What changed in this filing

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Item 1. Financial Statements

2024-04-25 compared with 2023-10-26 · 166 added, 724 removed, 363 unchanged (71% of the section changed)

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Results of review of interim financial statements

We have reviewed the accompanying condensed consolidated balance sheet of McGrath RentCorp (a California Corporation) and subsidiaries (the “Company”) as of 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”).

We have reviewed the accompanying condensed consolidated balance sheet of McGrath RentCorp (a California Corporation) and subsidiaries (the “Company”) as of March 31, 2024, and the related condensed consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the three-months ended March 31, 2024 and 2023, and the related notes (collectively referred to as the “interim financial statements”).

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company as of December 31, 2022, and the related consolidated statements of income, comprehensive income, shareholders’

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company as of December 31, 2023, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the year then ended (not presented herein);

and in our report dated February 21, 2024, we expressed an unqualified opinion on those consolidated financial statements.

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Basis for review results

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

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

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San Francisco, California

October 26, 2023

April 25, 2024

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)

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Selling and administrative expenses

Other income, net

Income from operations

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

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CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

(in thousands)

Accounts receivable, net of allowance for credit losses of $ 2,683 in 2023 and $ 2,300 in 2022

Accounts receivable, net of allowance for credit losses of $ 2,819 at March 31, 2024 and $ 2,801 at December 31, 2023

Rental equipment, at cost:

Relocatable modular buildings

Portable storage containers

Electronic test equipment

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Intangible assets, net

Assets of discontinued operations

Liabilities and Shareholders' Equity

Notes payable

Accounts payable and accrued liabilities

Accounts payable

Accrued liabilities

Deferred income

Deferred income taxes, net

Liabilities of discontinued operations

Total liabilities

Shareholders’

Shareholders’ equity:

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

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

Issued and outstanding - 24,541 shares as of March 31, 2024 and 24,496 shares as of December 31, 2023

Retained earnings

Accumulated other comprehensive loss

Total shareholders’

Total liabilities and shareholders’

Total shareholders’ equity

Total liabilities and shareholders’ equity

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

McGrath RentCorp

CONDENSED Consolidated Statements OF SHAREHOLDERS’

CONDENSED Consolidated Statements OF SHAREHOLDERS’ EQUITY

Comprehensive

Shareholders’

(in thousands, except per share amounts)

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Dividends accrued of $ 0.475 per share

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 $ 0.465 per share

Other comprehensive income

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

Balance at March 31, 2024

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

Comprehensive

Shareholders’

(in thousands, except per share amounts)

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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.

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CONDENSED Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

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Gain on sale of used rental equipment

Foreign currency exchange (gain) loss

Foreign currency exchange loss (gain)

Amortization of debt issuance costs

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Prepaid expenses and other assets

Accounts payable and accrued liabilities

Accounts payable

Accrued liabilities

Deferred income

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Cash paid for acquisition of businesses

Cash paid for acquisition of business assets

Proceeds from sales of used rental equipment

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Cash Flows from Financing Activities:

Net borrowings (payments) under bank lines of credit

Borrowings under note purchase agreement

Net borrowings under bank lines of credit

Taxes paid related to net share settlement of stock awards

Payment of dividends

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Effect of foreign currency exchange rate changes on cash

Net increase in cash

Net increase (decrease) in cash

Cash balance, beginning of period

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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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2023

March 31, 2024

CONDENSED CONSOLIDATED FINANCIAL INFORMATION

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 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”).

The condensed consolidated financial statements for the three months ended March 31, 2024 and 2023 have not been audited, but in the opinion of management, all adjustments (consisting of normal recurring accruals, consolidating and eliminating entries) necessary for the fair presentation of the consolidated financial position, results of operations and cash flows of McGrath RentCorp (the “Company”) have been made.

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

The consolidated results for the three months ended March 31, 2024, 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 21, 2024 for the year ended December 31, 2023 (the “2023 Annual Report”).

Agreement and Plan of Merger with WillScot Mobile Mini Holdings Corp.

On January 28, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), with WillScot Mobile Mini Holdings Corp., a Delaware corporation ("WillScot Mobile Mini”), Brunello Merger Sub I, Inc., a California corporation and a direct wholly owned subsidiary of WillScot Mobile Mini (“Merger Sub I”), and Brunello Merger Sub II, LLC, a Delaware limited liability company and direct wholly owned subsidiary of WillScot Mobile Mini (“Merger Sub II”).

The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub I will merge with and into the Company (the “First-Step Merger”), with the Company surviving the First-Step Merger and, immediately thereafter, the Company will merge with and into Merger Sub II (the “Second-Step Merger” and together with the First-Step Merger, the “Transaction”), with Merger Sub II surviving the Second-Step Merger as a wholly owned subsidiary of WillScot Mobile Mini.

Each of the parties to the Merger Agreement intends that the Transaction will be treated as a single integrated transaction that qualifies as a “reorganization” within the meaning of Section 368(a) of the U.S.

Internal Revenue Code of 1986, as amended.

Consummation of the Transaction is subject to the approval of the Company’s shareholders, the receipt of required regulatory approvals, and satisfaction or waiver of other customary closing conditions.

The First-Step Merger and the Second-Step Merger will be consummated on the same day.

On the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the First-Step Merger (the “Effective Time”), each share of common stock, no par value, of the Company (the “Company Common Stock”) issued and outstanding immediately prior to the Effective Time, other than shares of Company Common Stock owned by WillScot Mobile Mini or any subsidiary of WillScot Mobile Mini or the Company, and shares held by shareholders who did not vote in favor of the Transaction (or consent thereto in writing) and who are entitled to demand and properly demands appraisal of such shares, will be automatically converted into the right to receive either (1) $ 123 in cash (the “Per Share Cash Consideration”) or (2) 2.8211 (the “Exchange Ratio”) shares of validly issued, fully paid and nonassessable shares of common stock, par value $ 0.0001 , of WillScot Mobile Mini (the “WillScot Mobile Mini Common Stock”) (the “Per Share Stock Consideration” together with the Per Share Cash Consideration, the “Merger Consideration”), as determined pursuant to the election and allocation procedures in the Merger Agreement.

The Company’s shareholders will have the opportunity to elect to receive either the Per Share Cash Consideration or the Per Share Stock Consideration in respect of their Company Common Stock, provided that 60 % of the Company Common Stock will be converted into the cash consideration and 40 % of the Company Common Stock will be converted into the stock consideration.

Pursuant to the terms of the Merger Agreement, the closing of the Merger Agreement is subject to the satisfaction of customary closing conditions, including adoption of the Merger Agreement by the Company’s shareholders and receipt of regulatory approvals.

The closing of the Transaction is not subject to any financing condition.

NEW ACCOUNTING PRONOUNCEMENTS

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

In December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes—Improvements to Income Tax Disclosures (Topic 740), which will require Companies to disclose annually the specific categories in income tax rate reconciliations, provide additional information for reconciling items which meet a quantitative threshold, and disaggregate domestic and foreign income or loss from continuing operations.

Additionally, this ASU will also require the disclosure of income tax expense or benefit from continuing operations disaggregated by federal, state and foreign.

This ASU is effective for fiscal years beginning after December 15, 2024, and applied on a prospective basis.

The Company is in the process of evaluating the financial statement impact of this ASU.

In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures (Topic 280), which will require public companies to provide more transparency in both quarterly and

annual reports about the expenses they incur from revenue generating reportable business segments.

In addition, the ASU requires that a public entity disclose significant segment expenses that are regularly provided to the chief operating decision maker, an amount for other segment items by reportable business segment, including a description of its composition, and the primary measures of a business segment's profit or loss in assessing segment performance.

This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

The Company is in the process of evaluating the financial statement impact of this ASU.

IMPLEMENTED ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2024, the Company adopted the 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.

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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 to 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.

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.

(“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.

Vesta Modular was 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 Accounting Standards Codification ("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.

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.

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

The financial results of Vesta Modular were a part of the Mobile Modular segment since February 1, 2023, including $ 7.7 million of acquisition related transaction costs.

On March 1, 2023, the Company completed the acquisition 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.

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 was accounted for as a purchase of a “business”

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

The financial results of Dixie Storage were a part of the Mobile Modular segment since April 1, 2023, including $ 0.1 million of transaction costs.

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

The acquisition expanded the 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 Portable Storage segment since March 1, 2023, including $ 0.2 million of transaction costs.

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

Dixie Storage was 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 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 Dixie Storage were a part of the Portable Storage segment since April 1, 2023, including $ 0.1 million of transaction costs.

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.

Inland Leasing was 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 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.

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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 following tables summarize the 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.

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 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.

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

The combined acquired goodwill of $ 217.4 million reflects the strategic fit of Vesta Modular, Brekke Storage and Dixie Storage with the Company’s modular and portable storage business operations.

The combined acquired goodwill of $ 216.8 million reflects the strategic fit of Vesta Modular, Brekke Storage and Dixie 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, 8 years for Brekke Storage and 9 years for Dixie Storage.

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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 following table reports the actual results of the Company for the three months ended March 31, 2024, and the unaudited pro forma financial information for the three months ended March 31, 2023.

The 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 period 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 nine months ended September 30, 2023 and 2022, have been adjusted to include transaction related costs.

A pro forma adjustment has been made to reflect the income taxes that would have been recorded at the combined federal and state statutory rate of 26.5 % on the acquisitions’ combined net income.

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

Three months ended March 31,

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

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("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 total transaction costs incurred from the divestiture were $ 8.8 million, with $ 6.7 million and $ 2.1 million incurred during the years ended December 31, 2023 and 2022, respectively.

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.

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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 nine months ended September 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 three months ended March 31, 2023:

(dollar amounts in thousands)

Nine Months Ended

September 30,

Three Months Ended

Rental related services

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Selling and administrative expenses

Income from operations

Operating income

Interest expense allocation

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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:

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 consolidated balance sheets as of December 31, 2022, which was the most recently audited period prior to divestiture:

(in thousands)

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Total liabilities of discontinued operations

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

September 30,

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

(in thousands)

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Purchases of property, plant and equipment

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,

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

(in thousands)

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REVENUE RECOGNITION

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

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

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

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

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

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

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

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

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

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

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.

Revenue from contracts that satisfy the criteria for over time recognition are 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.

The timing of revenue recognition, billings, and cash collections results in billed contract receivables and contract assets on the Company's Consolidated Balance Sheets.

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 $ 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.

These contract assets and liabilities are reported on the Consolidated Balance Sheets 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 Sheets totaled $ 54.3 million and $ 40.7 million at March 31, 2024 and December 31, 2023, respectively.

Sales revenues totaling $ 9.7 million were recognized during the three months ended March 31, 2024, which were included in the contract liability balance at December 31, 2023.

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 $ 1.2 million and $ 0.6 million at September 30, 2023 and December 31, 2022, respectively.

These unbilled contract assets are included in Accounts receivable on the Company’s Consolidated Balance Sheets and totaled $ 8.4 million and $ 8.7 million at March 31, 2024 and December 31, 2023, respectively.

The Company did not recognize any material contract asset impairments during the periods ended March 31, 2024 and December 31, 2023, respectively.

The Company's uncompleted contracts with customers which meet the criteria for over-time revenue recognition have unsatisfied or partially satisfied performance obligations.

As of March 31, 2024, approximately $ 50.3 million of revenue is expected to be recognized for unsatisfied or partially satisfied obligations.

The Company expects to recognize revenue for approximately one half of

these unsatisfied or partially satisfied performance obligations over the next 12 months, with the remaining balance recognized thereafter.

For the three months ended March 31, 2024, approximately $ 40.2 million of revenue was recognized for sales and non-lease services transferred at a point in time and approximately $ 7.5 million of revenue was recognized for sales and non-lease services transferred over time.

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

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

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

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

8 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 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.

As of the three months ended March 31, 2024, the Company’s future minimum lease payments to be received under non-cancelable finance leases were $ 3.2 million.

Of the total investment in sales-type leases, non-current future minimum lease payments are expected to be $ 0.8 million in 2025, $ 0.4 million in 2026, and $ 0.1 million in 2027.

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.

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 three months ended March 31, 2024.

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

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.

In the three months ended March 31, 2024, the Company’s lease revenues were $ 140.2 million, consisting of $ 139.8 million of operating lease revenues and $ 0.4 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, 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.

The Company’s finance lease revenues for the three months ended March 31, 2024 include $ 0.3 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, 2023 and 2022:

The following table disaggregates the Company’s revenues by lease (within the scope of Topic 842) and non-lease revenues (within the scope of Topic 606) and the underlying service provided for the three months ended March 31, 2024 and 2023:

(in thousands)

Tanks (Discontinued)

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,

Portable Storage

Three Months Ended March 31,

Rental related services

5 unchanged sentences

Customer returns of rental equipment prior to the end of the rental contract term are typically billed a cancellation fee, which is recorded as rental revenue in the period billed.

Sales of new relocatable modular buildings, portable storage containers, electronic test equipment and related accessories and liquid and solid containment tanks and boxes not manufactured by the Company are typically covered by warranties provided by the manufacturer of the products sold.

Sales of new relocatable modular buildings, portable storage containers and electronic test equipment not manufactured by the Company are typically covered by warranties provided by the manufacturer of the products sold.

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

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

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

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

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

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

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

Other Income, net

Other income, net 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.

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

EARNINGS PER SHARE

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

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

1 unchanged sentence

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

4 unchanged sentences

calculating diluted earnings per share

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.

There were 73,190 and 96,241 anti-dilutive securities excluded from the computation of diluted earnings per share for the three months ended March 31, 2024 and 2023, respectively.

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

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

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

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

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

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

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

There were no shares repurchased during the three and 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

Changes in the carrying amount of goodwill were as follows:

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 months ended March 31, 2024 and 2023.

As of March 31, 2024, 1,309,805 shares remained authorized for repurchase under the Repurchase Plan.

Inventories consist of raw materials, supplies and work-in-process.

Inventories are measured at the lower of actual cost or net realizable value for acquired units and estimated standard costs for manufactured units.

The costs include expenditures incurred in acquiring the inventories, manufacturing, production costs, and other costs incurred in bringing them to their existing location and condition.

The following table presents the carrying value of inventories:

(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

Changes to Vesta Modular purchase accounting

Derecognition of goodwill divested

Balance at September 30, 2023

Raw materials

Work-in-process

GOODWILL AND INTANGIBLE ASSETS

Intangible assets consist of the following:

3 unchanged sentences

Net book value

September 30, 2023

March 31, 2024

Customer relationships

5 unchanged sentences

Non-compete agreements

Customer backlog

Total amortizing

Trade name - non-amortizing

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

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

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

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

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

The Company last conducted a qualitative analysis of its goodwill and intangible assets in the fourth quarter 2023, with no indicators of impairment.

In addition, no impairment triggering events occurred during the nine months ended September 30, 2023.

In addition, no impairment triggering events occurred during the three months ended March 31, 2024, and there were no changes to the carrying value of goodwill during this period.

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, 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.

Amortization expense in the three months ended March 31, 2024 and 2023, was $ 2.6 million and $ 2.3 million, respectively.

Based on the carrying values at March 31, 2024 and assuming no subsequent impairment of the underlying assets, the amortization expense is expected to be $ 7.7 million for the remainder of fiscal year 2024, $ 10.2 million in 2025, $ 9.8 million in 2026, $ 9.6 million in 2027, $ 8.2 million in 2028 and $ 4.7 million in 2029.

SEGMENT REPORTING

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”);

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

and (3) its classroom manufacturing segment selling modular buildings used primarily as classrooms in California (“Enviroplex”).

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

Item 1, “Business,”

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

Summary of Significant Accounting Policies”

in the Company’s 2022 Annual Report.

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

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.

During the quarter ended December 31, 2023, the Company determined that its Portable Storage business segment met the criteria for separate recognition as defined in the Accounting Standards Codification ("ASC") Topic 280, Segment Reporting.

The guidance under this topic requires a public business entity to evaluate both quantitative and qualitative thresholds to determine the significance of a business segment and whether the separate reporting of a business segment enhances the users' understanding of the reporting entity's performance, future net cash flows and judgments.

The Company evaluated the guidance within Topic 280 and made its determination to separately report the Portable Storage segment primarily due to the Company's continued growth in container fleet purchases and related increased revenues and improved profitability performance when compared to previously reported periods.

In addition to this determination, the Company also divested its Adler Tanks business segment during the year ended December 31, 2023.

Additional information regarding the divestiture of Adler Tanks can be found in Note 5 of the condensed consolidated financial statements.

At March 31, 2024, the Company was comprised of four reportable segments:

(1) its modular building segment (“Mobile Modular”);

(2) its portable storage container segment ("Portable Storage");

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

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

The operations of each of these segments are described in Part I – Item 1, “Business,” and the accounting policies of the segments are described in “Note 1 – Summary of Significant Accounting Policies” in the Company’s 2023 Annual Report.

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

Interest expense is allocated amongst Mobile Modular, Portable Storage 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, 2023 and 2022 for the Company’s reportable segments and discontinued operations are shown in the following table:

Summarized financial information for the three months ended March 31, 2024 and 2023 for the Company’s reportable segments are shown in the following table:

(dollar amounts in thousands)

Tanks (Discontinued) 3

Nine Months Ended September 30,

Portable Storage

Three Months Ended March 31,

Rental revenues

7 unchanged sentences

Income (loss) before provision for income taxes

Adjusted EBITDA

Rental equipment acquisitions

12 unchanged sentences

Interest (expense) income allocation

Income before provision for income taxes

Adjusted EBITDA

Income (loss) before provision for income taxes

Rental equipment acquisitions

4 unchanged sentences

Average utilization 2

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.

Gross Enviroplex sales revenues were $ 1,719 and $ 941 for the three months ended March 31, 2024 and 2023, respectively.

There were no inter-segment sales to Mobile Modular in the three months ended March 31, 2024 and 2023, 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.

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 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.

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

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

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

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

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

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

This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes included in Part I—Item 1 of this Form 10-Q and the Consolidated Financial Statements and related Notes and the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 22, 2023 (the “2022 Annual Report”).

In preparing the following MD&A, we presume that readers have access to and have read the MD&A in our 2022 Annual Report, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K.

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

The 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 three reportable business segments:

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

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

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 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, 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.

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

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

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

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

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

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

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

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

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

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

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

(For more information, see “

Business –

Relocatable Modular Buildings –

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

in the Company’s 2022 Annual Report and “

Risk Factors –

Significant reductions of, or delays in, funding to public schools have caused the demand and pricing for our modular classroom units

to decline, which has in the past caused, and may cause in the future, a reduction in our revenues and profitability ”

in Part II –

Other Information of this Form 10-Q.)

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

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

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).

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, 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.

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

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

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

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

Recent Developments

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 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 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 $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 $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, 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 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 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.

Mobile Modular –

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

(dollar amounts in thousands)

Three Months Ended

September 30,

Increase (Decrease)

Rental related services

Rental operations

Total revenues

Costs and Expenses

Direct costs of rental operations:

Depreciation of rental equipment

Rental related services

Total direct costs of rental operations

Costs of sales

Total costs of revenues

Rental related services

Rental operations

Total gross profit

Selling and administrative expenses

Income from operations

Interest expense allocation

Pre-tax income

Other Selected Information

Adjusted EBITDA

Average rental equipment 1

Average rental equipment on rent

Average monthly total yield 2

Average utilization 3

Average monthly rental rate 4

Period end rental equipment 1

Period end utilization 3

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

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

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

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

Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent, for the period.

nm = Not meaningful

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 –

Rental revenues increased $24.9 million, or 36%, due to 30% higher average rental equipment on rent and 5% higher average monthly rental rates in 2023.

As a percentage of rental revenues, depreciation was 11% in both 2023 and 2022, and other direct costs were 25% in 2023 and 33% in 2022, which resulted in gross margin percentages of 64% in 2023, compared to 56% in 2022.

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 $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 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 $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 $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 $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 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.

TRS-RenTelco –

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

(dollar amounts in thousands)

Three Months Ended

September 30,

Increase (Decrease)

Rental related services

Rental operations

Total revenues

Costs and Expenses

Direct costs of rental operations:

Depreciation of rental equipment

Rental related services

Total direct costs of rental operations

Costs of sales

Total costs of revenues

Rental related services

Rental operations

Total gross profit

Selling and administrative expenses

Income from operations

Interest expense allocation

Foreign currency exchange loss

Pre-tax income

Other Selected Information

Adjusted EBITDA

Average rental equipment 1

Average rental equipment on rent

Average monthly total yield 2

Average utilization 3

Average monthly rental rate 4

Period end rental equipment 1

Period end utilization 3

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

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

Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent, for the period.

nm = Not meaningful

TRS-RenTelco’s gross profit for the 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 $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 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 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 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 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.

Selling and administrative expenses increased $49.7 million to $153.0 million, primarily due to $20.9 million higher marketing and administrative costs, which included $14.3 million in acquisition and divestiture related transaction costs, and an increase in employees’

salaries and benefit costs of $18.9 million, partly attributable to the increased employee headcount from the Vesta Modular acquisition.

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 $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 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 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 –

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

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 –

Rental revenues increased $68.8 million, or 35%, primarily due to 27% higher average rental equipment on rent and 7% higher average rental rates in 2023.

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 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 $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 delivery and 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 $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 $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 $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 –

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

(dollar amounts in thousands)

Nine Months Ended

September 30,

Increase (Decrease)

Rental related services

Rental operations

Total revenues

Costs and Expenses

Direct costs of rental operations:

Depreciation of rental equipment

Rental related services

Total direct costs of rental operations

Costs of sales

Total costs of revenues

Rental related services

Rental operations

Total gross profit

Selling and administrative expenses

Income from operations

Interest expense allocation

Foreign currency exchange loss

Pre-tax income

Other Selected Information

Adjusted EBITDA

Average rental equipment 1

Average rental equipment on rent

Average monthly total yield 2

Average utilization 3

Average monthly rental rate 4

Period end rental equipment 1

Period end utilization 3

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

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

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

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

Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent, for the period.

nm = Not meaningful

TRS-RenTelco’s gross profit for the nine months ended September 30, 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 $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.

The rental revenues decrease was due to 6% lower average rental equipment on rent, partly offset by 2% higher average monthly rental rates in 2023, as compared to 2022.

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

Gross Profit on Sales –

Sales revenues increased $5.5 million, or 35%, to $21.4 million in 2023.

Gross profit on sales increased $0.6 million, or 6%, to $10.1 million, with a gross margin percentage of 47% in 2023, compared to 60% 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, 2023, selling and administrative expenses increased $3.6 million, or 18%, to $23.6 million, primarily due to higher allocated corporate expenses.

Adjusted EBITDA

To supplement the Company’s financial data presented on a basis consistent with accounting principles generally accepted in the United States of America (“GAAP”), the Company presents “Adjusted EBITDA”, which is defined by the Company as net income before interest expense, provision for income taxes, depreciation, amortization, share-based compensation and transaction costs.

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, 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.

Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows, or other consolidated income or cash flow data prepared in accordance with GAAP or as a measure of the Company’s profitability or liquidity.

Adjusted EBITDA is not in accordance with or an alternative for GAAP, and may be different from non−GAAP measures used by other companies.

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

In addition, other companies may not use Adjusted EBITDA or may use other non-GAAP measures, limiting the usefulness of Adjusted EBITDA for purposes of comparison.

The Company’s presentation of Adjusted EBITDA should not be construed as an inference that the Company will not incur expenses that are the same as or similar to the adjustments in this presentation.

Therefore, Adjusted EBITDA should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures.

The Company compensates for the limitations of Adjusted EBITDA by relying upon GAAP results to gain a complete picture of the Company’s performance.

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

Reconciliation of 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,

Income from continuing operations

Provision for income taxes from continuing operations

Interest expense

Depreciation and amortization

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.

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.

Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities

(dollar amounts in thousands)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Twelve Months Ended

September 30,

Adjusted EBITDA 1

Interest paid

Income taxes paid, net of refunds received

Gain on sale of used rental equipment

Foreign currency exchange loss

Amortization of debt issuance costs

Change in certain assets and liabilities:

Accounts receivable, net

Prepaid expenses and other assets

Accounts payable and other liabilities

Deferred income

Net cash provided by operating activities

Adjusted EBITDA is defined as 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, 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).

These instruments contain financial covenants requiring the Company to not:

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

in this MD&A)) of Adjusted

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

At September 30, 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 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.

Liquidity and Capital Resources

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

Cash flows for the Company for the nine months ended September 30, 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 $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 $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 $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.

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

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

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

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

Unsecured Revolving Lines of Credit

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

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

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

The Credit Facility permits the Company’s existing indebtedness to remain, which includes the Company’s $20.0 million Treasury Sweep Note due July 15, 2027, the Company’s existing senior notes issued pursuant to the Note Purchase and Private Shelf Agreement with Prudential Investment Management, Inc., dated as of April 21, 2011 (as amended):

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

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

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

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.

for its cash management services.

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

At September 30, 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 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 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.

Note Purchase and Private Shelf Agreement

On June 8, 2023, the Company entered into a Second Amended and Restated Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”) with PGIM, Inc.

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

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

Pursuant to the Prior NPA, the Company issued (i) $40.0 million aggregate principal amount of its 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, 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’

agreement to purchase the Shelf Notes.

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

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

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.

and the noteholders party thereto.

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

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

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

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

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

2.35% Senior Notes Due in 2026

On June 16, 2021, the Company issued and sold to the purchasers $60.0 million aggregate principal amount of 2.35% Series E Notes (the "Series E Notes") pursuant to the terms of the Amended and Restated Note Purchase and Private Shelf Agreement, dated March 31, 2020 (the “Note Purchase Agreement”), among the Company, PGIM, Inc.

and the noteholders party thereto.

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

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

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

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

At September 30, 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 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 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.

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.

Common Stock Purchase

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

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

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

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

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

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

Contractual Obligations and Commitments

We believe that our contractual obligations and commitments have not changed materially from those included in our 2022 Annual Report.

Critical Accounting Estimates

There were no material changes in our judgments and assumptions associated with the development of our critical accounting estimates during the period ended September 30, 2023.

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

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the Company’s market risk exposures from those reported in our 2022 Annual Report.

No single customer accounted for more than 10% of total revenues for the three months ended March 31, 2024 and 2023.

Revenues from foreign country customers accounted for 2 % and 3 % of the Company’s total revenues for the same periods, respectively.

SUBSEQUENT EVENT

On April 23, 2024, the Company entered into a first incremental facility amendment with Bank of America, N.A., as Administrative Agent and the first incremental lender (“BoA”) and the guarantors named therein (the “First Incremental Amendment”).

The First Incremental Amendment amends the Second Amended and Restated Credit Agreement, dated as of July 15, 2022, as amended, by and among the Company, BoA, the other lenders named therein, and the guarantors named therein (the “Credit Agreement”) to institute an incremental term loan “A” facility in an aggregate principal amount of $ 75.0 million (the “Incremental Credit Facility”).

The proceeds from the Incremental Credit Facility will be used for general corporate purposes.

Concurrently with entry into the First Incremental Amendment, the Company repaid revolving loans issued under the Credit Agreement in an aggregate amount equal to $ 75.0 million.

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