What changed in this filing

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Item 1A. Risk Factors

2022-10-27 compared with 2022-07-28 · 122 added, 72 removed, 377 unchanged (34% of the section changed)

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In that event, the market price for our common stock could decline, and you may lose all or part of your investment.

The risk factors below are intended to supersede in their entirety the risk factors contained in “Item 1.

A Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021.

The risk factors below are intended to supersede in their entirety the risk factors contained in “Item 1.

A Risk Factors”

of our Annual Report on Form 10-K for the year ended December 31, 2021.

RISKS RELATED TO OUR STRATEGY AND OPERATION:

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The market price of our common stock fluctuates on the NASDAQ Global Select Market and is likely to be affected by a number of factors including but not limited to:

our operating performance and the performance of our competitors, and in particular any variations in our operating results or dividend rate from our stated guidance or from investors’ expectations;

our operating performance and the performance of our competitors, and in particular any variations in our operating results or dividend rate from our stated guidance or from investors’

expectations;

any changes in general conditions in the global economy, the industries in which we operate or the global financial markets;

investors’ reaction to our press releases, public announcements or filings with the SEC;

investors’

reaction to our press releases, public announcements or filings with the SEC;

the stock price performance of our competitors or other comparable companies;

any changes in research analysts’ coverage, recommendations or earnings estimates for us or for the stocks of other companies in our industry;

any changes in research analysts’

coverage, recommendations or earnings estimates for us or for the stocks of other companies in our industry;

any sales of common stock by our directors, executive officers and our other large shareholders, particularly in light of the limited trading volume of our stock;

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Significant uncertainty continues to exist concerning the magnitude of the impact and duration of the COVID-19 pandemic and related variants.

While the Company’s operating segments and branch locations currently continue to operate, the Company’s results of operations may be negatively impacted by project delays, supply chain delays or disruptions;

elevated costs for materials and labor;

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As part of our business, we develop, receive and retain confidential data about our company and our customers.

Further, the delay or failure to implement information system upgrades and new systems effectively could disrupt our business, distract management’s focus and attention from our business operations and growth initiatives, and increase our implementation and operating costs, any of which could negatively impact our operations and operating results.

We have engaged in acquisitions and may engage in future acquisitions that could negatively impact our results of operations, financial condition and business.

In the second quarter 2021, we acquired the assets of Design Space Modular Buildings PNW, LP (“Design Space”), a provider of modular buildings and portable storage containers for rental and sale to customers in the West and Pacific Northwest states in the U.S.

and GRS Holding LLC, DBA Kitchens to Go (“Kitchens To Go”), a provider of interim and permanent modular solutions for foodservice providers that require flexible facilities to continue or expand operations.

We anticipate that we will continue to consider acquisitions in the future that meet our strategic growth plans.

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difficulties in integrating the operations, technologies, products and personnel of the acquired companies;

diversion of management’s attention from normal daily operations of our business;

difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets may have stronger market positions;

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and the impairment of relationships with employees and customers as a result of any integration of new management and other personnel.

In addition, if we consummate one or more significant future acquisitions in which the consideration consists of stock or other securities, our existing shareholders’ ownership could be diluted significantly.

In addition, if we consummate one or more significant future acquisitions in which the consideration consists of stock or other securities, our existing shareholders’

ownership could be diluted significantly.

If we were to proceed with one or more significant future acquisitions in which the consideration included cash, we could be required to use, to the extent available, a substantial portion of our Credit Facility.

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If we determine that our goodwill and intangible assets have become impaired, we may incur impairment charges, which would negatively impact our operating results.

At June 30, 2022, we had $176.4 million of goodwill and intangible assets, net, on our consolidated balance sheets.

At September 30, 2022, we had $174.9 million of goodwill and intangible assets, net, on our consolidated balance sheets.

Goodwill represents the excess of cost over the fair value of net assets acquired in business combinations.

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Sales of our used rental equipment at prices that fall significantly below our projections or in lesser quantities than we anticipate will have a negative impact on our results of operations and cash flows.

If we do not effectively manage our credit risk, collect on our accounts receivable or recover our rental equipment from our customers’ sites, it could have a material adverse effect on our operating results.

If we do not effectively manage our credit risk, collect on our accounts receivable or recover our rental equipment from our customers’

sites, it could have a material adverse effect on our operating results.

We generally rent and sell to customers on 30 day payment terms, individually perform credit evaluation procedures on our customers for each transaction and require security deposits or other forms of security from our customers when a significant credit risk is identified.

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Modular asset management requires designing and building the product for a long life that anticipates the needs of our customers, including anticipating potential changes in legislation, regulations, building codes and local permitting in the various markets in which the Company operates.

Electronic test equipment asset management requires understanding, selecting and investing in equipment technologies that support market demand, including anticipating technological advances and changes in manufacturers’ selling prices.

selling prices.

Liquid and solid containment asset management requires designing and building the product for a long life, using quality components and repairing and maintaining the products to prevent leaks.

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We could incur unexpected costs, penalties and other civil and criminal liability if we fail to comply with applicable environmental or health and safety laws.

We also could incur costs or liabilities related to waste disposal or remediating soil or groundwater contamination at our properties, at our customers’ properties or at third party landfill and disposal sites.

These liabilities can be imposed on the parties generating, transporting or disposing of such substances or on the owner or operator of any affected property, often without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous substances.

We also could incur costs or liabilities related to waste disposal or remediating soil or groundwater contamination at our properties, at our customers’

properties or at third party landfill and disposal sites.

These liabilities can be imposed on the parties generating, transporting or disposing of such substances or on the owner or operator of any

affected property, often without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous substances.

Several aspects of our businesses involve risks of environmental and health and safety liability.

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Accordingly, in addition to potential penalties for non-compliance, we may become liable, either contractually or by operation of law, for investigation, remediation and monitoring costs even if the contaminated property is not presently owned or operated by us, or if the contamination was caused by third parties during or prior to our ownership or operation of the property.

In addition, certain parties may be held liable for more than their “fair” share of environmental investigation and cleanup costs.

In addition, certain parties may be held liable for more than their “fair”

share of environmental investigation and cleanup costs.

Contamination and exposure to hazardous substances or other contaminants such as mold can also result in claims for remediation or damages, including personal injury, property damage, and natural resources damage claims.

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Enforcement of environmental and health and safety requirements is also frequent.

Such proceedings are invariably expensive, regardless of the merit of the plaintiffs’ or prosecutors’ claims.

Such proceedings are invariably expensive, regardless of the merit of the plaintiffs’

or prosecutors’

We may be named as a defendant in the future, and there can be no assurance, irrespective of the merit of such future actions, that we will not be required to make substantial settlement payments in the future.

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In addition, our organizational documents require us to indemnify our senior executives to the maximum extent permitted by California law.

We maintain directors’ and officers’ liability insurance that we believe is commercially reasonable in connection with such obligations, but if our senior executives were named in any lawsuit, our indemnification obligations could magnify the costs of these suits and/or exceed the coverage of such policies.

We maintain directors’

and officers’

liability insurance that we believe is commercially reasonable in connection with such obligations, but if our senior executives were named in any lawsuit, our indemnification obligations could magnify the costs of these suits and/or exceed the coverage of such policies.

If we suffer loss to our facilities, equipment or distribution system due to catastrophe, our insurance policies could be inadequate or depleted, our operations could be seriously harmed, which could negatively affect our operating results.

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Our rental equipment and facilities in Texas, Louisiana, Florida, North Carolina and Georgia are located in areas subject to hurricanes and other tropical storms.

In addition to customers’ insurance on rented equipment, we carry property insurance on our rental equipment in inventory and operating facilities as well as business interruption insurance.

In addition to customers’

insurance on rented equipment, we carry property insurance on our rental equipment in inventory and operating facilities as well as business interruption insurance.

We believe our insurance policies have adequate limits and deductibles to mitigate the potential loss exposure of our business.

We do not maintain financial reserves for policy deductibles and our insurance policies contain exclusions that are customary for our industry, including exclusions for earthquakes, flood and terrorism.

We do not maintain financial reserves for policy deductibles and our insurance policies contain exclusions that are customary for our industry, including

exclusions for earthquakes, flood and terrorism.

If any of our facilities or a significant amount of our rental equipment were to experience a catastrophic loss, it could disrupt our operations, delay orders, shipments and revenue recognition and result in expenses to repair or replace the damaged rental equipment and facility not covered by insurance, which could have a material adverse effect on our results of operations.

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If we have an event of default under these instruments, our indebtedness could be accelerated, and we may not be able to refinance such indebtedness or make the required accelerated payments.

The agreements governing our Series C, D and E Senior Notes (as defined and more fully described under the heading “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”) and our Credit Facility contain various covenants that limit our discretion in operating our business.

The agreements governing our Series C, D and E Senior Notes (as defined and more fully described under the heading “Item 7.

In particular, we are limited in our ability to merge, consolidate, reorganize or transfer substantially all of our assets, make investments, pay dividends or distributions, redeem or repurchase stock, change the nature of our business, enter into transactions with affiliates, incur indebtedness and create liens on our assets to secure debt.

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These interest rate adjustments could cause periodic fluctuations in our operating results and cash flows.

Our annual debt service obligations increase by approximately $2.8 million per year for each 1% increase in the average interest rate we pay based on the $281.5 million balance of variable rate debt outstanding at June 30, 2022.

Our annual debt service obligations increase by approximately $2.6 million per year for each 1% increase in the average interest rate we pay based on the $259.5 million balance of variable rate debt outstanding at September 30, 2022.

If interest rates rise in the future, and, particularly if they rise significantly, interest expense will increase and our net income will be negatively affected.

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We continue to consider expansion opportunities domestically and internationally for our rental businesses.

Since the Company’s effective tax rate depends on business levels, personnel and assets located in various jurisdictions, further expansion into new markets or acquisitions may change the effective tax rate in the future and may make it, and consequently our earnings, less predictable going forward.

Further, the enactment of future tax law changes by federal and state taxing authorities may impact the Company’s current period tax provision and its deferred tax liabilities.

In addition, the amount and timing of stock-based compensation may also impact the Company’s current tax provision.

Further, the enactment of future tax law changes by federal and state taxing authorities may impact the Company’s current period tax provision and its deferred tax liabilities.

In addition, the amount and timing of stock-based compensation may also impact the Company’s current tax provision.

Changes in financial accounting standards may cause lower than expected operating results and affect our reported results of operations.

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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.

Rentals and sales of modular buildings to public school districts for use as classrooms, restroom buildings, and administrative offices for K-12 represent a significant portion of Mobile Modular’s rental and sales revenues.

Funding for public school facilities is derived from a variety of sources including the passage of both statewide and local facility bond measures, developer fees and various taxes levied to support school operating budgets.

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The strength of this market depends heavily on public funding from voter passage of both state and local facility bond measures, and the ability of the state to sell such bonds in the public market.

A lack of passage of state and local facility bond measures, or the inability to sell bonds in the public markets in the future could reduce our revenues and operating income, and consequently have a material adverse effect on the Company’s financial condition.

Furthermore, even if voters have approved facility bond measures and the state has raised bond funds, there is no guarantee that individual school projects will be funded in a timely manner.

As a consequence of the most recent economic recession, many states and local governments experienced large budget deficits resulting in severe budgetary constraints among public school districts.

To the extent public school districts’ funding is reduced for the rental and purchase of modular buildings, our business could be harmed and our results of operations negatively impacted.

To the extent public school districts’

funding is reduced for the rental and purchase of modular buildings, our business could be harmed and our results of operations negatively impacted.

We believe that interruptions or delays in the passage of facility bond measures or completion of state budgets, an insufficient amount of state funding, a significant reduction of funding to public schools, or changes negatively impacting enrollment may reduce the rental and sale demand for our educational products.

Any reductions in funding available to the school districts from the states in which we do business may cause school districts to experience budget shortfalls and to reduce their demand for our products despite growing student populations, class size reduction initiatives and modernization and reconstruction project needs, which could reduce our revenues and operating income and consequently have a material adverse effect on the Company’s financial condition.

Public policies that create demand for our products and services may change, resulting in decreased demand for or the pricing of our products and services, which could negatively affect our revenues and operating income.

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In California, efforts to address aging infrastructure and deferred maintenance have resulted in modernization and reconstruction projects by public school districts including seismic retrofitting, asbestos abatement and various building repairs and upgrades, which has been another source of demand for our modular classrooms.

The most recent economic recession caused state and local budget shortfalls, which reduced school districts’ funding and their ability to comply with state class size reduction requirements.

The most recent economic recession caused state and local budget shortfalls, which reduced school districts’

funding and their ability to comply with state class size reduction requirements.

If educational priorities and policies shift away from class-size reduction or modernization and reconstruction projects, demand and pricing for our products and services may decline, not grow as quickly as, or not reach the levels that we anticipate.

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All aspects of a given code are subject to change including, but not limited to, such items as structural specifications for earthquake safety, energy efficiency and environmental standards, fire and life safety, transportation, lighting and noise limits.

Compliance with building codes and regulations entails a certain amount of risk as state and local government authorities do not necessarily interpret building codes and regulations in a consistent manner, particularly where applicable regulations may be unclear and subject to interpretation.

and subject to interpretation.

These regulations often provide broad discretion to governmental authorities that oversee these matters, which can result in unanticipated delays or increases in the cost of compliance in particular markets.

The construction and modular industries have developed many “best practices” which are constantly evolving.

Some of our peers and competitors may adopt practices that are more or less stringent than the Company’s.

The construction and modular industries have developed many “best practices”

which are constantly evolving.

Some of our peers and competitors may adopt practices that are more or less stringent than the Company’s.

When, and if, regulatory standards are clarified, the effect of the clarification may be to impose rules on our business and practices retroactively, at which time, we may not be in compliance with such regulations and we may be required to incur costly remediation.

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We are subject to laws and regulations governing government contracts.

These laws and regulations make these government contracts more favorable to government entities than other third parties and any changes in these laws and regulations, or our failure to comply with these laws and regulations could harm our business.

We have agreements relating to the sale of our products to government entities and, as a result, we are subject to various statutes and regulations that apply to companies doing business with the government.

The laws governing government contracts differ from the laws governing private contracts.

These laws and regulations expose us to business volatility and risks, including government budgeting cycles and appropriations, potential early termination of contracts, procurement regulations, governmental policy shifts, audits, investigations, sanctions and penalties.

Furthermore, these laws and regulations make these government contracts more favorable to government entities than other third parties and any changes in these laws and regulations, or our failure to comply with these laws and regulations could harm our business.

McGrath derives a portion of its revenues from contracts with U.S.

federal government entities, government prime contractors, state entities and local entities, including school districts.

Contracts with government entities are subject to budgetary constraints, and our continued performance under our contracts with these agencies and their prime contractors, or award of additional contracts from these agencies or their prime contractors, could be jeopardized by spending reductions or budget cutbacks at these agencies.

Such contracts are also subject to unique laws and regulations, and the adoption of new laws or regulations relating to government contracting or changes to existing laws or regulations.

New laws, regulations or procurement requirements, or changes to current ones, can significantly increase our costs and risks and reduce our profitability.

In addition, any failure on the part of the company to comply with applicable government contract laws and regulations might result in administrative penalties or even in the termination or suspension of these contracts and as a result, the loss of the related revenues, which would harm our business.

Furthermore, the laws governing government contracts differ from the laws governing private contracts.

For example, many government contracts contain pricing terms and conditions that are not applicable to private contracts such as clauses that allow government entities not to perform on contractual obligations in the case of a lack of fiscal funding.

Also, in the educational markets we serve, we are able to utilize “piggyback” contracts in marketing our products and services and ultimately to book business.

The term “piggyback” contract refers to contracts for portable classrooms or other products entered into by public school districts following a formal bid process that allows for the use of the same contract terms and conditions with the successful vendor by other public school districts.

As a result, “piggyback” contracts allow us to more readily book orders from our government customers, primarily public school districts, and to reduce the administrative expense associated with booking these orders.

The governmental statutes and regulations that allow for use of “piggyback” contracts are subject to change or elimination in their entirety.

A change in the manner of use or the elimination of “piggyback” contracts would likely negatively impact our ability to book new business from these government customers and could cause our administrative expenses related to processing these orders to increase significantly.

Also, in the educational markets we serve, we are able to utilize “piggyback”

contracts in marketing our products and services and ultimately to book business.

The term “piggyback”

contract refers to contracts for portable classrooms or other products entered into by public school districts following a formal bid process that allows for the use of the same contract terms and conditions with the successful vendor by other public school districts.

As a result, “piggyback”

contracts allow us to more readily book orders from our government customers, primarily public school districts, and to reduce the administrative expense associated with booking these orders.

The governmental statutes and regulations that allow for use of “piggyback”

contracts are subject to change or elimination in their entirety.

A change in the manner of use or the elimination of “piggyback”

contracts would likely negatively impact our ability to book new business from these government customers and could cause our administrative expenses related to processing these orders to increase significantly.

In addition, any failure to comply with these laws and regulations might result in administrative penalties or even in the suspension of these contracts and as a result, the loss of the related revenues which would harm our business and results from operations.

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We may not be able to quickly redeploy modular units returning from leases, which could negatively affect our financial performance and our ability to expand, or utilize, our rental fleet.

As of June 30, 2022, 63% of our modular portfolio had equipment on rent for periods exceeding the original committed term.

As of September 30, 2022, 63% of our modular portfolio had equipment on rent for periods exceeding the original committed term.

Generally, when a customer continues to rent the modular units beyond the contractual term, the equipment rents on a month-to-month basis.

If a significant number of our rented modular units were returned during a short period of time, particularly those units that are rented on a month-to-month basis, a large supply of units would need to be remarketed.

Our failure to effectively remarket a large influx

of units returning from leases could negatively affect our financial performance and our ability to continue expanding our rental fleet.

Our failure to effectively remarket a large influx of units returning from leases could negatively affect our financial performance and our ability to continue expanding our rental fleet.

In addition, if returned units stay off rent for an extended period of time, we may incur additional costs to securely store and maintain them.

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We are dependent on third parties to manufacture our products even though we are able to purchase products from a variety of third-party suppliers.

Mobile Modular purchases new modulars from various manufacturers who build to Mobile Modular’s design specifications.

With the exception of Enviroplex, none of the principal suppliers are affiliated with the Company.

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Historically, our warranty costs have not been significant, and we monitor the quality of our products closely.

If a defect were to arise in the installation of our equipment at the customer’s facilities or in the equipment acquired from our suppliers or by our Enviroplex subsidiary, we may experience increased warranty claims.

Such claims could disrupt our sales operations, damage our reputation and require costly repairs or other remedies, negatively impacting revenues and operating income.

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Market risk and cyclical downturns in the industries using test equipment may result in periods of low demand for our product resulting in excess inventory, impairment charges and reduction of our operating results and cash flows.

TRS-RenTelco’s revenues 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, in the aerospace, defense, communications, manufacturing and semiconductor industries.

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

Historically, these industries have been cyclical and have experienced periodic downturns, which can have a material

adverse impact on the industry’s demand for equipment, including our rental electronic test equipment.

Historically, these industries have been cyclical and have experienced periodic downturns, which can have a material adverse impact on the industry’s demand for equipment, including our rental electronic test equipment.

In addition, the severity and length of any downturn in an industry may also affect overall access to capital, which could adversely affect our customers and result in excess inventory and impairment charges.

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Generally, rental activity declines in the fourth quarter month of December and the first quarter months of January and February.

These months may have lower rental activity due to holiday closures, particularly by larger companies, inclement weather and its impact on various field related communications equipment rentals, and companies’ operational recovery from holiday closures which may impact the start-up of new projects coming online in the first quarter.

These seasonal factors historically have impacted quarterly results in each year’s first and fourth quarter, but we are unable to predict how such factors may impact future periods.

operational recovery from holiday closures which may impact the start-up of new projects coming online in the first quarter.

These seasonal factors historically have impacted quarterly results in each year’s first and fourth quarter, but we are unable to predict how such factors may impact future periods.

Our rental test equipment may become obsolete or may no longer be supported by a manufacturer, which could result in an impairment charge.

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This could result in the remaining useful life becoming shorter, causing us to incur an impairment charge.

We monitor our manufacturers’ capacity to support their products and the introduction of new technologies, and we acquire equipment that will be marketable to our current and prospective customers.

We monitor our manufacturers’

capacity to support their products and the introduction of new technologies, and we acquire equipment that will be marketable to our current and prospective customers.

However, any prolonged economic downturn could result in unexpected bankruptcies or reduced support from our manufacturers.

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Some of our competitors may offer similar equipment for lease, rental or sale at lower prices and may offer more extensive servicing, or financing options.

Failure to adequately forecast the adoption of, and demand for, new or existing products may cause us not to meet our customers’ equipment requirements and may materially and adversely affect our operating results.

Failure to adequately forecast the adoption of, and demand for, new or

existing products may cause us not to meet our customers’

equipment requirements and may materially and adversely affect our operating results.

If we are not able to obtain equipment at favorable rates, there could be a material adverse effect on our operating results and reputation.

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We depend on purchasing equipment from these manufacturers and suppliers for use as our rental equipment.

If, in the future, we are not able to purchase necessary equipment from one or more of these suppliers on favorable terms, we may not be able to meet our customers’ demands in a timely manner or for a rental rate that generates a profit.

If, in the future, we are not able to purchase necessary equipment from one or more of these suppliers on favorable terms, we may not be able to meet our customers’

demands in a timely manner or for a rental rate that generates a profit.

If this should occur, we may not be able to secure necessary equipment from an alternative source on acceptable terms and our business and reputation may be materially and adversely affected.

If we are not able to anticipate and mitigate the risks associated with operating internationally, there could be a material adverse effect on our operating results.

Currently, total foreign country customers and operations account for less than 10% of the Company’s revenues.

In recent years some of our customers have expanded their international operations faster than domestic operations, and this trend may continue.

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We may be brought into tort or environmental litigation or held responsible for cleanup of spills if the customer fails to perform, or an accident occurs in the use of our rental products, which could materially adversely affect our business, future operating results or financial position.

Our rental tanks and boxes are used by our customers to store non-hazardous and certain hazardous liquids and solids on the customer’s site.

Our customers are generally responsible for proper operation of our tank and box rental equipment while on rent and returning a cleaned and undamaged container upon completion of use, but exceptions may be granted and we cannot always assure that these responsibilities are fully met in all cases.

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Furthermore, we cannot be certain our liability insurance will always be sufficient.

In addition, if an accident were to occur involving our rental equipment or a spill of substances were to occur when the tank or box was in transport or on rent with our customer, a claim could be made against us as owner of the rental equipment.

In the event of a spill or accident, we may be brought into a lawsuit or enforcement action by either our customer or a third party on numerous potential grounds, including an allegation that an inherent flaw in a tank or box contributed to an accident or that the tank had suffered some undiscovered harm from a previous customer’s prior use.

In addition, if an accident were to occur involving our rental equipment or a

spill of substances were to occur when the tank or box was in transport or on rent with our customer, a claim could be made against us as owner of the rental equipment.

In the event of a spill caused by our customers, we may be held responsible for cleanup under environmental laws and regulations concerning obligations of suppliers of rental products to effect remediation.

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The liquid and solid containment rental industry is highly competitive.

We compete against national, regional and local companies, including United Rentals, Rain For Rent and WillScot Corporation, all of which may be larger than we are, may offer a wider range of products and services and may have greater financial and marketing resources than we have.

We compete against national, regional and local companies, including United Rentals, Rain For Rent and Kinderhook Industries (which recently acquired WillScot Corporation's Tank and Pump business), all of which may be larger than we are, may offer a wider range of products and services and may have greater financial and marketing resources than we have.

Some of our competitors also have longer operating histories, lower cost basis of rental equipment and lower cost structures than we have.

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We may in the future encounter increased competition in the markets that we serve from existing competitors or from new market entrants.

In July 2020, Willscot Corporation acquired Mobile Mini and in July 2018, United Rentals, Inc.

completed the acquisition of BakerCorp.

Industry consolidation may create additional competition for customers and provide the combined entity access to greater financial resources than we have.

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To the extent we lower rental rates or increase our fleet in order to retain or increase market share, our operating margins would be adversely impacted.

In addition, we may not be able to match a larger competitor’s price reductions or fleet investment because of its greater financial resources, all of which could adversely impact our operating results through a combination of a decrease in our market share, revenues and operating income.

Market risk, commodity price volatility, regulatory changes or interruptions and cyclical downturns in the industries using tanks and boxes may result in periods of low demand for our products resulting in excess inventory, impairment charges and reduction of our operating results and cash flows.

Adler Tanks’ revenues are derived from the rental of tanks and boxes to companies involved in oil and gas exploration, extraction and refinement, environmental remediation and wastewater/groundwater treatment, infrastructure and building construction and various industrial services, among others.

Adler Tanks’

revenues are derived from the rental of tanks and boxes to companies involved in oil and gas exploration, extraction and refinement, environmental remediation and wastewater/groundwater treatment, infrastructure and building construction and various industrial services, among others.

We expect tank and box rental revenues will primarily be affected by the business activity within these industries.

Historically, these industries have been cyclical and have experienced periodic downturns, which have a material adverse impact on the industry’s demand for equipment, including the tanks and boxes rented by us.

Lower oil or gas prices may have an adverse effect on our liquid and solid containment tanks and boxes business.

Any steep decline in both domestic and international oil and gas prices driven by materially higher supply levels and weak demand could have a significant negative impact on the industry’s demand for equipment, especially if such market conditions continue for an extended period of time.

If the price reduction causes customers to limit or stop exploration, extraction or refinement activities, resulting in lower demand and pricing for renting Adler Tank’s products, our financial results could be adversely impacted.

Also, a weak U.S.

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We believe that demand related to hydraulic fracturing has impacted the total rental revenues and market size in recent years.

Oil and gas exploration and extraction (including use of tanks for hydraulic fracturing to obtain shale oil and shale gas) are subject to numerous local, state and federal regulations.

In the six months ended June 30, 2022, oil and gas exploration and production accounted for approximately 6% of Adler Tanks’ rental revenues, and approximately 1% of the Company’s total revenues.

Oil and gas exploration and extraction (including use of tanks for hydraulic fracturing to obtain shale oil and shale gas) are subject to

numerous local, state and federal regulations.

In the nine months ended September 30, 2022, oil and gas exploration and production accounted for approximately 6% of Adler Tanks’

rental revenues, and approximately 1% of the Company’s total revenues.

The hydraulic fracturing method of extraction has come under scrutiny in several states and by the Federal government due to the potential adverse effects that hydraulic fracturing, and the liquids and chemicals used, may have on water quality and public health.

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Rental activity may decline in the fourth quarter month of December and the first quarter months of January and February.

These months may have lower rental activity in parts of the country where inclement weather may delay, or suspend, a company’s project.

The impact of these delays may be to decrease the number of tanks, or boxes, on rent until companies are able to resume their projects when weather improves.

These seasonal factors historically have impacted quarterly results in each year’s first and fourth quarter, but we are unable to predict how such factors may impact future periods.

Significant increases in raw material, fuel and labor costs could increase our acquisition and operating costs of rental equipment, which would increase operating costs and decrease profitability.

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These delays and price pressures would adversely affect equipment utilization levels and total revenues, which would reduce our profitability.

Adverse economic conditions in the United States and globally, including the potential onset of recession, could have a negative effect on our business, results of operations, financial condition and liquidity.

Adverse macroeconomic conditions in the United States and globally, including inflation, slower than expected growth or recession, changes to fiscal and monetary policy, tightening of the credit markets, higher interest rates and currency fluctuations, could

negatively impact our business, financial condition, results of operations and liquidity.

These factors could negatively affect demand for our business.

Adverse economic conditions in the United States and globally have from time to time caused or exacerbated significant slowdowns in our industry and in the markets in which we operate, which have adversely affected our business and results of operations.

Macroeconomic weakness and uncertainty also make it more difficult for us to accurately forecast revenue, gross margin and expenses, and may make it more difficult to refinance debt.

Furthermore, sustained uncertainty about, or worsening of, current global economic conditions, including further escalation of tensions between Russia and Western countries, as well as further escalation of trade tensions between the U.S.

and China, could result in a global economic slowdown and long-term changes to global trade.

Any or all of these factors could negatively affect our revenue and could materially adversely affect our business, results of operations, financial condition and growth.

Environmental, social and governance (ESG) matters may impact our business and reputation.

Governmental authorities, non-governmental organizations, customers, investors, external stakeholders and employees are increasingly sensitive to ESG concerns.

This focus on ESG concerns may lead to new requirements that could result in increased costs for our business.

Our ability to compete could also be affected by changing customer preferences and requirements, such as growing demand for more environmentally friendly products, supplier practices, or by failure to meet such customer expectations or demand.

We risk negative shareholder reaction, including from proxy advisory services, as well as damage to our reputation, if we do not act responsibly, or if we are perceived to not be acting responsibly in key ESG areas.

If we do not meet the ESG expectations of our investors, customers and other stakeholders, we could experience reduced demand for our products, loss of customers, and other negative impacts on our business and results of operations.

Unregistered Sales of Equity Securities and Use of Proceeds

2 unchanged sentences

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 1A. Risk Factors