from $109.3 million for the same period in 2021, primarily due to increased employee salaries and benefit costs of $10.0 million, primarily due to the addition of Design Space and Kitchens To Go employees, and $4.1 million higher marketing and administrative costs.

Interest expense increased $2.8 million to $10.0 million, due to 23% higher average debt levels of the Company and 13% higher net average interest rates of 3.11% in 2022, compared to 2.75% in 2021.

Pre-tax income contribution by Mobile Modular, TRS-RenTelco and Adler Tanks was 64%, 26% and 9%, respectively, compared to 64%, 30% and 5%, respectively, for the comparable 2021 period.

These results are discussed on a segment basis below.

Pre-tax income contribution by Enviroplex was 1% for both the 2022 and 2021 periods.

The provision for income taxes resulted in an effective tax rate of 24.0% and 25.3% for the nine months ended September 30, 2022 and 2021, respectively.

Adjusted EBITDA increased $24.1 million, or 14%, to $197.8 million in 2022.

Mobile Modular

For the nine months ended September 30, 2022, Mobile Modular’s total revenues increased $64.2 million, or 24%, to $327.9 million compared to the same period in 2021, primarily due to higher rental, sales, and rental related services revenues.

The revenue increase, together with higher gross profit on rental, sales and rental related services revenues, partly offset by higher selling and administrative expenses resulted in a 20% increase in pre-tax income to $63.5 million for the nine months ended September 30, 2022, from $53.0 million for the same period in 2021.

The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.

Mobile Modular –

Nine Months Ended 9/30/22 compared to Nine Months Ended 9/30/21 (Unaudited)

(dollar amounts in thousands)

Nine Months Ended

September 30,

Increase (Decrease)

Rental related services

Rental operations

Total revenues

Costs and Expenses

Direct costs of rental operations:

Depreciation of rental equipment

Rental related services

Total direct costs of rental operations

Costs of sales

Total costs of revenues

Rental related services

Rental operations

Total gross profit

Selling and administrative expenses

Income from operations

Interest expense allocation

Pre-tax income

Other Selected Information

Adjusted EBITDA

Average rental equipment 1

Average rental equipment on rent

Average monthly total yield 2

Average utilization 3

Average monthly rental rate 4

Period end rental equipment 1

Period end utilization 3

Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.

Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period.

Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding new equipment inventory and accessory equipment.

Average utilization for the period is calculated using the average month end 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.

Mobile Modular’s gross profit for the nine months ended September 30, 2022 increased $24.0 million, or 19%, to $149.4 million.

For the nine months ended September 30, 2022 compared to the same period in 2021:

Gross Profit on Rental Revenues –

Rental revenues increased $36.5 million, or 23%, primarily due to 16% higher average rental equipment on rent and 6% higher average rental rates in 2022.

The increase in rental revenue and average equipment on rent was due in part to the Design Space and Kitchens To Go acquisitions.

As a percentage of rental revenues, depreciation was 12% and 13% in 2022 and 2021, respectively, and other direct costs were 34% in 2022 and 28% in 2021, which resulted in gross margin percentages of 54% in 2022 and 59% in 2021.

The higher rental revenues, partly offset by lower rental margins resulted in gross profit on rental revenues increasing $11.8 million, or 13%, to $105.2 million in 2022.

Gross Profit on Rental Related Services –

Rental related services revenues increased $12.2 million, or 22%, compared to 2021.

The increase in rental related services revenues was primarily attributable to higher amortization of modular building delivery and return delivery and dismantle revenues, higher site related revenues and revenues derived from other services performed during the lease and increased delivery and return delivery revenues at Portable Storage.

The higher revenues and higher gross margin percentage of 28% in 2022, compared to 26% in 2021, resulted in rental related services gross profit increasing $4.3 million, or 30%, to $18.7 million in 2022.

Gross Profit on Sales –

Sales revenues increased $15.3 million, or 31%, compared to 2021, due to higher new and used equipment sales.

The higher gross margin percentage of 38% in 2022 compared to 34% in 2021, primarily due to higher margins on used equipment sales revenues, resulted in gross profit on sales increasing $7.7 million, or 46%, to $24.3 million.

Sales occur routinely as a normal part of Mobile Modular’s rental business;

however, these sales and related gross margins can fluctuate from quarter to quarter and year to year depending on customer requirements, equipment availability and funding.

For the nine months ended September 30, 2022, selling and administrative expenses increased $11.3 million, or 17%, to $79.2 million, primarily due to increased employee salaries and benefit costs of $5.5 million, primarily due to the addition of Design Space and Kitchens To Go employees, and $4.5 million higher allocated corporate expenses.

For the nine months ended September 30, 2022, TRS-RenTelco’s total revenues increased $6.9 million, to $109.4 million compared to the same period in 2021, primarily due to higher rental and sales revenues.

Pre-tax income increased $1.6 million, or 7%, to $26.3 million for the nine months ended September 30, 2022, compared to the same period in 2021, primarily due to higher gross profit on rental, sales, and rental related services revenues, partly offset by higher selling and administrative expenses.

The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.

TRS-RenTelco –

Nine Months Ended 9/30/22 compared to Nine Months Ended 9/30/21 (Unaudited)

(dollar amounts in thousands)

Nine Months Ended

September 30,

Increase (Decrease)

Rental related services

Rental operations

Total revenues

Costs and Expenses

Direct costs of rental operations:

Depreciation of rental equipment

Rental related services

Total direct costs of rental operations

Costs of sales

Total costs of revenues

Rental related services

Rental operations

Total gross profit

Selling and administrative expenses

Income from operations

Interest expense allocation

Foreign currency exchange loss

Pre-tax income

Other Selected Information

Adjusted EBITDA

Average rental equipment 1

Average rental equipment on rent

Average monthly total yield 2

Average utilization 3

Average monthly rental rate 4

Period end rental equipment 1

Period end utilization 3

Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.

Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period.

Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding new equipment inventory and accessory equipment.

Average utilization for the period is calculated using the average month end 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.

nm = Not meaningful

TRS-RenTelco’s gross profit for the nine months ended September 30, 2022 increased $4.0 million, or 9%, to $48.8 million.

For the nine months ended September 30, 2022 compared to the same period in 2021:

Gross Profit on Rental Revenues –

Rental revenues increased $5.7 million, or 7%, and depreciation expense increased $1.4 million, or 4%, resulting in a 9% increase in gross profit on rental revenues to $37.7 million.

As a percentage of rental revenues, depreciation was 41% and 42% in 2022 and 2021, respectively, and other direct costs were 17% in 2022 and 2021, which resulted in a gross margin percentage of 42% and 41% in 2022 and 2021, respectively.

The rental revenues increase was due to 4% higher average rental equipment on rent and 2% higher average monthly rental rates in 2022 as compared to 2021.

The higher rental rates were reflective of higher rates for both general purpose and telecommunication equipment on rent compared to the prior year.

Gross Profit on Sales –

Sales revenues increased $1.2 million, or 8%, to $15.8 million in 2022.

Gross profit on sales increased $0.6 million, or 7%, to $9.4 million with a gross margin percentage of 60% in 2022, unchanged from 2021.

Sales occur as a normal part of TRS-RenTelco’s rental business;

however, these sales and related gross margins can fluctuate from quarter to quarter depending on customer requirements and related mix of equipment sold, equipment availability and funding.

For the nine months ended September 30, 2022, selling and administrative expenses increased $1.5 million, or 8%, to $19.9 million, primarily due to increased employee salaries and benefit costs and higher allocated corporate expenses.

For the nine months ended September 30, 2022, Adler Tanks’

total revenues increased $10.2 million, or 17%, to $70.2 million compared to the same period in 2021, primarily due to higher rental and rental related services revenues.

Higher gross profit on rental and rental related services, partly offset by higher selling and administrative expenses, resulted in a $5.6 million increase in pre-tax income to $9.4 million for the nine months ended September 30, 2022, compared to the same period in 2021.

The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.

Adler Tanks –

Nine Months Ended 9/30/22 compared to Nine Months Ended 9/30/21 (Unaudited)

(dollar amounts in thousands)

Nine Months Ended

September 30,

Increase (Decrease)

Rental related services

Rental operations

Total revenues

Costs and Expenses

Direct costs of rental operations:

Depreciation of rental equipment

Rental related services

Total direct costs of rental operations

Costs of sales

Total costs of revenues

Rental related services

Rental operations

Total gross profit

Selling and administrative expenses

Income from operations

Interest expense allocation

Pre-tax income

Other Selected Information

Adjusted EBITDA

Average rental equipment 1

Average rental equipment on rent

Average monthly total yield 2

Average utilization 3

Average monthly rental rate 4

Period end rental equipment 1

Period end utilization 3

Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.

Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period.

Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding new equipment inventory and accessory equipment.

Average utilization for the period is calculated using the average month end 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 .

nm = Not meaningful

Adler Tanks’

gross profit for the nine months ended September 30, 2022 increased $7.8 million, or 32%, to $31.9 million.

For the nine months ended September 30, 2022 compared to the same period in 2021:

Gross Profit on Rental Revenues –

Rental revenues increased $7.2 million, or 18%, due to 15% higher average rental equipment on rent and 2% higher average monthly rental rates in 2022 compared to 2021.

Stronger business activity levels in multiple geographic and market segments resulted in increased rental revenues when compared to 2021.

As a percentage of rental revenues, depreciation was 25% in 2022 and 31% in 2021, and other direct costs were 21% and 20% in 2022 and 2021, respectively, which resulted in gross margin percentages of 54% and 49% in 2022 and 2021, respectively.

The higher rental revenues and rental margins resulted in a 29% increase in gross profit on rental revenues to $25.9 million in 2022.

Gross Profit on Rental Related Services –

Rental related services revenues increased $2.2 million, or 13%, to $19.2 million compared to 2021.

Higher rental related services revenues and higher gross margin percentage of 23% in 2022, compared to 19% in 2021, resulted in rental related services gross profit increasing 36% to $4.4 million in 2022.

For the nine months ended September 30, 2022, selling and administrative expenses increased 9% to $20.6 million compared to the same period in 2021, primarily due to increased employee salaries and benefit costs and higher allocated corporate expenses.

Adjusted EBITDA

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 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

September 30,

Nine Months Ended

September 30,

Twelve Months Ended

September 30,

Provision for income taxes

Interest expense

Depreciation and amortization

Share-based compensation

Adjusted EBITDA 1

Adjusted EBITDA margin 2

Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities

(dollar amounts in thousands)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Twelve Months Ended

September 30,

Adjusted EBITDA 1

Interest paid

Income taxes paid, net of refunds received

Gain on sale of used rental equipment

Foreign currency exchange loss (gain)

Amortization of debt issuance costs

Change in certain assets and liabilities:

Accounts receivable, net

Prepaid expenses and other assets

Accounts payable and other liabilities

Deferred income

Net cash provided by operating activities

Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization and share-based compensation.

Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total revenues for the period.

Adjusted EBITDA is a component of two restrictive financial covenants for the Company’s unsecured Credit Facility, the Note Purchase Agreement, Series C Senior Notes, Series D Senior Notes and Series E Senior Notes (as defined and more fully described under the heading “Liquidity and Capital Resources”

in this MD&A).

These instruments contain financial covenants requiring the Company to not:

Permit the Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Facility and the Note Purchase Agreement (as defined and more fully described under the heading “Liquidity and Capital Resources”

in this MD&A)) of Adjusted EBITDA (as defined in the Credit Facility and the Note Purchase Agreement) to fixed charges as of the end of any fiscal quarter to be less than 2.50 to 1.

At September 30, 2022, the actual ratio was 4.14 to 1.

Permit the Consolidated Leverage Ratio of funded debt (as defined in the Credit Facility and the Note Purchase Agreement) to Adjusted EBITDA at any time during any period of four consecutive quarters to be greater than 2.75 to 1.

At September 30, 2022, the actual ratio was 1.55 to 1.

At September 30, 2022, the Company was in compliance with each of the aforementioned covenants.

There are no anticipated trends that the Company is aware of that would indicate non-compliance with these covenants, although, significant deterioration in our financial performance could impact the Company’s ability to comply with these covenants.

Liquidity and Capital Resources

The Company’s rental businesses are capital intensive and generate significant cash flows.

Cash flows for the Company for the nine months ended September 30, 2022 compared to the same period in 2021 are summarized as follows:

Cash Flows from Operating Activities:

The Company’s operations provided net cash of $133.3 million in 2022, compared to $136.3 million in 2021.

The 2% decrease in net cash provided by operating activities was primarily attributable to lower deferred income taxes and increased gain on sale of used rental equipment, partly offset by higher deferred income.

Cash Flows from Investing Activities:

Net cash used in investing activities was $86.8 million in 2022, compared to $335.4 million in 2021.

The $248.6 million decrease was primarily due to the $285.6 million acquisition of Design Space and Kitchens To Go in 2021, partly offset by $40.0 million higher purchases of rental equipment in 2022.

Cash Flows from Financing Activities:

Net cash used in financing activities was $46.4 million in 2022, compared to net cash provided of $200.3 million in 2021.

The change in net cash during 2022 was primarily attributable to reduced borrowings under bank lines of credit and note purchase agreements as the borrowings were primarily related to the funding of the Design Space and Kitchens to Go acquisitions.

Significant capital expenditures are required to maintain and grow the Company’s rental assets.

During the last three years, the Company has financed its working capital and capital expenditure requirements through cash flow from operations, proceeds from the sale of rental equipment and from borrowings.

Sales occur routinely as a normal part of the Company’s rental business.

However, these

sales can fluctuate from period to period depending on customer requirements and funding.

Although the net proceeds received from sales may fluctuate from period to period, the Company believes its liquidity will not be adversely impacted from lower sales in any given year because it believes it has the ability to increase its bank borrowings and conserve its cash in the future by reducing the amount of cash it uses to purchase rental equipment, pay dividends, or repurchase the Company’s common stock.

Unsecured Revolving Lines of Credit

The Credit Facility provides for a $650.0 million unsecured revolving credit facility (which may be further increased to $950.0 million by adding one or more tranches of term loans and/or increasing the aggregate revolving commitments), which includes a $40.0 million sublimit for the issuance of standby letters of credit and a $20.0 million sublimit for swingline loans.

The proceeds of the Credit Facility are available to be used for general corporate purposes, including permitted acquisitions.

The Credit Facility permits the Company’s existing indebtedness to remain, which includes the Company’s $ 12.0 million Treasury Sweep Note due March 31, 2025 , the Company’s existing senior notes issued pursuant to the Note Purchase and Private Shelf Agreement with Prudential Investment Management, Inc., dated as of April 21, 2011 (as amended):

The Credit Facility permits the Company’s existing indebtedness to remain, which includes the Company’s $12.0 million Treasury Sweep Note due March 31, 2025, the Company’s existing senior notes issued pursuant to the Note Purchase and Private Shelf Agreement with Prudential Investment Management, Inc., dated as of April 21, 2011 (as amended):

(i) the $60.0 million aggregate outstanding principal of notes issued November 5, 2015 and due November 5, 2022, (ii) the $40.0 million aggregate outstanding principal of notes issued March 17, 2021 and due March 17, 2028, and (iii) the $60.0 million aggregate outstanding principal of notes issued June 16, 2021 and due June 16, 2026.

In addition, the Company may incur additional senior note indebtedness in an aggregate amount not to exceed $250.0 million.

The Credit Facility matures on July 15, 2027 and replaced the Company’s prior $ 420.0 million credit facility dated March 31, 2020 with Bank of America, N.A., as agent, as amended.

The Credit Facility matures on July 15, 2027 and replaced the Company’s prior $420.0 million credit facility dated March 31, 2020 with Bank of America, N.A., as agent, as amended.

All obligations outstanding under the prior credit facility as of the date of the Credit Facility were refinanced by the Credit Facility on July 15, 2022.

The Sweep Service Facility matures on the earlier of July 15, 2027, or the date the Company ceases to utilize MUFG Union Bank, N.A.

for its cash management services.

The Sweep Service Facility replaced the Company’s prior $12.0 million sweep service facility, dated as of March 30, 2020.

At September 30, 2022, under the Credit Facility and Sweep Service Facility, the Company had unsecured lines of credit that permit it to borrow up to $650.0 million of which $259.5 million was outstanding and had capacity to borrow up to an additional $390.5 million.

The Credit Facility contains financial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to such terms in the Credit Facility):

Permit the Consolidated Fixed Charge Coverage Ratio as of the end of any fiscal quarter to be less than 2.50 to 1.

At September 30, 2022, the actual ratio was 4.14 to 1.

Permit the Consolidated Leverage Ratio at any time during any period of four consecutive fiscal quarters to be greater than 2.75 to 1.

At September 30, 2022, the actual ratio was 1.55 to 1.

At September 30, 2022, the Company was in compliance with each of the aforementioned covenants.

There are no anticipated trends that the Company is aware of that would indicate non-compliance with these covenants, although significant deterioration in our financial performance could impact the Company’s ability to comply with these covenants.

Note Purchase and Private Shelf Agreement

On March 31, 2020, the Company entered into an Amended and Restated Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”) with PGIM, Inc.

(“PGIM”) and the holders of Series B and Series C Notes previously issued pursuant to the Prior NPA, among the Company and the other parties to the Note Purchase Agreement.

The Note Purchase Agreement amended and restated, and superseded in its entirety, the Prior NPA.

Pursuant to the Prior NPA, the Company issued (i) $40.0 million aggregate principal amount of its 3.68% Series B Senior Notes, which were repaid on March 17, 2021, and (ii) $60.0 million aggregate principal amount of its 3.84% Series C Senior Notes due November 5, 2022, to which the terms of the Note Purchase Agreement shall apply.

In addition, pursuant to the Note Purchase Agreement, the Company may authorize the issuance and sale of additional senior notes (the “Shelf Notes”) in the aggregate principal amount of (x) $250 million minus (y) the amount of other notes (such as the Series C Senior Notes, Series D Senior Notes and Series E Senior Notes, each defined below) then outstanding, to be dated the date of issuance thereof, to mature, in case of each Shelf Note so issued, no more than 15 years after the date of original issuance thereof, to have an average life, in the case of each Shelf Note so issued, of no more than 15 years after the date of original issuance thereof, to bear interest on the unpaid balance thereof from the date thereof at the rate per annum, and to have such other particular terms, as shall be set forth, in the case of each Shelf Note so issued, in accordance with the Note Purchase Agreement.

Shelf Notes may be issued and sold from

time to time at the discretion of the Company’s Board of Directors and in such amounts as the Board of Directors may determine, subject to prospective purchasers’

agreement to purchase the Shelf Notes.

The Company will sell the Shelf Notes directly to such purchasers.

The full net proceeds of each Shelf Note will be used in the manner described in the applicable Request for Purchase with respect to such Shelf Note.

3.84% Senior Notes Due in 2022

On November 5, 2015, the Company issued and sold to the purchasers a $60.0 million aggregate principal amount of its 3.84% Series C Senior Notes (the “Series C Senior Notes”) pursuant to the terms of the Prior NPA.

The Series C Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 3.84% per annum and mature on November 5, 2022.

Interest on the Series C Senior Notes is payable semi-annually beginning on May 5, 2016 and continuing thereafter on November 5 and May 5 of each year until maturity.

The principal balance is due when the notes mature on November 5, 2022.

The full net proceeds from the Series C Senior Notes were used to reduce the outstanding balance on the Company’s revolving credit line.

At September 30, 2022, the principal balance outstanding under the Series C Senior Notes was $60.0 million.

2.57% Senior Notes Due in 2028

On March 17, 2021, the Company issued and sold to the purchasers $40 million aggregate principal amount of 2.57% Series D Notes (the “Series D Senior Notes”) pursuant to the terms of the Amended and Restated Note Purchase and Private Shelf Agreement, dated March 31, 2020 (the “Note Purchase Agreement”), among the Company, PGIM, Inc.

and the noteholders party thereto.

The Series D Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 2.57% per annum and mature on March 17, 2028.

Interest on the Series D Senior Notes is payable semi-annually beginning on September 17, 2021 and continuing thereafter on March 17 and September 17 of each year until maturity.

The principal balance is due when the notes mature on March 17, 2028.

The full net proceeds from the Series D Senior Notes were used to pay off the Company’s $40 million Series B Senior Notes.

At September 30, 2022, the principal balance outstanding under the Series D Senior Notes was $40.0 million.

2.35% Senior Notes Due in 2026

On June 16, 2021, the Company issued and sold to the purchasers $60 million aggregate principal amount of 2.35% Series E Notes (the "Series E Notes") pursuant to the terms of the Amended and Restated Note Purchase and Private Shelf Agreement, dated March 31, 2020 (the “Note Purchase Agreement”), among the Company, PGIM, Inc.

and the noteholders party thereto.

The Series E Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 2.35% per annum and mature on June 16, 2026.

Interest on the Series E Senior Notes is payable semi-annually beginning on December 16, 2021 and continuing thereafter on June 16 and December 16 of each year until maturity.

The principal balance is due when the notes mature on June 16, 2026.

The full net proceeds from the Series E Senior Notes were used to pay down the Company’s credit facility.

At September 30, 2022, the principal balance outstanding under the Series E Senior Notes was $60.0 million.

Among other restrictions, the Note Purchase Agreement, which has superseded in its entirety the Prior NPA, under which the Series C Senior Notes, Series D Senior Notes and Series E Senior Notes were sold, contains financial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to such terms in the Note Purchase Agreement):

Permit the Consolidated Fixed Charge Coverage Ratio of EBITDA to fixed charges as of the end of any fiscal quarter to be less than 2.50 to 1.

At September 30, 2022, the actual ratio was 4.14 to 1.

Permit the Consolidated Leverage Ratio of funded debt to EBITDA at any time during any period of four consecutive quarters to be greater than 2.75 to 1.

At September 30, 2022, the actual ratio was 1.55 to 1.

At September 30, 2022, the Company was in compliance with each of the aforementioned covenants.

Although no assurance can be given, the Company believes it will continue to be able to negotiate general bank lines of credit and issue senior notes adequate to meet capital requirements not otherwise met by operational cash flows and proceeds from sales of rental equipment.

Furthermore, the Company believes it has the financial resources to weather any short-term impacts of COVID-19.

However, the Company has limited insight into the extent to which its business may be impacted by COVID-19, and there are many uncertainties, including how long and how severely the Company will be impacted.

An extended and severe impact may materially and adversely affect the Company’s future operations, financial position and liquidity.

Common Stock Purchase

In August 2015, the Company’s Board of Directors authorized the Company to repurchase up to 2,000,000 shares of the Company's outstanding common stock (the “Repurchase Plan”).

The amount and time of the specific repurchases are subject to prevailing market conditions, applicable legal requirements and other factors, including management’s discretion.

All shares repurchased by the Company are canceled and returned to the status of authorized but unissued shares of common stock.

There can be no assurance that any authorized shares will be repurchased and the Repurchase Plan may be modified, extended or terminated by the Company’s Board of Directors at any time.

There were no shares repurchased in the nine months ended September 30, 2022 and 2021.

As of September 30, 2022, 1,309,805 shares remained authorized for repurchase under the Repurchase Plan.

Contractual Obligations and Commitments

We believe that our contractual obligations and commitments have not changed materially from those included in our 2021 Annual Report.

Critical Accounting Estimates

There were no material changes in our judgments and assumptions associated with the development of our critical accounting estimates during the period ended September 30, 2022.

Refer to our 2021 Annual Report for a discussion of our critical accounting policies and estimates.

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the Company’s market risk exposures from those reported in our 2021 Annual Report.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements