What changed in this filing

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Item 1. Financial Statements

2023-05-04 compared with 2022-10-27 · 340 added, 542 removed, 505 unchanged (64% of the section changed)

4 unchanged sentences

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 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”).

We have reviewed the accompanying condensed consolidated balance sheet of McGrath RentCorp (a California Corporation) and subsidiaries (the “Company”) as of March 31, 2023, and the related condensed consolidated statements of income, comprehensive income, shareholders’

equity, and cash flows for the three-months ended March 31, 2023 and 2022, 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.

13 unchanged sentences

San Francisco, California

October 27, 2022

MCGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands, except per share amounts)

11 unchanged sentences

Income from operations

Other expense:

Other (expense) income:

Interest expense

Foreign currency exchange loss

Income before provision for income taxes

Provision for income taxes

Foreign currency exchange gain

Income from continuing operations before provision for income taxes

Provision for income taxes from continuing operations

Income from continuing operations

Discontinued operations:

Income from discontinued operations before provision for income taxes

Provision for income taxes from discontinued operations

Gain on sale of discontinued operations, net of tax

Income from discontinued operations

Earnings per share from continuing operations:

Earnings per share from discontinued operations:

Earnings per share:

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

Other comprehensive income:

Other comprehensive (loss) income:

Foreign currency translation adjustment, net of tax impact

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

(in thousands)

Accounts receivable, net of allowance for credit losses of $ 2,125 in 2022

Accounts receivable, net of allowance for credit losses of $ 2,612 in 2023 and $ 2,300 in 2022

Rental equipment, at cost:

1 unchanged sentence

Electronic test equipment

Liquid and solid containment tanks and boxes

accumulated depreciation

3 unchanged sentences

Intangible assets, net

Assets of discontinued operations

Liabilities and Shareholders' Equity

3 unchanged sentences

Deferred income taxes, net

Liabilities of discontinued operations

Total liabilities

1 unchanged sentence

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

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

Issued and outstanding - 24,466 shares as of March 31, 2023 and 24,388 shares as of December 31, 2022

Retained earnings

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Total shareholders’

6 unchanged sentences

(in thousands, except per share amounts)

Income (Loss)

Balance at December 31, 2022

4 unchanged sentences

Dividends accrued of $ 0.465 per share

Other comprehensive income

Other comprehensive loss

Balance at March 31, 2023

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 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.

2 unchanged sentences

(in thousands, except per share amounts)

Income (Loss)

Balance at December 31, 2021

6 unchanged sentences

Balance at March 31, 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 $ 0.435 per share

Other comprehensive loss

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.

1 unchanged sentence

CONDENSED Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

4 unchanged sentences

Deferred income taxes

Provision for doubtful accounts

Provision for credit losses

Share-based compensation

Gain on sale of discontinued operations

Gain on sale of used rental equipment

Foreign currency exchange loss

Foreign currency exchange gain

Amortization of debt issuance costs

5 unchanged sentences

Cash Flows from Investing Activities:

Proceeds from sale of discontinued operations

Purchases of rental equipment

4 unchanged sentences

Cash Flows from Financing Activities:

Net (payments) borrowings under bank lines of credit

Borrowings under note purchase agreement

Principal payment of Series B senior notes

Net borrowings (payments) under bank lines of credit

Taxes paid related to net share settlement of stock awards

Payment of dividends

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities

Effect of foreign currency exchange rate changes on cash

Net increase in cash

Net (decrease) increase in cash

Cash balance, beginning of period

8 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2022

March 31, 2023

CONDENSED CONSOLIDATED FINANCIAL INFORMATION

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 condensed consolidated financial statements for the three months ended March 31, 2023 and 2022 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 nine months ended September 30, 2022 should not be considered as necessarily indicative of the consolidated results for the entire fiscal year.

The consolidated results for the three months ended March 31, 2023 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 22, 2023 for the year ended December 31, 2022 (the “2022 Annual Report”).

NEW ACCOUNTING PRONOUNCEMENTS

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

On March 27, 2023, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2023-01, Leases (Topic 842):

Common Control Arrangements, which requires a lessee involved in a common control lease agreement to amortize leasehold improvements over the useful life of the improvements to the common control group, regardless of the lease term, as long as the lessee controls the use of the underlying asset.

If the lessor obtains the right to control the use of the underlying asset through a lease with another entity not within the same control group, the amortization period cannot exceed the period of the common control group.

Furthermore, the ASU requires the accounting for a transfer between entities under common control through an adjustment to equity when the lessee no longer controls the use of the underlying asset.

The ASU is effective for fiscal years beginning after December 15, 2023.

The Company does not expect the adoption of this ASU will have a material impact on the Company's consolidated financial statements.

IMPLEMENTED ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2023, the Company adopted the 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.

The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

The adoption of this new guidance did not have a material impact on the Company's consolidated financial statements.

On February 1, 2023, the Company completed the acquisition of Vesta Housing Solutions Holdings, Inc.

(“Vesta Modular”), a portfolio company of Kinderhook Industries, for $ 437.2 million cash consideration on the closing date, which included certain adjustments, including net working capital and certain qualified capital expenditures.

In connection with the acquisition, the Company purchased a representation and warranty insurance policy to provide certain recourse in the event of breaches of representations and warranties of Vesta Modular and the seller of Vesta Modular under the stock purchase agreement.

Vesta Modular is a leading provider of temporary and permanent modular space solutions serving customers between its modular leasing and modular construction divisions.

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.

The excess of the purchase price over those fair values is recorded as goodwill.

The financial results of Vesta Modular were a part of the Mobile Modular segment since February 1, 2023, including $ 9.5 million of transaction costs.

On March 1, 2023, the Company completed the purchase of assets of Jerald R.

Brekke, Inc., DBA Brekke Storage ("Brekke Storage"), for a total purchase price of $ 16.4 million.

Brekke Storage is a regional provider of portable storage solutions in the Colorado market.

The acquisition expanded the Mobile Modular Portable Storage fleet by approximately 2,700 units and provided a new regional operation to serve the Colorado market.

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 Brekke Storage were a part of the Mobile Modular segment since March 1, 2023, including $ 0.2 million of transaction costs.

The following tables summarize the preliminary purchase price allocations reflecting estimated fair values of assets acquired and liabilities assumed in the Vesta Modular and Brekke Storage acquisitions, with excess amounts allocated to goodwill.

The estimated fair values of the assets acquired and liabilities assumed at the acquisition date are determined based on preliminary valuations and analyses.

Accordingly, the Company has made provisional estimates for the assets acquired and liabilities assumed.

The valuation of intangible assets acquired is based on certain valuation assumptions including cash flow projections, discount rates, contributory asset charges and other valuation model inputs.

The valuation of tangible long-lived assets acquired is dependent upon various analyses including an analysis of the condition and estimated remaining economic lives of the assets acquired.

Vesta Modular:

(dollar amounts in thousands)

Rental equipment

Intangible assets:

Customer relationships

Accounts receivable

Property, plant and equipment

Prepaid expenses and other assets

Accounts payable and accrued liabilities

Deferred income

Deferred income taxes

Total purchase price

Brekke Storage:

(dollar amounts in thousands)

Rental equipment

Intangible assets:

Customer relationships

Property, plant and equipment

Deferred income

Total purchase price

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 $ 217.4 million reflects the strategic fit of Vesta Modular and Brekke Storage with the Company’s modular and portable storage business operations.

The Company amortizes the acquired customer relationships over their expected useful lives of 11 years for Vesta Modular and 8 years for Brekke Storage.

The expected useful life for the non-compete agreements is 5 years.

The trade name intangible acquired from the Vesta Modular acquisition will be amortized over it's useful life of nine months .

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

The goodwill is deductible for tax purposes over 15 years.

The following unaudited pro forma financial information shows the combined results of continuing operations of the Company and Vesta Modular as if the acquisition occurred as of the beginning of the periods presented.

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 26.5 % on the acquisitions’

combined net income.

The pro forma results for the three months ended March 31, 2023 and 2022, 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:

Three months ended March 31,

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

Pro-forma total revenues

Pro-forma net income

Pro-forma basic earnings per share

Pro-forma diluted earnings per share

Vesta Modular

Actual total revenues

Actual net income

Actual basic earnings per share

Actual diluted earnings per share

DISCONTINUED OPERATIONS

On February 1, 2023, the Company completed the sale of Adler Tank Rentals, LLC to Ironclad Environmental Solutions, Inc.

("Ironclad"), a portfolio company of Kinderhook Industries, for a sale price of $ 264.5 million.

The divestiture of the Company's Adler Tanks business represents the Company's strategic shift to concentrate its operations on its core modular and storage businesses.

The sale price was subject to certain adjustments, including net working capital, certain qualified capital expenditures and certain transaction expenses to be borne by the Company.

In connection with the sale, the Company entered into a number of ancillary agreements, including an escrow agreement associated with net working capital adjustments, a restricted covenant agreement, a transition services agreement, and a number of leases whereby Ironclad or one of its affiliates would be a lessee to certain properties owned by the Company that the Adler Tanks business would continue to utilize after the sale.

These ancillary agreements do not provide for continued involvement by the Company in Adler Tanks.

In accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations and ASC 360 , Property, Plant and Equipment, the Company determined that the criteria for the presentation of discontinued operations and held-for-sale, respectively, were met during the first quarter of 2023.

The following table presents the results of Adler Tanks as reported in income from discontinued operations within the condensed consolidated statements of income for the three months ended March 31, 2023 and 2022:

(dollar amounts in thousands)

Three Months Ended

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

Operating income

Interest expense allocation

Income from discontinued operations before provision for income taxes

Provision for income taxes from discontinued operations

Income from discontinued operations

Other Selected Information

Adjusted EBITDA

The following table presents the carrying value of the divested business' assets and liabilities as presented within assets and liabilities of discontinued operations on the condensed consolidated balance sheets as of December 31, 2022:

(in thousands)

Accounts receivable, net of allowance for credit losses of $ 450

Rental equipment, net

Property, plant and equipment, net

Prepaid expenses and other assets

Intangible assets, net

Total assets of discontinued operations

Accounts payable and accrued liabilities

Deferred income taxes, net

Total liabilities of discontinued operations

For the three months ended March 31, 2023 and 2022, significant operating and investing items related to Adler Tanks were as follows:

(in thousands)

Operating activities of discontinued operations:

Depreciation and amortization

Gain on sale of used rental equipment

Investing activities of discontinued operations:

Proceeds from sales of used rental equipment

Purchases of rental equipment

Purchases of property, plant and equipment

The following table presents the reconciliation of income from discontinued operations to Adjusted EBITDA for the three months ended March 31, 2023 and 2022:

(in thousands)

Income from discontinued operations

Provision for income taxes from discontinued operations

Interest expense

Depreciation and amortization

Share-based compensation

Transaction costs

Adjusted EBITDA from discontinued operations

REVENUE RECOGNITION

6 unchanged sentences

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

Revenue from contracts that satisfies the criteria for over time recognition is recognized as work is performed by using the ratio of costs incurred to estimated total contract costs for each contract.

The majority of revenue for these contracts is derived from long-term projects which typically span multiple quarters .

The timing of revenue recognition, billings, and cash collections results in billed contract receivables and contract assets on the Company's consolidated balance sheet.

In the Company’s contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones.

Billings can occur subsequent to revenue recognition, resulting in contract assets, or in advance, resulting in contract liabilities.

These contract assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period .

The contract liabilities included in Deferred income on the Company’s consolidated balance sheet totaled $ 46.2 million and $ 27.4 million at March 31, 2023 and December 31, 2022, respectively.

Sales revenues totaling $ 4.4 million were recognized during the three months ended March 31, 2023, which were included in the contract liability balance at December 31, 2022.

For certain modular building sales, the customer retains a small portion of the contract price until full completion of the contract, or revenue is recognizable prior to customer billing, 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 $ 4.4 million and $ 0.6 million at March 31, 2023 and December 31, 2022, respectively.

The Company generally rents and sells to customers on 30 day payment terms.

2 unchanged sentences

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 $ 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 $ 1.0 million and $ 1.3 million at September 30, 2022 and December 31, 2021, respectively.

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.

Lease Revenues

1 unchanged sentence

Rental billings for periods extending beyond period end are recorded as deferred income and are recognized in the period earned.

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.

Rental related services revenues are primarily associated with relocatable modular buildings.

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.

2 unchanged sentences

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

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.

In the three months ended March 31, 2023, the Company’s lease revenues were $ 136.6 million, consisting of $ 136.0 million of operating lease revenues and $ 0.6 million of finance lease revenues.

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

1 unchanged sentence

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 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.

The Company’s finance lease revenues for the three months ended March 31, 2023 include $ 0.5 million of sales revenues and $ 0.1 million of interest income.

Non-Lease Revenues

4 unchanged sentences

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 and nine months ended September 30, 2022 and 2021:

(in thousands)

Three Months Ended September 30,

Rental related services

Total non-lease

Total revenues

Rental related services

Total non-lease

Total revenues

Nine Months Ended September 30,

Tanks (Discontinued)

Three Months Ended March 31,

Rental related services

15 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

4 unchanged sentences

calculating diluted earnings per share

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.

There were 96,241 anti-dilutive securities excluded from the computation of diluted earnings per share for the three months ended March 31, 2023 and no anti-dilutive securities excluded from the computation of diluted earnings per share for the same period in 2022.

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.

3 unchanged sentences

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

There were no shares repurchased during the three months ended March 31, 2023 and 2022.

As of March 31, 2023, 1,309,805 shares remained authorized for repurchase under the Repurchase Plan.

GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill were as follows:

(dollar amounts in thousands)

Mobile Modular

Adler Tanks (Discontinued)

Balance at December 31, 2021

Changes to Design Space purchase accounting

Balance at December 31, 2022

Goodwill acquired through business combination

Derecognition of goodwill divested

Balance at March 31, 2023

Intangible assets consist of the following:

3 unchanged sentences

Net book value

September 30, 2022

March 31, 2023

Customer relationships

Non-compete agreements

Customer backlog

Total amortizing

12 unchanged sentences

The Company last conducted a qualitative analysis of its goodwill and intangible assets in the fourth quarter 2022, with no indicators of impairment.

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

In addition, no impairment triggering events occurred during the three months ended March 31, 2023.

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

1 unchanged sentence

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

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.

Amortization expense in the three months ended March 31, 2023 and 2022, was $ 2.3 million and $ 1.5 million, respectively.

Based on the carrying values at March 31, 2023 and assuming no subsequent impairment of the underlying assets, the amortization expense is expected to be $ 8.0 million for the remainder of fiscal year 2023, $ 9.8 million in 2024, $ 9.7 million in 2025, $ 9.3 million in 2026, $ 9.1 million in 2027 and $ 7.8 million in 2028.

SEGMENT REPORTING

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

The Company historically operated four reportable segments and divested it's Adler Tanks business segment on February 1, 2023, see Note 5 to the consolidated financial statements for more information on the divestiture of Adler Tanks.

The three reportable segments from continuing operations 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 (3) its classroom manufacturing segment selling modular buildings used primarily as classrooms in California (“Enviroplex”).

5 unchanged sentences

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.

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.

Interest expense is allocated amongst Mobile Modular, TRS-RenTelco and Adler Tanks based on their pro-rata share of average rental equipment at cost, intangible assets, accounts receivable, deferred income and customer security deposits.

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

Interest expense is allocated amongst Mobile Modular and TRS-RenTelco based on their pro-rata share of average rental equipment at cost, intangible assets, accounts receivable, deferred income and customer security deposits.

The Company does not report total assets by business segment.

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:

Summarized financial information for the three months ended March 31, 2023 and 2022 for the Company’s reportable segments and discontinued operations are shown in the following table:

(dollar amounts in thousands)

Nine Months Ended September 30,

Tanks (Discontinued) 3

Three Months Ended March 31,

Rental revenues

6 unchanged sentences

Interest (expense) income allocation

Income before provision for income taxes

Income (loss) before provision for income taxes

Adjusted EBITDA

11 unchanged sentences

Selling and administrative expenses

Income from operations

Income (loss) from operations

Interest (expense) income allocation

Income before provision for income taxes

Income (loss) before provision for income taxes

Adjusted EBITDA

5 unchanged sentences

Average utilization 2

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.

Gross Enviroplex sales revenues were $ 941 and $ 917 for the three months ended March 31, 2023 and 2022, respectively.

There were no inter-segment sales to Mobile Modular in the three months ended March 31, 2023 and 2022, 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 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 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.

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.

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”

The financial results of Adler Tanks included in this table are through the date of the business divestiture, which occurred on February 1, 2023.

No single customer accounted for more than 10% of total revenues for the three months ended March 31, 2023 and 2022.

Revenues from foreign country customers accounted for 3 % and 4 % of the Company’s total revenues for the same periods, respectively.

SUBSEQUENT EVENT

On April 1, 2023, the Company completed the purchase of assets of Dixie Temporary Storage, LLC ("Dixie Storage"), for a purchase price of $ 4.9 million.

Dixie Storage is a regional provider of portable storage solutions in the South Carolina market and is highly complementary to the Company's portable storage business segment.

The acquisition grew the Mobile Modular Portable Storage fleet by approximately 800 units and provided a new regional operation to serve the South Carolina market.

The acquisition will be accounted for as a purchase of a “business”

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

The excess of the purchase price over those fair values is recorded as goodwill.

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 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.

The following tables summarize the purchase price allocations reflecting estimated fair values of assets acquired and liabilities assumed in the Design Space and Kitchens To Go acquisitions, with excess amounts allocated to goodwill.

The valuation of intangible assets acquired is based on certain valuation assumptions including cash flow projections, discount rates, contributory asset charges and other valuation model inputs.

The valuation of tangible long-lived assets acquired is dependent upon various analyses including an analysis of the condition and estimated remaining economic lives of the assets acquired.

Design Space:

(dollar amounts in thousands)

Rental equipment

Intangible assets:

Customer relationships

Customer backlog

Accounts receivable

Property, plant and equipment

Prepaid expenses and other assets

Accounts payable and accrued liabilities

Deferred income

Total purchase price

Kitchens To Go:

(dollar amounts in thousands)

Rental equipment

Intangible assets:

Customer relationships

Customer backlog

Accounts receivable

Property, plant and equipment

Prepaid expenses and other assets

Accounts payable and accrued liabilities

Deferred income

Total purchase price

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 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.

The goodwill is deductible for tax purposes over 15 years.

The following unaudited pro forma financial information shows the combined results of operations of the Company, Design Space and Kitchens To Go as if the acquisitions occurred as of the beginning of the periods presented.

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:

Nine months ended September 30,

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

Pro-forma total revenues

Pro-forma net income

Pro-forma basic earnings per share

Pro-forma diluted earnings per share

Design Space and Kitchens To Go

Actual total revenues

Actual net income

Actual basic earnings per share

Actual diluted earnings per share

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

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

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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, incorporated in 1979, is a leading rental provider of relocatable modular buildings for classroom and office space and electronic test equipment for general purpose and communications needs.

The Company’s primary emphasis is on equipment rentals.

The Company is comprised of four reportable business segments:

The Company is comprised of three 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 (3) 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.

The Mobile Modular business segment includes the results of operations of the Mobile Modular Portable Storage division, which represented approximately 14% of the Company’s total revenues from continuing operations in the three months ended March 31, 2023.

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.

Vesta Modular was acquired on February 1, 2023, with its results included in the Mobile Modular segment since that date.

Brekke Storage was acquired on March 1, 2023, with its results included in the Mobile Modular segment since that date.

See Note 4 to the consolidated financial statements for the three months ended March 31, 2023, for more details about the acquisitions.

In the three months ended March 31, 2023, Mobile Modular, TRS-RenTelco and Enviroplex contributed 70%, 37% and -7% of the Company’s income from continuing operations before provision for taxes (the equivalent of “pretax income”), respectively, compared to 72%, 33% and -5% for the same period in 2022.

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.

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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.

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 “

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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 ”

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 –

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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 rental operations include rental and rental related service revenues which comprised approximately 84% and 87% of consolidated revenues from continuing operations in the three months ended March 31, 2023 and 2022, respectively.

Of the total continuing rental operations revenues for the three months ended March 31, 2023, Mobile Modular and TRS-RenTelco comprised 78% and 22%, respectively, compared to 73% and 27%, respectively, in the same period of 2022.

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.

The Company’s Mobile Modular and TRS-RenTelco business segments sell modular units and electronic test equipment, 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.

For the three months ended March 31, 2023 and 2022, sales and other revenues of modular and electronic test equipment comprised approximately 16% and 13% of the Company’s consolidated revenues from continuing operations, respectively.

Of the total sales and other revenues from continuing operations for the three months ended March 31, 2023 and 2022, Mobile Modular and Enviroplex together comprised 77% and 73%, respectively, and TRS-RenTelco comprised 23% and 27%, respectively.

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.

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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.

Dixie Storage Acquisition

On April 1, 2023, the Company completed the purchase of assets of Dixie Temporary Storage, LLC ("Dixie Storage"), for a purchase price of $4.9 million.

Dixie Storage is a regional provider of portable storage solutions in the South Carolina market and is highly complementary to the Company's portable storage business segment.

The acquisition expanded the Mobile Modular Portable Storage fleet by approximately 800 units and provided a new regional operation to serve the South Carolina market.

The acquisition will be accounted for as a purchase of a “business”

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

On February 22, 2023, the Company announced that the Board of Directors declared a quarterly cash dividend of $0.465 per common share for the quarter ended March 31, 2023, an increase of 2% over the prior year’s comparable quarter.

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:

Three Months Ended March 31, 2023 Compared to

Three Months Ended March 31, 2022

Consolidated revenues for the three months ended March 31, 2023, increased 19% to $173.2 million, from $145.4 million in the same period in 2022.

Consolidated net income for the three months ended March 31, 2023, excluding the gain on sale of discontinued operations from the divestiture of Adler Tanks, decreased 32% to $12.8 million, from $18.8 million for the same period in 2022.

The decrease in consolidated net income during the current period was primarily attributed to acquisition and divestiture related transaction costs of $14.2 million incurred during 2023.

Earnings per diluted share for the three months ended March 31, 2023, increased by $2.15 to $2.92, which was primarily the result of the $58.9 million gain on sale of discontinued operations, compared to $0.77 for the same period in 2022.

Revenues from discontinued operations for the three months ended March 31, 2023, was $9.4 million, compared to $20.3 million for the same period in 2022.

Income from discontinued operations for the three months ended March 31, 2023, was $60.1 million, which included the gain on sale of discontinued operations of $58.9 million, compared to $1.1 million for the same period in 2022.

Earnings per diluted share from discontinued operations for the three months ended March 31, 2023 was $2.45, compared to $0.05 for the same period in 2022.

For additional information on discontinued operations and the divestiture of Adler Tanks, refer to Note 5 of the consolidated financial statements.

For the three months ended March 31, 2023, on a consolidated basis from continuing operations:

Gross profit increased $19.3 million, or 33%, to $77.4 million in 2023.

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.

Mobile Modular’s gross profit increased $18.5 million, or 43%, largely due to the Vesta Modular acquisition, which contributed to the higher gross profit on rental, sales, and rental related services revenues.

TRS-RenTelco’s gross profit increased $0.9 million, or 6%, primarily due to higher gross profit on other and sales revenues.

Enviroplex’s gross profit decreased $0.1 million, or 39%, primarily due to $0.1 million higher cost of sales in 2023.

Selling and administrative expenses increased $24.9 million to $57.5 million, primarily due to $16.5 million higher marketing and administrative costs, which included $14.2 million in acquisition and divestiture related transaction costs, and an increase in employees’

salaries and benefit costs of $5.8 million, partly attributable to the increased employee headcount from the Vesta Modular acquisition.

Interest expense increased $5.2 million to $7.5 million, which was primarily attributed to $142.1 million higher average debt levels of the Company and a higher effective interest rate in 2023 of 5.57%, compared to 2.68% for the same period in 2022.

The $142.1 million increase in average debt during the three-month period was primarily the result of the funding of the Vesta Modular and Brekke Storage acquisitions.

Pre-tax income contribution by Mobile Modular and TRS-RenTelco was 70% and 37%, respectively, compared to 72% and 32%, respectively, for the comparable 2022 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.

Enviroplex pre-tax income contribution was negative 7% and negative 4% in 2023 and 2022, respectively.

The provision for income taxes resulted in an effective tax rate of 23.8% and 23.5%, for the quarters ended March 31, 2023 and 2022, respectively.

Adjusted EBITDA increased $11.7 million, or 23%, to $61.8 million in 2023.

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.

For the three months ended March 31, 2023, Mobile Modular’s total revenues increased $36.0 million, or 40%, to $126.7 million compared to the same period in 2022, largely due to contributions from the Vesta Modular acquisition, which contributed to the higher rental, rental related services, and sales revenues.

The revenue increase, together with higher gross profit on rental, sales and rental related services revenues, offset by higher selling and administrative expenses, resulted in a $7.8 million decrease in pre-tax income to $8.7 million for the three months ended March 31, 2023, from $16.6 million for the same period in 2022.

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

3 unchanged sentences

Three Months Ended

September 30,

Increase (Decrease)

30 unchanged sentences

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:

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Mobile Modular’s gross profit for the three months ended March 31, 2023 increased $18.5 million, or 43%, to $61.6 million.

For the three months ended March 31, 2023 compared to the same period in 2022:

Gross Profit on Rental Revenues –

1 unchanged sentence

As a percentage of rental revenues, depreciation was 12% in 2023 and 13% in 2022, and other direct costs were 32% in 2023 and 33% in 2022, which resulted in gross margin percentages of 56% in 2023, compared to 55% in 2022.

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.

The higher rental revenues and higher rental margins, resulted in gross profit on rental revenues increasing $12.2 million, or 36%, to $45.8 million in 2023.

Vesta Modular contributed $5.5 million gross profit on rental revenues in 2023.

Gross Profit on Rental Related Services –

2 unchanged sentences

The higher revenues and higher gross margin percentage of 29% in 2023, compared to 28% in 2022, resulted in rental related services gross profit increasing $2.5 million, or 48%, to $7.6 million in 2023.

Vesta Modular contributed $0.9 million gross profit on rental related services revenues in 2023.

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 revenues increased $7.2 million, or 70%, compared to 2022, due to higher new and used equipment sales.

The lower gross margin percentage of 37% in 2023 compared to 39% in 2022, and higher sales revenue resulted in gross profit on sales increasing $2.5 million, or 61%, to $6.5 million.

The higher gross margin on sales in 2023 was primarily due to increased margins on new sales.

Vesta Modular contributed $1.8 million in gross profit on sales in 2023.

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.

For the three months ended March 31, 2023, selling and administrative expenses increased $21.8 million, or 88%, to $46.5 million, primarily due to $8.4 million higher marketing and administrative costs, which includes $7.5 million in acquisition related transaction costs, $7.8 million higher allocated corporate expenses, which includes $5.4 million in allocated divestiture transaction costs, and a $4.6 million increase in employee salaries and benefit costs, largely due to the addition of Vesta Modular employees.

For the three months ended March 31, 2023, TRS-RenTelco’s total revenues increased $2.6 million to $36.1 million compared to the same period in 2022, primarily due to higher sales and rental revenues.

Gross profit increase of $0.9 million, which was offset by higher selling and administrative expenses, resulted in a 38% decrease in pre-tax income to $4.7 million for the three months ended March 31, 2023, from $7.5 million for the same period in 2022.

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

3 unchanged sentences

Three Months Ended

September 30,

Increase (Decrease)

26 unchanged sentences

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.

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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 .

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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.

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

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

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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:

TRS-RenTelco’s gross profit for the three months ended March 31, 2023 increased $0.9 million, or 6%, to $15.6 million.

For the three months ended March 31, 2023 compared to the same period in 2022:

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.

Rental revenues increased $0.6 million, or 2%, depreciation expense increased $0.4 million, or 3%, and other direct costs increased $0.5 million or 11%, resulting in a 2% decrease in gross profit on rental revenues to $11.5 million.

As a percentage of rental revenues, depreciation was 43% and 42% in 2023 and 2022, respectively, and other direct costs were 18% and 16%, in 2023 and 2022, respectively, which resulted in a gross margin percentage of 40% and 41% in 2023 and 2022, respectively.

The rental revenues increase was primarily due to 3% higher average monthly rental rates, partly offset by 1% lower average rental equipment on rent in 2023, as compared to 2022.

Gross Profit on Sales –

Sales revenues increased $1.2 million, or 30%, to $5.1 million in 2023.

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.

Gross profit on sales increased 19%, to $2.9 million, with a gross margin percentage of 56% in 2023, compared to 62% in 2022.

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.

For the three months ended March 31, 2023, selling and administrative expenses increased $2.9 million, or 43%, to $9.5 million, primarily due to $2.3 million in higher allocated corporate expenses and $0.3 million in higher employee salaries and benefit costs.

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.

Management believes the exclusion of non-cash charges, including share-based compensation, and transaction costs 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.

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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.

Unlike EBITDA, which may be used by other companies or investors, Adjusted EBITDA does not include share-based compensation charges and transaction costs.

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.

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Because Adjusted EBITDA is a non-GAAP financial measure, as defined by the SEC, the Company includes in the tables below reconciliations of Adjusted EBITDA to the most directly comparable financial measures calculated and presented in accordance with GAAP.

Reconciliation of Net Income to Adjusted EBITDA

Reconciliation of Income from Continuing Operations 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

Income from continuing operations

Provision for income taxes from continuing operations

Interest expense

1 unchanged sentence

Share-based compensation

Transaction costs 3

Adjusted EBITDA 1

Adjusted EBITDA margin 2

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

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

Transaction costs include acquisition and divestiture related legal and professional fees and other costs specific to these transactions.

As of March 31, 2023, total Adjusted EBITDA from both continuing and discontinued operations was $65.4 million, compared to $56.7 million for the same period in 2022, excluding the gain on divestiture of Adler Tanks.

For the three months ended March 31, 2023 and 2022, the total Adjusted EBITDA from continuing operations was $61.7 million and $50.1 million, respectively, and the total Adjusted EBITDA from discontinued operations was $3.7 million and $6.6 million, respectively.

The reconciliation of income from discontinued operations to Adjusted EBITDA can be found in Note 5 of the consolidated financial statements.

The following table reconciles Adjusted EBITDA on a combined basis, including both continuing and discontinued operations, to the net cash provided by operating activities on the Company's condensed consolidated statement of cash flows.

Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities

1 unchanged sentence

Three Months Ended

September 30,

Nine Months Ended

September 30,

Twelve Months Ended

September 30,

Adjusted EBITDA 1

2 unchanged sentences

Gain on sale of used rental equipment

Foreign currency exchange loss (gain)

Foreign currency exchange (gain) loss

Amortization of debt issuance costs

5 unchanged sentences

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”

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

Adjusted EBITDA is a component of two restrictive financial covenants for the Company’s unsecured Credit Facility, the Note Purchase Agreement, 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).

2 unchanged sentences

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.

At March 31, 2023, the actual ratio was 4.12 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.

At March 31, 2023, the actual ratio was 2.21 to 1.

At March 31, 2023, 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.

1 unchanged sentence

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 for the Company for the three months ended March 31, 2023 compared to the same period in 2022 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.

The Company’s operations provided net cash of $35.7 million in 2023, compared to net cash provided of $51.7 million in 2022.

The $16.0 million decrease in net cash provided by operating activities was primarily attributable to $41.8 million lower deferred income taxes and $11.6 million higher prepaid expenses and other assets, partially offset by a $34.6 million increase in accounts payable and accrued liabilities, primarily due to higher income taxes payable.

Cash Flows from Investing Activities:

Net cash used in investing activities was $263.5 million in 2023, compared to $34.5 million in 2022.

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.

The $229.0 million increase in cash used was primarily due to the $453.6 million acquisition of Vesta Modular and Brekke Storage in 2023, partly offset by $262.4 million in proceeds from the sale of discontinued operations from the divestiture of Adler Tanks.

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.

Net cash provided by financing activities was $227.5 million in 2023, compared to net cash used of $17.1 million in 2022.

The $244.6 million change in net cash during 2023 was primarily attributable to increased borrowings under bank lines of credit and note purchase agreements, as the borrowings were primarily attributed to the funding of the Vesta Modular and Brekke Storage acquisitions.

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

17 unchanged sentences

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.

At March 31, 2023, 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 $558.8 million was outstanding and had capacity to borrow up to an additional $91.2 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.

At March 31, 2023, the actual ratio was 4.12 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.

At March 31, 2023, the actual ratio was 2.21 to 1.

At March 31, 2023, 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.

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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’

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, which were repaid on 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 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.

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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.

The Private Shelf Agreement expired March 31, 2023.

2.57% Senior Notes Due in 2028

5 unchanged sentences

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.

At March 31, 2023, the principal balance outstanding under the Series D Senior Notes was $40.0 million.

2.35% Senior Notes Due in 2026

5 unchanged sentences

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):

At March 31, 2023, 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 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.

At March 31, 2023, the actual ratio was 4.12 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.

At March 31, 2023, the actual ratio was 2.21 to 1.

At March 31, 2023, 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

4 unchanged sentences

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.

There were no shares repurchased in the three

months ended March 31, 2023 and 2022.

As of March 31, 2023, 1,309,805 shares remained authorized for repurchase under the Repurchase Plan.

Contractual Obligations and Commitments

1 unchanged sentence

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.

There were no material changes in our judgments and assumptions associated with the development of our critical accounting estimates during the period ended March 31, 2023.

Refer to our 2022 Annual Report for a discussion of our critical accounting policies and estimates.

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 1. Financial Statements