What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-10-26 compared with 2023-07-27 · 240 added, 179 removed, 847 unchanged (33% 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 June 30, 2023, and the related condensed consolidated statements of income, comprehensive income, shareholders’

equity, for the three-month and six-month periods ended June 30, 2023 and 2022, cash flows for the six-month periods ended June 30, 2023 and 2022 and the related notes (collectively referred to as the “interim financial statements”).

We have reviewed the accompanying condensed consolidated balance sheet of McGrath RentCorp (a California Corporation) and subsidiaries (the “Company”) as of September 30, 2023, and the related condensed consolidated statements of income, comprehensive income, shareholders’

equity, for the three-month and nine-month periods ended September 30, 2023 and 2022, cash flows for the nine-month periods ended September 30, 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

July 27, 2023

October 26, 2023

MCGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except per share amounts)

11 unchanged sentences

Income from operations

Other (expense) income:

Interest expense

16 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

5 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

(in thousands)

18 unchanged sentences

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

Issued and outstanding - 24,485 shares as of June 30, 2023 and 24,388 shares as of December 31, 2022

Issued and outstanding - 24,489 shares as of September 30, 2023 and 24,388 shares as of December 31, 2022

Retained earnings

8 unchanged sentences

(in thousands, except per share amounts)

Income (Loss)

Balance at December 31, 2022

13 unchanged sentences

Balance at June 30, 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 $ 0.465 per share

Other comprehensive income

Balance at September 30, 2023

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

13 unchanged sentences

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.

1 unchanged sentence

CONDENSED Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

6 unchanged sentences

Share-based compensation

Gain on sale of property, plant and equipment

Gain on sale of discontinued operations

12 unchanged sentences

Cash paid for acquisition of businesses

Cash paid for acquisition of business assets

Proceeds from sales of used rental equipment

Proceeds from sales of property, plant and equipment

Net cash used in investing activities

Cash Flows from Financing Activities:

Net borrowings under bank lines of credit

Net borrowings (payments) under bank lines of credit

Borrowings under note purchase agreement

Taxes paid related to net share settlement of stock awards

2 unchanged sentences

Effect of foreign currency exchange rate changes on cash

Net increase (decrease) in cash

Net increase in cash

Cash balance, beginning of period

5 unchanged sentences

Rental equipment acquisitions, not yet paid

Proceeds to be received on the sale of property, plant and equipment

Business acquisition payments withheld

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

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2023

September 30, 2023

CONDENSED CONSOLIDATED FINANCIAL INFORMATION

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

The consolidated results for the three and nine months ended September 30, 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”).

11 unchanged sentences

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

Effective January 1, 2023, the Company adopted the ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers.

Additionally, the ASU requires revenue contracts, including contract assets and liabilities, to be evaluated on the acquisition date and reported as if the contracts had originated with the acquirer, resulting in a measurement consistent with the recognition on the acquiree's 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.

6 unchanged sentences

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

During the quarter ended September 30, 2023, the purchase price allocation was revised resulting in a $ 12.8 million reduction in rental assets, $ 10.1 million reduction in deferred income taxes, a $ 0.4 million reduction in accounts payable and accrued liabilities, and a $ 3.9 million increase in the customer relationships intangible asset.

The net impact of

these revisions resulted in a $ 1.6 million reduction in Goodwill for Vesta Modular.

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.

4 unchanged sentences

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

in accordance with criteria in

ASC 805 using the purchase method of accounting.

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.

5 unchanged sentences

The financial results of Dixie Storage were a part of the Mobile Modular segment since April 1, 2023, including $ 0.1 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, Brekke Storage and Dixie Storage acquisitions, with excess amounts allocated to goodwill.

On July 1, 2023, the Company completed the purchase of assets of Inland Leasing and Storage, LLC ("Inland Leasing"), for a purchase price of $ 3.8 million.

Inland Leasing is a regional provider of portable storage solutions in the Colorado market and is highly complementary to the Company's portable storage business segment.

The acquisition grew the Mobile Modular Portable Storage fleet by approximately 600 units, which will further support the Colorado market.

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 $ 3.0 million and intangible assets totaling $ 0.7 million.

Supplemental pro forma information has not been provided as the historical financial results of Inland Leasing were not significant.

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

The following tables summarize the preliminary purchase price allocations reflecting estimated fair values of assets acquired and liabilities assumed in the Vesta Modular, Brekke Storage and Dixie Storage business 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.

41 unchanged sentences

combined net income.

The pro forma results for the six months ended June 30, 2023 and 2022, have been adjusted to include transaction related costs.

The pro forma results for the nine months ended September 30, 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:

Six months ended June 30,

Nine months ended September 30,

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

10 unchanged sentences

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 $ 268.0 million, which included an additional payment of $ 3.6 million for the final net working capital purchase price adjustment during the quarter ended June 30, 2023.

The total transaction costs incurred from the divestiture was $ 8.9 million, with $ 6.7 million incurred during the six months ended June 2023, and $ 2.2 million incurred during the year ended December 31, 2022.

("Ironclad"), a portfolio company of Kinderhook Industries, for a sale price of $ 268.0 million.

The total transaction costs incurred from the divestiture was $ 8.9 million, with $ 6.7 million incurred during the nine months ended September 30, 2023, and $ 2.2 million incurred during the year ended December 31, 2022.

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.

3 unchanged sentences

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 six months ended June 30, 2023 and 2022:

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 nine months ended September 30, 2023 and 2022:

(dollar amounts in thousands)

Six Months Ended

Nine Months Ended

September 30,

Rental related services

30 unchanged sentences

Total liabilities of discontinued operations

For the six months ended June 30, 2023 and 2022, significant operating and investing items related to Adler Tanks were as follows:

For the nine months ended September 30, 2023 and 2022, significant operating and investing items related to Adler Tanks were as follows:

September 30,

(in thousands)

6 unchanged sentences

Purchases of property, plant and equipment

The following table presents the reconciliation of income from discontinued operations to Adjusted EBITDA for the six months ended June 30, 2023 and 2022:

The following table presents the reconciliation of income from discontinued operations to Adjusted EBITDA for the nine months ended September 30, 2023 and 2022:

September 30,

(in thousands)

20 unchanged sentences

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 $ 49.0 million and $ 27.4 million at June 30, 2023 and December 31, 2022.

Sales revenues totaling $ 6.6 million and $ 11.0 million were recognized during the three and six months ended June 30, 2023, respectively, which were included in the contract liability balance at December 31, 2022.

The contract liabilities included in Deferred income on the Company’s consolidated balance sheet totaled $ 34.2 million and $ 27.4 million at September 30, 2023 and December 31, 2022, respectively.

Sales revenues totaling $ 8.0 million and $ 19.0 million were recognized during the three and nine months ended September 30, 2023, respectively, 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 $ 5.7 million and $ 0.6 million at June 30, 2023 and December 31, 2022, respectively.

These unbilled contract assets are included in Accounts receivable on the Company’s consolidated balance sheet and totaled $ 1.2 million and $ 0.6 million at September 30, 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.

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

6 unchanged sentences

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

As of the six months ended June 30, 2023, the Company’s future minimum lease payments to be received under non-cancelable finance leases was $ 4.4 million.

As of the nine months ended September 30, 2023, the Company’s future minimum lease payments to be received under non-cancelable finance leases were $ 4.1 million.

Of the total investment in sales-type leases, non-current future minimum lease payments are expected to be $ 0.9 million in 2024, $ 0.7 million in 2025, and $ 0.2 million in 2026.

The Company’s assessment of current expected losses on these receivables was not material and no credit loss expense was provided as of the six months ended June 30, 2023.

The Company’s assessment of current expected losses on these receivables was not material and therefore no credit loss expense was provided as of the nine months ended September 30, 2023.

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

In the three and six months ended June 30, 2023, the Company’s lease revenues were $ 140.8 million and $ 277.4 million, respectively, consisting of $ 139.7 million and $ 275.8 million of operating lease revenues, respectively, and $ 1.1 million and $ 1.6 million of finance lease revenues, respectively.

In the three and nine months ended September 30, 2023, the Company’s lease revenues were $ 147.2 million and $ 424.6 million, respectively, consisting of $ 146.7 million and $ 422.5 million of operating lease revenues, respectively, and $ 0.5 million and $ 2.1 million of finance lease revenues, respectively.

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 six months ended June 30, 2023 include $ 1.0 million and $ 1.4 million of sales revenues, respectively, and $ 0.1 million and $ 0.2 million of interest income, respectively.

The Company’s finance lease revenues for the three and nine months ended September 30, 2023 include $ 0.4 million and $ 1.8 million of sales revenues, respectively, and $ 0.1 million and $ 0.3 million of interest income, respectively.

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 six months ended June 30, 2023 and 2022:

(in thousands)

Tanks (Discontinued)

Three Months Ended June 30,

Three Months Ended September 30,

Rental related services

4 unchanged sentences

Total revenues

Six Months Ended June 30,

Nine Months Ended September 30,

Rental related services

10 unchanged sentences

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

Other income consists of the net gain on sales of property, plant and equipment.

These sales are generally recognized at a point in time, with contractually defined performance obligations that are typically transferred upon the closing date of the sale.

These types of sales are infrequent in occurrence and reported on the condensed consolidated statements of income within the scope of ASC 610, Other Income.

Proceeds to be received on the sale of property, plant and equipment are included in Accounts receivable on the Company's condensed consolidated balance sheets.

EARNINGS PER SHARE

3 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

4 unchanged sentences

calculating diluted earnings per share

There were 697 anti-dilutive securities excluded from the computation of diluted earnings per share for the six months ended June 30, 2023, and 7,315 anti-dilutive securities excluded from the computation of diluted earnings per share for the same period in 2022.

There were 1,800 anti-dilutive securities excluded from the computation of diluted earnings per share for the nine months ended September 30, 2023, and 7,315 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 six months ended June 30, 2023 and 2022.

As of June 30, 2023, 1,309,805 shares remained authorized for repurchase under the Repurchase Plan.

There were no shares repurchased during the three and nine months ended September 30, 2023 and 2022.

As of September 30, 2023, 1,309,805 shares remained authorized for repurchase under the Repurchase Plan.

GOODWILL AND INTANGIBLE ASSETS

7 unchanged sentences

Goodwill acquired through business combination

Changes to Vesta Modular purchase accounting

Derecognition of goodwill divested

Balance at June 30, 2023

Balance at September 30, 2023

Intangible assets consist of the following:

3 unchanged sentences

Net book value

June 30, 2023

September 30, 2023

Customer relationships

14 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 six months ended June 30, 2023.

In addition, no impairment triggering events occurred during the nine months ended September 30, 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 six months ended June 30, 2023 and 2022, was $ 5.0 million and $ 3.0 million, respectively.

Based on the carrying values at June 30, 2023 and assuming no subsequent impairment of the underlying assets, the amortization expense is expected to be $ 5.3 million for the remainder of fiscal year 2023, $ 9.8 million in 2024 and 2025, $ 9.3 million in 2026, $ 9.1 million in 2027 and $ 7.8 million in 2028.

Amortization expense in the nine months ended September 30, 2023 and 2022, was $ 7.8 million and $ 4.4 million, respectively.

Based on the carrying values at September 30, 2023 and assuming no subsequent impairment of the underlying assets, the amortization expense is expected to be $ 2.9 million for the remainder of fiscal year 2023, $ 10.3 million in 2024, $ 10.2 million in 2025, $ 9.8 million in 2026, $ 9.6 million in 2027 and $ 8.2 million in 2028.

SEGMENT REPORTING

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 Company historically operated four reportable segments and divested its 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”);

10 unchanged sentences

The Company does not report total assets by business segment.

Summarized financial information for the six months ended June 30, 2023 and 2022 for the Company’s reportable segments and discontinued operations are shown in the following table:

Summarized financial information for the nine months ended September 30, 2023 and 2022 for the Company’s reportable segments and discontinued operations are shown in the following table:

(dollar amounts in thousands)

Tanks (Discontinued) 3

Six Months Ended June 30,

Nine Months Ended September 30,

Rental revenues

22 unchanged sentences

Interest (expense) income allocation

Income (loss) before provision for income taxes

Income before provision for income taxes

Adjusted EBITDA

5 unchanged sentences

Average utilization 2

Gross Enviroplex sales revenues were $ 1,871 and $ 6,423 for the six months ended June 30, 2023 and 2022, respectively.

There were $ 7 inter-segment sales to Mobile Modular in the six months ended June 30, 2023 and $ 856 inter-segment sales during the same period in 2022, which required elimination in consolidation.

Gross Enviroplex sales revenues were $ 11,597 and $ 16,401 for the nine months ended September 30, 2023 and 2022, respectively.

There were $ 218 inter-segment sales to Mobile Modular in the nine months ended September 30, 2023 and $ 856 inter-segment sales during the same period in 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.

1 unchanged sentence

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 six months ended June 30, 2023 and 2022.

No single customer accounted for more than 10% of total revenues for the nine months ended September 30, 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 July 1, 2023, the Company completed the purchase of assets of Inland Leasing and Storage ("Inland Leasing"), for a purchase price of $ 3.8 million.

Inland Leasing is a regional provider of portable storage solutions in the Colorado market and is highly complementary to the Company's portable storage business segment.

The acquisition grew the Mobile Modular Portable Storage fleet by approximately 600 units, which will further support the new regional operation acquired from the Brekke Storage acquisition.

The acquisition will be accounted for as a purchase of "assets" in accordance with criteria in ASC 805, Business Combinations.

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

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

13 unchanged sentences

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 13% of the Company’s total revenues from continuing operations in the six months ended June 30, 2023.

The Mobile Modular business segment includes the results of operations of the Mobile Modular Portable Storage division, which represented approximately 12% of the Company’s total revenues from continuing operations in the nine months ended September 30, 2023.

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

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.

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

See Note 4 to the consolidated financial statements for the six months ended June 30, 2023, for more details about the acquisitions.

In the six months ended June 30, 2023, Mobile Modular, TRS-RenTelco and Enviroplex contributed 81%, 23% and negative 4% of the Company’s income from continuing operations before provision for taxes (the equivalent of “pretax income”), respectively, compared to 72%, 30% and negative 2% for the same period in 2022.

Vesta Modular was acquired on February 1, 2023, Brekke Storage was acquired on March 1, 2023, Dixie Storage was acquired on April 1, 2023, and Inland Storage was acquired on July 1, 2023, with their results included in the Mobile Modular segment since those dates.

See Note 4 to the consolidated financial statements for the nine months ended September 30, 2023, for more details about the business acquisitions.

In the nine months ended September 30, 2023, Mobile Modular, TRS-RenTelco and Enviroplex contributed 83%, 18% and negative 1% of the Company’s income from continuing operations before provision for taxes (the equivalent of “pretax income”), respectively, compared to 70%, 29% and 1% 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.

22 unchanged sentences

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.

The Company’s rental operations include rental and rental related service revenues which comprised approximately 79% and 81% of consolidated revenues from continuing operations in the six months ended June 30, 2023 and 2022, respectively.

Of the total continuing rental operations revenues for the six months ended June 30, 2023, Mobile Modular and TRS-RenTelco comprised 80% and 20%, respectively, compared to 74% and 26%, respectively, in the same period of 2022.

The Company’s rental operations include rental and rental related service revenues which comprised approximately 74% and 78% of consolidated revenues from continuing operations in the nine months ended September 30, 2023 and 2022, respectively.

Of the total continuing rental operations revenues for the nine months ended September 30, 2023, Mobile Modular and TRS-RenTelco comprised 80% and 20%, respectively, compared to 74% and 26%, 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).

1 unchanged sentence

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

For the six months ended June 30, 2023 and 2022, sales and other revenues of modular and electronic test equipment comprised approximately 21% and 19% of the Company’s consolidated revenues from continuing operations, respectively.

Of the total sales and other revenues from continuing operations for the six months ended June 30, 2023 and 2022, Mobile Modular and Enviroplex together comprised 81% and 79%, respectively, and TRS-RenTelco comprised 19% and 21%, respectively.

For the nine months ended September 30, 2023 and 2022, sales and other revenues of modular and electronic test equipment comprised approximately 26% and 22% of the Company’s consolidated revenues from continuing operations, respectively.

Of the total sales and other revenues from continuing operations for the nine months ended September 30, 2023 and 2022, Mobile Modular and Enviroplex together comprised 84% and 83%, respectively, and TRS-RenTelco comprised 16% and 17%, 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.

4 unchanged sentences

Recent Developments

Inland Leasing Acquisition

On July 1, 2023, the Company completed the purchase of assets of Inland Leasing and Storage ("Inland Leasing"), for a purchase price of $3.8 million.

Inland Leasing is a regional provider of portable storage solutions in the Colorado market and is highly complementary to the Company's portable storage business segment.

The acquisition grew the Mobile Modular Portable Storage fleet by approximately 600 units, which will further support the new regional operation acquired from the Brekke Storage acquisition.

On June 7, 2023, the Company announced that the Board of Directors declared a quarterly cash dividend of $0.465 per common share for the quarter ended June 30, 2023, an increase of 2% over the prior year’s comparable quarter.

Note Purchase Agreement

On September 27, 2023, the Company issued and sold to the purchasers $75.0 million aggregate principal amount of 6.25% Series F Notes (the “Series F Senior Notes”) pursuant to the terms of the Second Amended and Restated Note Purchase and Private Shelf Agreement, dated June 8, 2023 (the “Note Purchase Agreement”), among the Company, PGIM, Inc.

and the noteholders party thereto.

The Series F Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 6.25% per annum and mature on September 27, 2030.

Interest on the Series F Senior Notes is payable semi-annually beginning on March 27, 2024 and continuing thereafter on September 27 and March 27 of each year until maturity.

The principal balance is due when the notes mature on September 27, 2030.

The full net proceeds from the Series F Senior Notes will primarily be used to fulfill income tax obligations incurred from the divestiture of Adler Tanks.

At September 30, 2023, the principal balance outstanding under the Series F Senior Notes was $75.0 million.

On September 15, 2023, the Company announced that the Board of Directors declared a quarterly cash dividend of $0.465 per common share for the quarter ended September 30, 2023, an increase of 2% over the prior year’s comparable quarter.

Results of Operations

Three Months Ended June 30, 2023 Compared to

Three Months Ended June 30, 2022

Consolidated revenues for the three months ended June 30, 2023, increased 15% to $203.1 million, from $177.0 million in the same period in 2022.

Consolidated net income for the three months ended June 30, 2023, excluding the gain on sale of discontinued operations from the divestiture of Adler Tanks, increased 7% to $28.0 million, from $26.1 million for the same period in 2022.

Three Months Ended September 30, 2023 Compared to

Three Months Ended September 30, 2022

Consolidated revenues for the three months ended September 30, 2023, increased 21% to $243.5 million, from $200.5 million in the same period in 2022.

Consolidated net income for the three months ended September 30, 2023, increased 32% to $40.4 million, from $30.6 million for the same period in 2022.

The increase in consolidated net income during the current period was primarily attributed to higher gross profit from Mobile Modular, partly offset by higher selling, general and administrative expenses.

Earnings per diluted share for the three months ended June 30, 2023, increased by $0.18 to $1.25, compared to $1.07 for the same period in 2022.

There were no revenues from discontinued operations for the three months ended June 30, 2023, compared to $23.7 million for the same period in 2022.

Income from discontinued operations for the three months ended June 30, 2023, was $2.6 million, primarily attributed to final working capital adjustments from the divestiture of Adler Tanks.

Income from discontinued operations for the same period in 2022 was $2.6 million.

Earnings per diluted share from discontinued operations for the three months ended June 30, 2023 was $0.11, unchanged from 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 June 30, 2023, on a consolidated basis from continuing operations:

Earnings per diluted share for the three months ended September 30, 2023, increased by $0.40 to $1.65, compared to $1.25 for the same period in 2022.

During the three months ended September 30, 2023, the Company sold two properties, which resulted in a net gain on sale of $3.6 million.

The gain on sale, which was reflected in Other income, contributed $0.11 in earnings per diluted share.

There were no revenues from discontinued operations for the three months ended September 30, 2023, compared to $26.2 million for the same period in 2022.

There was no income or earnings per diluted share from discontinued operations for the three months ended September 30, 2023.

Income from discontinued operations for the same period in 2022 was $3.5 million and earnings per diluted share from discontinued operations for the three months ended September 30, 2022 was $0.14.

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

For the three months ended September 30, 2023, on a consolidated basis from continuing operations:

Gross profit increased $34.7 million, or 45%, to $111.5 million in 2023.

Mobile Modular’s gross profit increased $37.2 million, or 66%, 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 decreased $0.3 million, or 2%, primarily due to lower gross profit on rental and rental related services revenues.

TRS-RenTelco’s gross profit decreased $2.3 million, or 13%, primarily due to lower gross profit on rental revenues.

Enviroplex’s gross profit decreased $0.2 million, primarily due to lower sales revenue in 2023.

Selling and administrative expenses increased $13.2 million to $47.0 million, primarily due to an increase in employees' salaries and benefit costs of $6.5 million, due in part to the increased employee headcount from the Vesta Modular acquisition and higher marketing and administrative costs of $3.0 million.

Selling and administrative expenses increased $11.6 million to $48.5 million, primarily due to an increase in employees' salaries and benefit costs of $6.6 million, due in part to the increased employee headcount from the Vesta Modular acquisition, and an increase of $1.3 million in marketing and administrative costs.

Interest expense increased $7.7 million to $11.0 million, which was primarily attributed to $242.4 million higher average debt levels of the Company and a higher effective interest rate in 2023 of 6.52%, compared to 3.85% for the same period in 2022.

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

The increase in average debt during the three-month period was primarily the result of the funding of the Vesta Modular, Brekke Storage, Dixie Storage and Inland Leasing acquisitions.

Pre-tax income contribution by Mobile Modular and TRS-RenTelco was 85% and 13%, respectively, compared to 69% and 28%, respectively, for the comparable 2022 period.

These results are discussed on a segment basis below.

Enviroplex pre-tax income contribution was negative 2% and negative 1% in 2023 and 2022, respectively.

The provision for income taxes resulted in an effective tax rate of 25.7% and 22.9%, for the quarters ended June 30, 2023 and 2022, respectively.

Enviroplex pre-tax income contribution was 2% and 3% in 2023 and 2022, respectively.

The provision for income taxes resulted in an effective tax rate of 27.3% and 25.3%, for the quarters ended September 30, 2023 and 2022, respectively.

Adjusted EBITDA increased $30.6 million, or 47%, to $95.3 million in 2023.

Mobile Modular

For the three months ended June 30, 2023, Mobile Modular’s total revenues increased $52.9 million, or 47%, to $164.3 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, rental related services and sales revenues, offset by higher selling and administrative expenses, resulted in a $9.9 million increase in pre-tax income to $31.9 million for the three months ended June 30, 2023, from $21.9 million for the same period in 2022.

For the three months ended September 30, 2023, Mobile Modular’s total revenues increased $69.0 million, or 55%, to $194.9 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, rental related services and sales revenues, partly offset by higher selling and administrative expenses, resulted in a $22.2 million increase in pre-tax income to $47.2 million for the three months ended September 30, 2023, from $25.0 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)

31 unchanged sentences

nm = Not meaningful

Mobile Modular’s gross profit for the three months ended June 30, 2023 increased $28.9 million, or 58%, to $78.6 million.

For the three months ended June 30, 2023 compared to the same period in 2022:

Mobile Modular’s gross profit for the three months ended September 30, 2023 increased $37.2 million, or 66%, to $93.7 million.

For the three months ended September 30, 2023 compared to the same period in 2022:

Gross Profit on Rental Revenues –

2 unchanged sentences

The higher rental revenues and higher rental margins, resulted in gross profit on rental revenues increasing $22.1 million, or 57%, to $60.6 million in 2023.

Vesta Modular contributed $8.9 million gross profit on rental revenues in 2023.

Vesta Modular contributed $14.8 million and $10.2 million in rental revenues and gross profit on rental revenues in 2023, respectively.

Gross Profit on Rental Related Services –

Rental related services revenues increased $12.4 million, or 45%, compared to 2022.

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

The higher revenues and higher gross margin percentage of 30% in 2023, compared to 27% in 2022, resulted in rental related services gross profit increasing $4.4 million, or 60%, to $11.8 million in 2023.

Vesta Modular contributed $1.7 million gross profit on rental related services revenues in 2023.

Vesta Modular contributed $4.0 million and $1.8 million in rental related services revenues and gross profit on rental related services revenues in 2023, respectively.

Gross Profit on Sales –

Sales revenues increased $14.5 million, or 59%, compared to 2022, due to higher new equipment sales.

Sales revenues increased $29.9 million, compared to 2022, due to higher new equipment sales.

The lower gross margin percentage of 32% in 2023 compared to 35% in 2022, and higher sales revenue resulted in gross profit on sales increasing $8.8 million, or 86%, to $19.0 million.

The lower gross margin on sales in 2023 was primarily due to a higher mix of new versus used sales.

Vesta Modular contributed $2.8 million in gross profit on sales in 2023.

Vesta Modular contributed $16.2 million and $5.1 million in sales revenues and gross profit on sales in 2023, respectively.

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 June 30, 2023, selling and administrative expenses increased $12.5 million, or 49%, to $38.3 million, primarily due to $6.2 million higher employee salaries and benefit costs, largely due to the addition of Vesta Modular employees, $2.8 million higher allocated corporate expenses, and $1.9 million increased marketing and administrative expenses.

For the three months ended June 30, 2023, TRS-RenTelco’s total revenues increased $0.5 million to $37.8 million compared to the same period in 2022, primarily due to higher sales and other revenues.

Decreased gross profit and higher selling and administrative expenses, resulted in a 23% decrease in pre-tax income to $6.7 million for the three months ended June 30, 2023, from $8.7 million for the same period in 2022.

For the three months ended September 30, 2023, selling and administrative expenses increased $11.0 million, or 38%, to $39.8 million, primarily due to $5.8 million higher employee salaries and benefit costs, largely due to the addition of Vesta Modular employees, $2.7 million higher allocated corporate expenses, and $1.0 million increased marketing and administrative expenses.

For the three months ended September 30, 2023, TRS-RenTelco’s total revenues increased $0.6 million to $39.1 million, compared to the same period in 2022, primarily due to higher sales and other revenues.

Lower gross profit on rental revenues and higher selling and administrative expenses, resulted in a 28% decrease in pre-tax income to $7.3 million for the three months ended September 30, 2023, from $10.1 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)

32 unchanged sentences

nm = Not meaningful

TRS-RenTelco’s gross profit for the three months ended June 30, 2023 decreased $0.3 million, or 2%, to $15.9 million.

For the three months ended June 30, 2023 compared to the same period in 2022:

TRS-RenTelco’s gross profit for the three months ended September 30, 2023 decreased $2.3 million, or 13%, to $15.7 million.

For the three months ended September 30, 2023 compared to the same period in 2022:

Gross Profit on Rental Revenues –

Rental revenues decreased $1.1 million, or 4%, with depreciation expense and other direct costs comparable to the previous period, resulting in a 10% decrease in gross profit on rental revenues to $10.8 million.

Rental revenues decreased $3.1 million, or 10%, depreciation expense decreased $0.4 million, or 3%, and other direct costs decreased by $0.2 million, or 4%, resulting in a 18% decrease in gross profit on rental revenues to $11.5 million.

As a percentage of rental revenues, depreciation was 42% and 39% in 2023 and 2022, respectively, and other direct costs were 18% and 17%, in 2023 and 2022, respectively, which resulted in a gross margin percentage of 40% and 44% in 2023 and 2022, respectively.

The decrease in rental revenues was primarily due to a 7% reduction in average rental equipment on rent, partly offset by 3% higher average monthly rental rates in 2023, as compared to 2022.

The decrease in rental revenues was primarily due to a 10% reduction in average rental equipment on rent and comparable average monthly rental rates in 2023, as compared to 2022.

Gross Profit on Sales –

Sales revenues increased $3.2 million, or 58%, to $8.7 million in 2023.

Gross profit on sales increased 12%, to $4.1 million, with a gross margin percentage of 54% in 2023, compared to 57% in 2022.

Gross profit on sales decreased 9%, to $3.1 million, with a gross margin percentage of 35% in 2023, compared to 61% 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 three months ended June 30, 2023, selling and administrative expenses increased $0.5 million, or 8%, to $7.1 million.

Six Months Ended June 30, 2023 Compared to

Six Months Ended June 30, 2022

Consolidated revenues for the six months ended June 30, 2023, increased 17% to $376.2 million, from $322.4 million in the same period in 2022.

Consolidated net income for the six months ended June 30, 2023, excluding the gain on sale of discontinued operations from the divestiture of Adler Tanks, decreased 9% to $40.7 million, from $44.9 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 $14.3 million incurred during 2023.

Earnings per diluted share for the six months ended June 30, 2023, increased by $2.34 to $4.17, which was primarily the result of the $61.5 million gain on sale of discontinued operations, compared to $1.83 for the same period in 2022.

Revenues from discontinued operations for the six months ended June 30, 2023, was $9.4 million, compared to $44.0 million for the same period in 2022.

Income from discontinued operations for the six months ended June 30, 2023, was $62.8 million, which included the net gain on sale of discontinued operations of $61.5 million, compared to $3.7 million for the same period in 2022.

Earnings per diluted share from discontinued operations for the six months ended June 30, 2023 was $2.56, compared to $0.15 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 six months ended June 30, 2023, on a consolidated basis from continuing operations:

For the three months ended September 30, 2023, selling and administrative expenses increased $0.3 million, or 4%, to $7.0 million.

Nine Months Ended September 30, 2023 Compared to

Nine Months Ended September 30, 2022

Consolidated revenues for the nine months ended September 30, 2023, increased 19% to $619.7 million, from $522.9 million in the same period in 2022.

Consolidated net income for the nine months ended September 30, 2023, excluding the gain on sale of discontinued operations from the divestiture of Adler Tanks, increased 7% to $81.1 million, from $75.5 million for the same period in 2022.

The increase in consolidated net income during the current period was primarily attributed to higher gross profit from the Mobile Modular division, partly offset by higher selling, general and administrative expenses.

Earnings per diluted share for the nine months ended September 30, 2023, increased by $2.73 to $5.81, which was primarily the result of the $61.5 million gain on sale of discontinued operations, compared to $3.08 for the same period in 2022.

During the nine months ended September 30, 2023, the Company sold two properties, which resulted in a net gain on sale of $3.6 million.

The gain on sale, which was reflected in Other income, contributed $0.11 in earnings per diluted share.

Revenues from discontinued operations for the nine months ended September 30, 2023, was $9.4 million, compared to $70.2 million for the same period in 2022.

Income from discontinued operations for the nine months ended September 30, 2023, was $62.8 million, which included the net gain on sale of discontinued operations of $61.5 million, compared to $7.2 million for the same period in 2022.

Earnings per diluted share from discontinued operations for the nine months ended September 30, 2023 was $2.56, compared to $0.29 for the same period in 2022.

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

For the nine months ended September 30, 2023, on a consolidated basis from continuing operations:

Gross profit increased $81.7 million, or 40%, to $283.5 million in 2023.

Mobile Modular’s gross profit increased $84.6 million, or 57%, 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 $0.7 million, or 2%, primarily due to higher gross profit on sales and other revenues.

TRS-RenTelco’s gross profit decreased $1.6 million, or 3%, primarily due to lower gross profit on rental revenues.

Enviroplex’s gross profit decreased $1.2 million, or 35%, primarily due to $4.2 million lower sales in 2023.

2 unchanged sentences

Interest expense increased $20.4 million to $28.4 million, which was primarily attributed to $208.1 million higher average debt levels of the Company and a higher effective interest rate in 2023 of 5.96%, compared to 3.11% for the same period in 2022.

The $190.7 million increase in average debt during the six-month period was primarily the result of the funding of the Vesta Modular, Brekke Storage and Dixie Storage acquisitions.

The $208.1 million increase in average debt during the nine month period was primarily the result of the funding of the Vesta Modular, Brekke Storage, Dixie Storage and Inland Leasing acquisitions.

Pre-tax income contribution by Mobile Modular and TRS-RenTelco was 83% and 18%, respectively, compared to 70% and 29%, respectively, for the comparable 2022 period.

These results are discussed on a segment basis below.

Enviroplex pre-tax income contribution was negative 4% and negative 2% in 2023 and 2022, respectively.

The provision for income taxes resulted in an effective tax rate of 21.5% and 23.3%, for the periods ended June 30, 2023 and 2022, respectively.

Adjusted EBITDA increased $30.9 million, or 29%, to $138.7 million in 2023, compared to $107.8 in 2022.

Enviroplex pre-tax income contribution was negative 1% and 1% in 2023 and 2022, respectively.

The provision for income taxes resulted in an effective tax rate of 24.5% and 24.1%, for the periods ended September 30, 2023 and 2022, respectively.

Adjusted EBITDA increased $61.6 million, or 36%, to $234.0 million in 2023, compared to $172.5 million in 2022.

Mobile Modular

For the six months ended June 30, 2023, Mobile Modular’s total revenues increased $88.9 million, or 44%, to $290.9 million compared to the same period in 2022, primarily due to higher rental, sales, and rental related services revenues.

The revenue increase, together with higher gross profit on rental, rental related services and sales revenues, partly offset by higher selling and administrative expenses resulted in a 6% increase in pre-tax income to $40.7 million for the six months ended June 30, 2023, from $38.6 million for the same period in 2022.

For the nine months ended September 30, 2023, Mobile Modular’s total revenues increased $157.9 million, or 48%, to $485.8 million, compared to the same period in 2022, 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 38% increase in pre-tax income to $87.9 million for the nine months ended September 30, 2023, from $63.5 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.

Mobile Modular –

Six Months Ended 6/30/23 compared to Six Months Ended 6/30/22 (Unaudited)

Nine Months Ended 9/30/23 compared to Nine Months Ended 9/30/22 (Unaudited)

(dollar amounts in thousands)

Six Months Ended

Nine Months Ended

September 30,

Increase (Decrease)

31 unchanged sentences

nm = Not meaningful

Mobile Modular’s gross profit for the six months ended June 30, 2023 increased $47.4 million, or 51%, to $140.2 million.

For the six months ended June 30, 2023 compared to the same period in 2022:

Mobile Modular’s gross profit for the nine months ended September 30, 2023 increased $84.6 million, or 57%, to $234.0 million.

For the nine months ended September 30, 2023 compared to the same period in 2022:

Gross Profit on Rental Revenues –

1 unchanged sentence

The increase in rental revenue and average equipment on rent was due in part to the Vesta Modular acquisition.

As a percentage of rental revenues, depreciation was 12% in both 2023 and 2022, and other direct costs were 30% in 2023 and 35% in 2022, which resulted in gross margin percentages of 59% in 2023 and 53% in 2022.

As a percentage of rental revenues, depreciation was 11% and 12% in 2023 and 2022, respectively, and other direct costs were 28% in 2023 and 34% in 2022, which resulted in gross margin percentages of 61% in 2023 and 54% in 2022.

The higher rental revenues and rental margins resulted in gross profit on rental revenues increasing $55.1 million, or 52%, to $160.3 million in 2023.

Vesta Modular contributed $14.4 million gross profit on rental revenues in 2023.

Vesta Modular contributed $37.4 million and $24.7 million in rental revenues and gross profit on rental revenues in 2023, respectively.

Gross Profit on Rental Related Services –

Rental related services revenues increased $32.2 million, or 48%, compared to 2022.

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 return delivery revenues at Portable Storage.

The higher revenues and higher gross margin percentage of 30% in 2023, compared to 28% in 2022, resulted in rental related services gross profit increasing $10.9 million, or 58%, to $29.5 million in 2023.

Vesta Modular contributed $2.6 million gross profit on rental related services revenues in 2023.

Vesta Modular contributed $11.4 million and $4.4 million in rental related services revenues and gross profit on rental related services revenues in 2023, respectively.

Gross Profit on Sales –

Sales revenues increased $21.8 million, or 62%, compared to 2022, due to higher new equipment sales.

The lower gross margin percentage of 33% in 2023 compared to 40% in 2022, primarily due to lower margins on new equipment sales revenues and lower used equipment sales, resulted in gross profit on sales increasing $4.6 million, or 32%, to $18.7 million.

Sales revenues increased $51.7 million, or 81%, compared to 2022, due to higher new equipment sales with gross margin percentage of 33% in 2023 compared to 38% in 2022, primarily due to a higher mix of new versus used equipment sales revenues.

Gross profit on sales increased $13.4 million, or 55%, to $37.7 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.

Vesta Modular contributed $4.6 million gross profit on sales revenues in 2023.

For the six months ended June 30, 2023, selling and administrative expenses increased $34.4 million, or 68%, to $84.8 million, primarily due to increased employee salaries and benefit costs of $10.8 million, due in part to the addition of Vesta Modular employees, $10.5 million higher allocated corporate expenses, which includes $5.4 million in allocated divestiture transaction costs, and a $10.3 million increase in marketing and administrative expenses, which includes $7.6 million in acquisition related transaction costs.

For the six months ended June 30, 2023, TRS-RenTelco’s total revenues increased $3.1 million, to $74.0 million compared to the same period in 2022, primarily due to higher sales and other revenues.

Pre-tax income decreased $4.9 million, or 30%, to $11.3 million for the six months ended June 30, 2023, compared to the same period in 2022, primarily due to lower gross profit on rental revenues and $3.4 million higher selling and administrative expenses, partly offset by higher other and sales revenues.

Vesta Modular contributed $33.4 million and $9.7 million in sales revenues and gross profit on sales revenues in 2023, respectively.

For the nine months ended September 30, 2023, selling and administrative expenses increased $45.4 million, or 57%, to $124.6 million, primarily due to increased employee salaries and benefit costs of $16.5 million, due in part to the addition of Vesta Modular employees, $13.2 million higher allocated corporate expenses, which includes $5.4 million in allocated divestiture transaction costs, and a $11.3 million increase in marketing and administrative expenses, which includes $7.7 million in acquisition related transaction costs.

For the nine months ended September 30, 2023, TRS-RenTelco’s total revenues increased $3.7 million, to $113.1 million, compared to the same period in 2022, primarily due to higher sales and other revenues, partly offset by lower rental revenues.

Pre-tax income decreased $7.7 million, or 29%, to $18.6 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to lower gross profit on rental revenues and $3.6 million 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 –

Six Months Ended 6/30/23 compared to Six Months Ended 6/30/22 (Unaudited)

Nine Months Ended 9/30/23 compared to Nine Months Ended 9/30/22 (Unaudited)

(dollar amounts in thousands)

Six Months Ended

Nine Months Ended

September 30,

Increase (Decrease)

32 unchanged sentences

nm = Not meaningful

TRS-RenTelco’s gross profit for the six months ended June 30, 2023 increased $0.7 million, or 2%, to $31.5 million.

For the six months ended June 30, 2023 compared to the same period in 2022:

TRS-RenTelco’s gross profit for the nine months ended September 30, 2023 decreased $1.6 million, or 3%, to $47.2 million.

For the nine months ended September 30, 2023 compared to the same period in 2022:

Gross Profit on Rental Revenues –

Rental revenues decreased $0.5 million, or 1%, and depreciation expense increased $0.3 million, or 1%, resulting in a 6% decrease in gross profit on rental revenues to $22.3 million.

Rental revenues decreased $3.6 million, or 4%, to $86.4 million.

The rental revenue decrease, coupled with comparable depreciation expense and higher other direct costs, resulted in a 10% decrease in gross profit on rental revenues to $33.8 million.

As a percentage of rental revenues, depreciation was 43% and 41% in 2023 and 2022, respectively, and other direct costs were 18% and 17% in 2023 and 2022, respectively, which resulted in a gross margin percentage of 39% and 42% in 2023 and 2022, respectively.

6 unchanged sentences

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 six months ended June 30, 2023, selling and administrative expenses increased $3.4 million, or 26%, to $16.6 million, primarily due to higher allocated corporate expenses.

For the nine months ended September 30, 2023, selling and administrative expenses increased $3.6 million, or 18%, to $23.6 million, primarily due to higher allocated corporate expenses.

Adjusted EBITDA

16 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Twelve Months Ended

September 30,

Income from continuing operations

9 unchanged sentences

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

For the six months ended June 30, 2023, total Adjusted EBITDA from both continuing and discontinued operations was $142.4 million, compared to $123.0 million for the same period in 2022, excluding the gain on divestiture of Adler Tanks.

For the six months ended June 30, 2023 and 2022, the total Adjusted EBITDA from continuing operations was $138.7 million and $107.8 million, respectively, and the total Adjusted EBITDA from discontinued operations was $3.7 million and $15.2 million, respectively.

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

For the nine months ended September 30, 2023, total Adjusted EBITDA from both continuing and discontinued operations was $237.7 million, excluding the gain on divestiture of Adler Tanks, compared to $197.9 million for the same period in 2022.

For the nine months ended September 30, 2023 and 2022, the total Adjusted EBITDA from continuing operations was $234.0 million and $172.5 million, respectively, and the total Adjusted EBITDA from discontinued operations was $3.7 million and $25.4 million, respectively.

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

2 unchanged sentences

Three Months Ended

Six 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 (gain) loss

Foreign currency exchange loss

Amortization of debt issuance costs

6 unchanged sentences

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”

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, Series E Senior Notes and Series F Senior Notes (as defined and more fully described under the heading “Liquidity and Capital Resources”

in this MD&A).

3 unchanged sentences

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 June 30, 2023, the actual ratio was 3.82 to 1.

At September 30, 2023, the actual ratio was 3.68 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 June 30, 2023, the actual ratio was 2.18 to 1.

At June 30, 2023, the Company was in compliance with each of the aforementioned covenants.

At September 30, 2023, the actual ratio was 2.03 to 1.

At September 30, 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 six months ended June 30, 2023 compared to the same period in 2022 are summarized as follows:

Cash flows for the Company for the nine months ended September 30, 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 $118.9 million in 2023, compared to net cash provided of $133.3 million in 2022.

The $10.6 million decrease in net cash provided by operating activities was primarily attributable to $33.7 million lower deferred income taxes, partially offset by a $25.3 million increase in accounts payable and accrued liabilities, primarily due to higher income taxes payable.

The $14.4 million decrease in net cash provided by operating activities was primarily attributable to $25.7 million lower deferred income taxes, partially offset by a $18.4 million increase in accounts payable and accrued liabilities, a result of higher income taxes payable.

Cash Flows from Investing Activities:

Net cash used in investing activities was $331.5 million in 2023, compared to $86.8 million in 2022.

The $230.6 million increase in cash used was primarily due to the $456.3 million paid for the acquisitions of Vesta Modular, Brekke Storage and Dixie Storage in 2023, partly offset by $268.0 million in proceeds from the sale of discontinued operations from the divestiture of Adler Tanks.

The $244.8 million increase in cash used was primarily due to the $458.3 million paid for the business acquisitions of Vesta Modular, Brekke Storage and Dixie Storage in 2023, partly offset by $268.0 million in proceeds from the sale of discontinued operations from the divestiture of Adler Tanks.

Cash Flows from Financing Activities:

Net cash provided by financing activities was $213.6 million in 2023, compared to net cash used of $46.4 million in 2022.

The $243.2 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, Brekke Storage and Dixie Storage acquisitions.

The $260.1 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, Brekke Storage and Dixie Storage business acquisitions and capital needs for the tax obligations arising from the divestiture of Adler Tanks.

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

12 unchanged sentences

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

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.

1 unchanged sentence

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

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 $572.7 million was outstanding and had capacity to borrow up to an additional $77.3 million.

At September 30, 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 $492.7 million was outstanding and had capacity to borrow up to an additional $157.3 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 June 30, 2023, the actual ratio was 3.82 to 1.

At September 30, 2023, the actual ratio was 3.68 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 June 30, 2023, the actual ratio was 2.18 to 1.

At June 30, 2023, the Company was in compliance with each of the aforementioned covenants.

At September 30, 2023, the actual ratio was 2.03 to 1.

At September 30, 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.

4 unchanged sentences

Pursuant to the Prior NPA, the Company issued (i) $40.0 million aggregate principal amount of its 2.57% Series D Senior Notes, due March 17, 2028, and (ii) $60.0 million aggregate principal amount of its 2.35% Series E Senior Notes, due June 16, 2026, 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) $300 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.

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) $300 million minus (y) the amount of other notes (such as the Series D Senior Notes, Series E Senior Notes and Series F 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’

3 unchanged sentences

6.25% Senior Notes Due in 2030

and the noteholders party thereto.

The Series F Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 6.25% per annum and mature on September 27, 2030.

Interest on the Series F Senior Notes is payable semi-annually beginning on March 27, 2024 and continuing thereafter on September 27 and March 27 of each year until maturity.

The principal balance is due when the notes mature on September 27, 2030.

The full net proceeds from the Series F Senior Notes will primarily be used to fulfill the income tax obligations incurred from the divestiture of Adler Tanks.

At September 30, 2023, the principal balance outstanding under the Series F Senior Notes was $75.0 million.

2.57% Senior Notes Due in 2028

On March 17, 2021, the Company issued and sold to the purchasers $40.0 million aggregate principal amount of 2.57% Series D Notes (the “Series D Senior Notes”) pursuant to the terms of the Amended and Restated Note Purchase and Private Shelf Agreement, dated March 31, 2020 (the “Note Purchase Agreement”), among the Company, PGIM, Inc.

4 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 June 30, 2023, the principal balance outstanding under the Series D Senior Notes was $40.0 million.

At September 30, 2023, the principal balance outstanding under the Series D Senior Notes was $40.0 million.

2.35% Senior Notes Due in 2026

2 unchanged sentences

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

Interest on the Series E Senior Notes is payable semi-annually beginning on December 16, 2021 and continuing

thereafter on June 16 and December 16 of each year until maturity.

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

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

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

At June 30, 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):

At September 30, 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, Series E Senior Notes and Series F 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 June 30, 2023, the actual ratio was 3.82 to 1.

At September 30, 2023, the actual ratio was 3.68 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 June 30, 2023, the actual ratio was 2.18 to 1.

At June 30, 2023, the Company was in compliance with each of the aforementioned covenants.

At September 30, 2023, the actual ratio was 2.03 to 1.

At September 30, 2023, the Company was in compliance with each of the aforementioned covenants.

6 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 six months ended June 30, 2023 and 2022.

As of June 30, 2023, 1,309,805 shares remained authorized for repurchase under the Repurchase Plan.

There were no shares repurchased in the nine months ended September 30, 2023 and 2022.

As of September 30, 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 June 30, 2023.

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, 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