Item 2. Management’s Discussion and Analysis
Item 2. 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, 2023, as filed with the SEC on February 21, 2024 (the “2023 Annual Report”). In preparing the following MD&A, we presume that readers have access to and have read the MD&A in our 2023 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.
General
The Company, incorporated in 1979, is a leading rental provider of relocatable modular buildings for classroom and office space and electronic test equipment for general purpose and communications needs. The Company’s primary emphasis is on equipment rentals. The Company is comprised of four reportable business segments: (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 business selling modular buildings used primarily as classrooms in California (“Enviroplex”).
In the nine months ended September 30, 2024, Mobile Modular, Portable Storage, TRS-RenTelco and Enviroplex contributed 69%, 17%, 11% and 3% of the Company’s income from continuing operations before provision for taxes (the equivalent of “pretax income”), respectively, compared to 60%, 23%, 18% and negative 1% for the same period in 2023.
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, 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 “ Item 1. Business – Relocatable Modular Buildings – Classroom Rentals and Sales to Public Schools (K-12) ” in the Company’s 2023 Annual Report and “ Item 1a. 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 Portable Storage consists of the rental and sale of steel containers and ground level offices to provide a temporary storage solution that is delivered to the customer’s location and addresses the need for secure temporary storage with immediate access to the unit. The portable storage container rental market in the U.S. has a large and diverse number of market segments including construction, retail, commercial and industrial, energy and petrochemical, manufacturing, education and healthcare.
24
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 71% and 74% of consolidated revenues from continuing operations in the nine months ended September 30, 2024 and 2023, respectively. Of the total continuing rental operations revenues for the nine months ended September 30, 2024, Mobile Modular, Portable Storage and TRS-RenTelco comprised 69%, 14% and 17%, respectively, compared to 64%, 16% and 20%, respectively, in the same period of 2023. 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, Portable Storage and TRS-RenTelco business segments sell modular units, storage containers 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, 2024 and 2023, sales and other revenues of modular, container and electronic test equipment comprised approximately 29% and 26% 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, 2024 and 2023, Mobile Modular and Enviroplex together comprised 85% and 82%, respectively, Portable Storage comprised 3% in both periods, and TRS-RenTelco comprised 12% and 16%, 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. Transaction costs incurred by the Company attributed to the terminated Merger Agreement with WillScot Mobile Mini were considered non-operating and excluded from Selling and administrative expenses. 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
Mutual Decision to Terminate Merger Agreement with WillScot Mobile Mini
As previously disclosed, 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, and Brunello Merger Sub II, LLC, a Delaware limited liability company and direct wholly owned subsidiary of WillScot Mobile Mini. On September 17, 2024, the Company and WillScot Mobile Mini agreed to terminate the Merger Agreement effective upon WillScot Mobile Mini's cash payment of $180.0 million to the Company, which was received on September 20, 2024.
Dividends
On September 9, 2024, the Company announced that the Board of Directors declared a quarterly cash dividend of $0.475 per common share for the quarter ended September 30, 2024, an increase of 2% over the prior year’s comparable quarter.
25
Results of Operations
Three Months Ended September 30, 2024 Compared to
Three Months Ended September 30, 2023
Overview
Consolidated revenues for the three months ended September 30, 2024, increased 10% to $266.8 million, from $243.5 million for the same period in 2023. Consolidated net income for the three months ended September 30, 2024, increased $109.0 to $149.3 million, from $40.4 million for the same period in 2023. Earnings per diluted share for the three months ended September 30, 2024, increased by $4.43 to $6.08, compared to $1.65 for the same period in 2023. The increase in consolidated net income and earnings per diluted share during the period was primarily attributed to the $180.0 million gain on merger termination, partly offset by $39.4 million in transaction costs attributed to the terminated Merger Agreement, net of provision for income taxes. Excluding the gain and transaction costs attributed to the merger termination in the current year, the Company's net income increased by approximately $5.5 million, or 14%, to $45.9 million, and diluted earnings per share increased $0.22, or 13%, to $1.87.
There was no revenue, income or earnings per share from discontinued operations for the three months ended September 30, 2024 and 2023.
For the three months ended September 30, 2024, on a consolidated basis from continuing operations:
• Gross profit increased $12.4 million, or 11%, to $124.0 million in 2024. Mobile Modular’s gross profit increased $13.8 million, or 18%, primarily due to higher gross profit on rental, sales and rental related services revenues. Portable Storage's gross profit decreased $2.2 million, or 13%, primarily due to lower gross profit on rental and rental related services revenues. TRS-RenTelco’s gross profit decreased $1.6 million, or 10%, primarily due to lower gross profit on rental revenues. Enviroplex’s gross profit increased $2.5 million, due to higher sales revenue and an increase in sales margins in 2024.
• Selling and administrative expenses increased 2% to $49.3 million. During the period ended September 30, 2024, the Company determined that transaction costs incurred by the Company attributed to the terminated Merger Agreement were significant and required separate presentation on the condensed consolidated statements of income. Due to this determination, the Company has excluded the transaction costs incurred by the Company from Selling and administrative expenses for all reportable business segments for the period ended September 30, 2024.
• Interest expense increased $1.6 million to $12.6 million, which was primarily attributed to $86.2 million higher average debt levels of the Company and a higher effective interest rate in 2024 of 6.63%, compared to 6.52% for the same period in 2023. The 13% increase in average debt when compared to 2023 was primarily the result of the funding of rental equipment purchases and transaction costs regarding the terminated merger with WillScot Mobile Mini.
• Pre-tax income contribution by Mobile Modular, Portable Storage and TRS-RenTelco was 71%, 12% and 9%, respectively, compared to 70%, 15% and 13%, respectively, for the comparable 2023 period. These results are discussed on a segment basis below. Enviroplex pre-tax income contribution was 5% and 2% in 2024 and 2023, respectively.
• The provision for income taxes resulted in an effective tax rate of 26.4% and 27.3%, for the quarters ended September 30, 2024 and 2023, respectively.
• Adjusted EBITDA increased $12.2 million, or 13%, to $104.0 million in 2024.
26
Mobile Modular
For the three months ended September 30, 2024, Mobile Modular’s total revenues increased $23.0 million, or 14%, to $191.4 million compared to the same period in 2023, primarily due to higher sales, rental related services and rental revenues. The revenue increase, together with higher gross profit on rental, sales and rental related services revenues, partly offset by $2.2 million higher selling and administrative expenses, resulted in a $6.9 million increase in pre-tax income to $45.8 million for the three months ended September 30, 2024, from $38.9 million for the same period in 2023.
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 9/30/24 compared to Three Months Ended 9/30/23 (Unaudited)
(dollar amounts in thousands)
Three Months Ended
September 30,
Increase (Decrease)
2024
2023
$
%
Revenues
Rental
$
81,508
$
74,796
$
6,712
9
%
Rental related services
42,396
34,429
7,967
23
%
Rental operations
123,904
109,225
14,679
13
%
Sales
65,994
57,723
8,271
14
%
Other
1,509
1,908
(399
)
(21
)%
Total revenues
191,407
168,856
22,551
13
%
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment
10,124
9,123
1,001
11
%
Rental related services
27,366
23,033
4,333
19
%
Other
20,549
21,222
(673
)
(3
)%
Total direct costs of rental operations
58,039
53,378
4,661
9
%
Costs of sales
43,595
39,039
4,556
12
%
Total costs of revenues
101,634
92,417
9,217
10
%
Gross Profit
Rental
50,835
44,451
6,384
14
%
Rental related services
15,030
11,395
3,635
32
%
Rental operations
65,865
55,846
10,019
18
%
Sales
22,399
18,684
3,715
20
%
Other
1,509
1,908
(399
)
(21
)%
Total gross profit
89,773
76,438
13,335
17
%
Expenses:
Selling and administrative expenses 5
34,028
31,813
2,215
7
%
Other income, net
—
(2,290
)
(2,290
)
nm
Income from operations
55,745
46,915
8,830
19
%
Interest expense allocation
9,979
8,014
1,965
25
%
Pre-tax income
$
45,766
$
38,901
$
6,865
18
%
Other Selected Information
Adjusted EBITDA
$
71,420
$
58,166
$
13,254
23
%
Average rental equipment 1
$
1,240,950
$
1,137,675
$
103,275
9
%
Average rental equipment on rent
$
956,245
$
909,377
$
46,868
5
%
Average monthly total yield 2
2.19
%
2.19
%
—
Average utilization 3
77.1
%
79.9
%
(4
)%
Average monthly rental rate 4
2.84
%
2.74
%
4
%
Period end rental equipment 1
$
1,259,179
$
1,145,377
$
113,802
10
%
Period end utilization 3
76.5
%
80.2
%
(5
)%
1. Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.
2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period.
3. 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.
4. 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.
5. During the period ended September 30, 2024, the Company determined that transaction costs incurred by the Company attributed to the terminated Merger Agreement were significant. Due to this determination, the Company reclassified $29.5 million in transaction costs from Selling and administrative expenses in 2024, and reported such expenses separately under the Corporate segment.
27
nm = Not meaningful
Mobile Modular’s gross profit for the three months ended September 30, 2024, increased $13.3 million, or 17%, to $89.8 million. For the three months ended September 30, 2024, compared to the same period in 2023:
• Gross Profit on Rental Revenues – Rental revenues increased $6.7 million, or 9%, due to 5% higher average rental equipment on rent and 4% higher average monthly rental rates in 2024. As a percentage of rental revenues, depreciation was 12% in both 2024 and 2023, and other direct costs were 25% in 2024 and 29% in 2023, which resulted in gross margin percentages of 62% in 2024, compared to 59% in 2023. The higher rental revenues and higher rental margins, resulted in gross profit on rental revenues increasing $6.4 million, or 14%, to $50.8 million in 2024.
• Gross Profit on Rental Related Services – Rental related services revenues increased $8.0 million, or 23%, compared to 2023. The increase in rental related services revenues was primarily attributable to higher delivery, return delivery and dismantle revenues and higher site related services. The increase in revenues coupled with higher gross margin percentage of 35% in 2024, compared to 33% in 2023, resulted in rental related services gross profit increasing $3.6 million, or 32%, to $15.0 million in 2024.
• Gross Profit on Sales – Sales revenues increased $8.3 million, or 14%, compared to 2023, due to higher new equipment sales. The higher gross margin percentage of 34% in 2024 compared to 32% in 2023, together with higher sales revenue, resulted in gross profit on sales increasing $3.7 million, or 20%, to $22.4 million. The higher gross profit on sales in 2024 was primarily due to higher new equipment sales. Sales occur routinely as a normal part of Mobile Modular’s rental business; however, these sales and related gross margins can fluctuate from quarter to quarter and year to year depending on customer requirements, the scope of work to be performed, equipment availability and funding.
For the three months ended September 30, 2024, selling and administrative expenses increased $2.2 million, or 7%, to $34.0 million.
28
Portable Storage
For the three months ended September 30, 2024, Portable Storage’s total revenues decreased $3.0 million, or 11%, to $23.1 million compared to the same period in 2023, primarily due to lower rental and rental related services revenues. Lower gross profit on rental and rental related services revenues, partly offset by lower selling and administrative expenses, resulted in a decrease in pre-tax income of $1.0 million, or 12%, to $7.4 million in 2024.
The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.
Portable Storage – Three Months Ended 9/30/24 compared to Three Months Ended 9/30/23 (Unaudited)
(dollar amounts in thousands)
Three Months Ended
September 30,
Increase (Decrease)
2024
2023
$
%
Revenues
Rental
$
17,040
$
19,232
$
(2,192
)
(11
)%
Rental related services
4,405
5,287
(882
)
(17
)%
Rental operations
21,445
24,519
(3,074
)
(13
)%
Sales
1,411
1,144
267
23
%
Other
195
363
(168
)
nm
Total revenues
23,051
26,026
(2,975
)
(11
)%
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment
1,006
914
92
10
%
Rental related services
4,280
4,894
(614
)
(13
)%
Other
1,327
2,131
(804
)
(38
)%
Total direct costs of rental operations
6,613
7,939
(1,326
)
(17
)%
Costs of sales
906
782
124
16
%
Total costs of revenues
7,519
8,721
(1,202
)
(14
)%
Gross Profit
Rental
14,707
16,187
(1,480
)
(9
)%
Rental related services
125
394
(269
)
(68
)%
Rental operations
14,832
16,581
(1,749
)
(11
)%
Sales
505
362
143
40
%
Other
195
363
(168
)
nm
Total gross profit
15,532
17,306
(1,774
)
(10
)%
Expenses:
Selling and administrative expenses 5
6,790
8,019
(1,229
)
(15
)%
Other income, net
—
(450
)
(450
)
nm
Income from operations
8,742
9,737
(995
)
(10
)%
Interest expense allocation
1,388
1,397
(9
)
(1
)%
Pre-tax income
$
7,354
$
8,340
$
(986
)
(12
)%
Other Selected Information
Adjusted EBITDA
$
10,796
$
12,047
$
(1,251
)
(10
)%
Average rental equipment 1
$
229,231
$
212,888
$
16,343
8
%
Average rental equipment on rent
$
144,000
$
162,869
$
(18,869
)
(12
)%
Average monthly total yield 2
2.48
%
3.01
%
(18
)%
Average utilization 3
62.8
%
76.5
%
(18
)%
Average monthly rental rate 4
3.94
%
3.94
%
0
%
Period end rental equipment 1
$
230,261
$
216,132
$
14,129
7
%
Period end utilization 3
62.0
%
77.2
%
(20
)%
1. Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.
2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period.
3. 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.
4. 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.
5. During the period ended September 30, 2024, the Company determined that transaction costs incurred by the Company attributed to the terminated Merger Agreement were significant. Due to this determination, the Company reclassified $3.5 million in transaction costs from Selling and administrative expenses in 2024, and reported such expenses separately under the Corporate segment.
nm = Not meaningful
29
Portable Storage’s gross profit for the three months ended September 30, 2024, decreased $1.8 million, or 10%, to $15.5 million. For the three months ended September 30, 2024, compared to the same period in 2023:
• Gross Profit on Rental Revenues – Rental revenues decreased $2.2 million, or 11%, due to 12% lower average rental equipment on rent. As a percentage of rental revenues, depreciation was 6% and 5% in 2024 and 2023, respectively, and other direct costs were 8% and 11% in 2024 and 2023, respectively, which resulted in gross margin percentage of 86% in 2024 and 84% in 2023. The lower rental revenues and higher rental margins resulted in gross profit on rental revenues decreasing $1.5 million, or 9%, to $14.7 million in 2024.
• Gross Profit on Rental Related Services – Rental related services revenues was $4.4 million, compared to $5.3 million during the same period in 2023. The gross margin on rental related services revenues was 3% in 2024, compared to 7% in 2023. The lower revenues coupled with lower gross margins in 2024, resulted in rental related services gross profit decreasing $0.3 million, when compared to 2023.
• Gross Profit on Sales – Sales revenues increased $0.3 million to $1.4 million, primarily due to higher used equipment sales. The higher sales revenues and increased gross margins of 36% in 2024, compared to 32% in 2023, resulted in sales gross profit increasing $0.1 million, or 40%, to $0.5 million in 2024. Sales occur routinely as a normal part of Portable Storage’s rental business; however, these sales can fluctuate from period to period depending on customer requirements, equipment availability and funding.
For the three months ended September 30, 2024, Portable Storage’s selling and administrative expenses decreased $1.2 million, or 15%, to $6.8 million.
30
TRS-RenTelco
For the three months ended September 30, 2024, TRS-RenTelco’s total revenues decreased $4.3 million to $34.8 million, compared to the same period in 2023, primarily due to lower rental and sales revenues. Lower gross profit on rental revenues, partly offset by higher gross profit on sales and lower selling and administrative expenses, resulted in a 21% decrease in pre-tax income to $5.7 million for the three months ended September 30, 2024, from $7.3 million for the same period in 2023.
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 9/30/24 compared to Three Months Ended 9/30/23 (Unaudited)
(dollar amounts in thousands)
Three Months Ended
September 30,
Increase (Decrease)
2024
2023
$
%
Revenues
Rental
$
25,655
$
28,658
$
(3,003
)
(10
)%
Rental related services
900
776
124
16
%
Rental operations
26,555
29,434
(2,879
)
(10
)%
Sales
7,604
8,733
(1,129
)
(13
)%
Other
642
942
(300
)
(32
)%
Total revenues
34,801
39,109
(4,308
)
(11
)%
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment
10,851
12,032
(1,181
)
(10
)%
Rental related services
793
605
188
31
%
Other
5,376
5,140
236
5
%
Total direct costs of rental operations
17,020
17,777
(757
)
(4
)%
Costs of sales
3,688
5,651
(1,963
)
(35
)%
Total costs of revenues
20,708
23,428
(2,720
)
(12
)%
Gross Profit
Rental
9,428
11,486
(2,058
)
(18
)%
Rental related services
107
171
(64
)
(37
)%
Rental operations
9,535
11,657
(2,122
)
(18
)%
Sales
3,916
3,082
834
27
%
Other
642
942
(300
)
(32
)%
Total gross profit
14,093
15,681
(1,588
)
(10
)%
Expenses:
Selling and administrative expenses 5
6,627
6,999
(372
)
(5
)%
Other income, net
—
(819
)
(819
)
nm
Income from operations
7,466
9,501
(2,035
)
(21
)%
Interest expense allocation
1,949
2,207
(258
)
(12
)%
Foreign currency exchange (gain) loss
(216
)
42
258
nm
Pre-tax income
$
5,733
$
7,252
$
(1,519
)
(21
)%
Other Selected Information
Adjusted EBITDA
$
18,945
$
21,039
$
(2,094
)
(10
)%
Average rental equipment 1
$
362,431
$
385,353
$
(22,922
)
(6
)%
Average rental equipment on rent
$
207,788
$
229,062
$
(21,274
)
(9
)%
Average monthly total yield 2
2.36
%
2.46
%
(4
)%
Average utilization 3
57.3
%
59.4
%
(4
)%
Average monthly rental rate 4
4.12
%
4.17
%
(1
)%
Period end rental equipment 1
$
354,183
$
383,952
$
(29,769
)
(8
)%
Period end utilization 3
59.0
%
60.3
%
(2
)%
1. Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.
2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period.
3. 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.
4. 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.
5. During the period ended September 30, 2024, the Company determined that transaction costs incurred by the Company attributed to the terminated Merger Agreement were significant. Due to this determination, the Company reclassified $6.4 million in transaction costs from Selling and administrative expenses in 2024, and reported such expenses separately under the Corporate segment.
31
nm = Not meaningful
TRS-RenTelco’s gross profit for the three months ended September 30, 2024 decreased $1.6 million, or 10%, to $14.1 million. For the three months ended September 30, 2024 compared to the same period in 2023:
• Gross Profit on Rental Revenues – Rental revenues decreased $3.0 million, or 10%, depreciation expense decreased $1.2 million, or 10%, and other direct costs increased by $0.3 million, or 5%, resulting in a 18% decrease in gross profit on rental revenues to $9.4 million. As a percentage of rental revenues, depreciation was 42% in both 2024 and 2023 and other direct costs were 21% and 18%, in 2024 and 2023, respectively, which resulted in a gross margin percentage of 37% and 40% in 2024 and 2023, respectively. The decrease in rental revenues was primarily due to a 9% reduction in average rental equipment on rent and 1% lower average monthly rental rates in 2024, as compared to 2023.
• Gross Profit on Sales – Sales revenues decreased $1.1 million, or 13%, to $7.6 million in 2024. Gross profit on sales increased $0.8 million, or 27%, to $3.9 million, with a higher gross margin percentage of 52% in 2024, compared to 35% in 2023. 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, 2024, selling and administrative expenses decreased $0.4 million, or 5%, to $6.6 million.
32
Nine Months Ended September 30, 2024 Compared to
Nine Months Ended September 30, 2023
Overview
Consolidated revenues for the nine months ended September 30, 2024, increased 9% to $667.2 million, from $610.3 million for the same period in 2023. Consolidated net income for the nine months ended September 30, 2024, increased $50.2 million to $192.8 million, from $142.6 million for the same period in 2023. Earnings per diluted share for the nine months ended September 30, 2024, increased by $2.04 to $7.85, compared to $5.81 for the same period in 2023. The increase in consolidated net income and earnings per diluted share during the period was primarily attributed to the $180.0 million gain on merger termination, partly offset by $61.2 million in transaction costs attributed to the terminated merger agreement. Excluding the gain and transaction costs attributed to the merger termination in the current year and the gain on sale of discontinued operations in 2023, the Company's net income increased by approximately $25.4 million, or 32%, to $105.2 million, and diluted earnings per share increased $1.03, or 32%, to $4.28.
There were no revenues from discontinued operations for the nine months ended September 30, 2024, compared to $9.4 million for the same period in 2023. There was no income or earnings per diluted share from discontinued operations for the nine months ended September 30, 2024. Income from discontinued operations for the same period in 2023 was $62.8 million, which included the $61.5 million net gain on sale of discontinued operations, and earnings per diluted share from discontinued operations for the nine months ended September 30, 2023 was $2.56. 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, 2024, on a consolidated basis from continuing operations:
• Gross profit increased $37.2 million, or 13%, to $320.7 million in 2024. Mobile Modular’s gross profit increased $39.7 million, or 22%, largely due to higher gross profit on rental, sales and rental related services revenues. Portable Storage's gross profit decreased $1.8 million, or 4%, primarily due to lower gross profit on rental related services and rental revenues. TRS-RenTelco’s gross profit decreased $6.2 million, or 13%, primarily due to lower gross profit on rental revenues. Enviroplex’s gross profit increased $5.5 million, due to higher sales revenue and an increase in sales margins in 2024.
• Selling and administrative expenses decreased $4.3 million to $148.8 million, primarily due to $14.3 million in transaction costs incurred by the Company in 2023, attributed to the acquisitions of Vesta Modular, Brekke Storage, Dixie Storage and Inland Leasing, and the divestiture of Adler Tanks, partly offset by an increase in employee salaries and benefit costs of $5.1 million in 2024. During the period ended September 30, 2024, the Company determined that transaction costs incurred by the Company attributed to the terminated Merger Agreement were significant and required separate presentation on the condensed consolidated statements of income. Due to this determination, the Company has excluded the transaction costs incurred by the Company from Selling and administrative expenses for all reportable business segments for the nine-months ended September 30, 2024.
• Interest expense increased $9.9 million to $38.4 million, which was primarily attributed to $138.7 million higher average debt levels of the Company and a higher effective interest rate in 2024 of 6.60%, compared to 5.96% for the same period in 2023. The 22% increase in average debt when compared to 2023 was primarily the result of the funding of rental equipment purchases, taxes paid attributed to the gain on sale of discontinued operations and transaction costs regarding the terminated merger with WillScot Mobile Mini.
• Pre-tax income contribution by Mobile Modular, Portable Storage and TRS-RenTelco was 69%, 17% and 11%, respectively, compared to 60%, 23% and 18%, respectively, for the comparable 2023 period. These results are discussed on a segment basis below. Enviroplex pre-tax income contribution was 3% and negative 1% in 2024 and 2023, respectively.
• The provision for income taxes resulted in an effective tax rate of 26.3% and 24.5%, for the periods ended September 30, 2024 and 2023, respectively. The increase in effective tax rate during the current period was largely attributed to increased business activity in higher tax rate states.
• Adjusted EBITDA increased $29.2 million, or 13%, to $259.7 million in 2024.
33
Mobile Modular
For the nine months ended September 30, 2024, Mobile Modular’s total revenues increased $51.9 million, or 13%, to $463.5 million compared to the same period in 2023, 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, and a $6.2 million allocated net gain on the sale of a corporate property, resulted in a $34.3 million increase in pre-tax income to $98.3 million for the nine months ended September 30, 2024, from $64.0 million for the same period in 2023.
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 9/30/24 compared to Nine Months Ended 9/30/23 (Unaudited)
(dollar amounts in thousands)
Nine Months Ended
September 30,
Increase (Decrease)
2024
2023
$
%
Revenues
Rental
$
236,040
$
209,622
$
26,418
13
%
Rental related services
95,450
83,799
11,651
14
%
Rental operations
331,490
293,421
38,069
13
%
Sales
127,251
112,939
14,312
13
%
Other
4,795
5,249
(454
)
(9
)%
Total revenues
463,536
411,609
51,927
13
%
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment
29,994
27,196
2,798
10
%
Rental related services
62,974
55,702
7,272
13
%
Other
64,487
68,726
(4,239
)
(6
)%
Total direct costs of rental operations
157,455
151,624
5,831
4
%
Costs of sales
83,180
76,303
6,877
9
%
Total costs of revenues
240,635
227,927
12,708
6
%
Gross Profit
Rental
141,559
113,700
27,859
25
%
Rental related services
32,476
28,097
4,379
16
%
Rental operations
174,035
141,797
32,238
23
%
Sales
44,071
36,636
7,435
20
%
Other
4,795
5,249
(454
)
nm
Total gross profit
222,901
183,682
39,219
21
%
Expenses:
Selling and administrative expenses 5
100,882
101,360
(478
)
(0
)%
Other income, net
(6,220
)
(2,290
)
(3,930
)
nm
Income from operations
128,239
84,612
43,627
52
%
Interest expense allocation
29,951
20,607
9,344
45
%
Pre-tax income
$
98,288
$
64,005
$
34,283
54
%
Other Selected Information
Adjusted EBITDA
$
168,165
$
135,107
$
33,058
24
%
Average rental equipment 1
$
1,206,361
$
1,073,384
$
132,977
12
%
Average rental equipment on rent
$
940,878
$
855,218
$
85,660
10
%
Average monthly total yield 2
2.17
%
2.17
%
—
Average utilization 3
78.0
%
79.7
%
(2
)%
Average monthly rental rate 4
2.79
%
2.72
%
3
%
Period end rental equipment 1
$
1,259,179
$
1,145,377
$
113,802
10
%
Period end utilization 3
76.5
%
80.2
%
(5
)%
1. Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.
2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period.
3. 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.
4. 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.
5. During the period ended September 30, 2024, the Company determined that transaction costs incurred by the Company attributed to the terminated Merger Agreement were significant and required separate presentation. The Company reported such expenses separately under the Corporate segment and excluded such costs from Selling and administrative expenses.
34
nm = Not meaningful
Mobile Modular’s gross profit for the nine months ended September 30, 2024, increased $39.2 million, or 21%, to $222.9 million. For the nine months ended September 30, 2024, compared to the same period in 2023:
• Gross Profit on Rental Revenues – Rental revenues increased $26.4 million, or 13%, due to 10% higher average rental equipment on rent and 3% higher average monthly rental rates in 2024. As a percentage of rental revenues, depreciation was 13% in both 2024 and 2023, and other direct costs were 27% in 2024 and 33% in 2023, which resulted in gross margin percentages of 60% in 2024, compared to 54% in 2023. The higher rental revenues and higher rental margins, resulted in gross profit on rental revenues increasing $27.9 million, or 25%, to $141.6 million in 2024.
• Gross Profit on Rental Related Services – Rental related services revenues increased $11.7 million, or 14%, compared to 2023. The increase in rental related services revenues was primarily attributable to higher delivery, return delivery and dismantle revenues and higher site related services. The increase in revenues accompanied by comparable gross margin percentage of 34% in 2024, resulted in rental related services gross profit increasing $4.4 million, or 16%, to $32.5 million in 2024.
• Gross Profit on Sales – Sales revenues increased $14.3 million, or 13%, compared to 2023, due to higher new and used equipment sales. The higher gross margin percentage of 35% in 2024 compared to 32% in 2023, together with higher sales revenue, resulted in gross profit on sales increasing $7.4 million, or 20%, to $44.1 million. The higher gross margin on sales in 2024 was primarily due to higher margins on both new and used equipment sales. Sales occur routinely as a normal part of Mobile Modular’s rental business; however, these sales and related gross margins can fluctuate from quarter to quarter and year to year depending on customer requirements, the scope of work to be performed, equipment availability and funding.
For the nine months ended September 30, 2024, selling and administrative expenses decreased $0.5 million to $100.9 million, when compared to the same period in 2023.
35
Portable Storage
For the nine months ended September 30, 2024, Portable Storage’s total revenues decreased $2.4 million, or 3%, to $71.8 million compared to the same period in 2023, primarily due to lower rental related services and rental revenues, partly offset by higher sales revenues. Lower gross profit on rental related services and rental revenues, coupled with a $1.3 million allocated net gain on the sale of a corporate property, resulted in a comparable pre-tax income of $23.9 million in 2024.
The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.
Portable Storage – Nine Months Ended 9/30/24 compared to Nine Months Ended 9/30/23 (Unaudited)
(dollar amounts in thousands)
Nine Months Ended
September 30,
Increase (Decrease)
2024
2023
$
%
Revenues
Rental
$
53,270
$
54,776
$
(1,506
)
(3
)%
Rental related services
13,768
15,359
(1,591
)
(10
)%
Rental operations
67,039
70,135
(3,096
)
(4
)%
Sales
3,889
2,890
999
35
%
Other
907
1,167
(260
)
(22
)%
Total revenues
71,835
74,192
(2,357
)
(3
)%
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment
2,971
2,570
401
16
%
Rental related services
13,212
13,916
(704
)
(5
)%
Other
4,322
5,619
(1,297
)
(23
)%
Total direct costs of rental operations
20,505
22,105
(1,600
)
(7
)%
Costs of sales
2,390
1,799
591
33
%
Total costs of revenues
22,895
23,904
(1,009
)
(4
)%
Gross Profit
Rental
45,977
46,587
(610
)
(1
)%
Rental related services
556
1,443
(887
)
(61
)%
Rental operations
46,533
48,030
(1,497
)
(3
)%
Sales
1,499
1,091
408
37
%
Other
907
1,167
(260
)
(22
)%
Total gross profit
48,939
50,288
(1,349
)
(3
)%
Expenses:
Selling and administrative expenses 5
22,064
23,282
(1,218
)
(5
)%
Other income, net
(1,319
)
(450
)
(869
)
nm
Income from operations
28,194
27,456
738
3
%
Interest expense allocation
4,255
3,522
733
21
%
Pre-tax income
$
23,939
$
23,934
$
5
0
%
Other Selected Information
Adjusted EBITDA
$
33,333
$
34,375
$
(1,042
)
(3
)%
Average rental equipment 1
$
226,373
$
201,946
$
24,427
12
%
Average rental equipment on rent
$
149,705
$
158,383
$
(8,678
)
(5
)%
Average monthly total yield 2
2.61
%
3.01
%
(13
)%
Average utilization 3
66.1
%
78.4
%
(16
)%
Average monthly rental rate 4
3.95
%
3.84
%
3
%
Period end rental equipment 1
$
230,261
$
216,132
$
14,129
7
%
Period end utilization 3
62.0
%
77.2
%
(20
)%
1. Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.
2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period.
3. 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.
4. 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.
5. During the period ended September 30, 2024, the Company determined that transaction costs incurred by the Company attributed to the terminated Merger Agreement were significant and required separate presentation. The Company reported such expenses separately under the Corporate segment and excluded such costs from Selling and administrative expenses.
nm = Not meaningful
36
Portable Storage’s gross profit for the nine months ended September 30, 2024, decreased $1.3 million, or 3%, to $48.9 million. For the nine months ended September 30, 2024, compared to the same period in 2023:
• Gross Profit on Rental Revenues – Rental revenues decreased $1.5 million, or 3%, due to 5% lower average rental equipment on rent, partly offset by 3% higher average monthly rental rates in 2024. As a percentage of rental revenues, depreciation was 6% and 5% in 2024 and 2023, respectively, and other direct costs were 8% and 10% in 2024 and 2023, respectively, which resulted in gross margin percentage of 86% and 85% in 2024 and 2023, respectively. The lower rental revenues and higher rental margins resulted in gross profit on rental revenues decreasing $0.6 million, or 1%, to $46.0 million in 2024.
• Gross Profit on Rental Related Services – Rental related services revenues was $13.8 million, a decrease of $1.6 million compared to 2023. The gross margin on rental related services revenues was 4% in 2024, compared to 9% in 2023. The lower revenues coupled with lower gross margins in 2024, resulted in rental related services gross profit decreasing $0.9 million, when compared to 2023.
• Gross Profit on Sales – Sales revenues increased $1.0 million, primarily due to higher used equipment sales. The higher sales revenues and higher gross margins of 39% in 2024, compared to 38% in 2023, resulted in sales gross profit increasing $0.4 million, or 37%, to $1.5 million in 2024. Sales occur routinely as a normal part of Portable Storage’s rental business; however, these sales can fluctuate from period to period depending on customer requirements, equipment availability and funding.
For the nine months ended September 30, 2024, Portable Storage’s selling and administrative expenses decreased $1.2 million when compared to the same period in 2023. The reduction in selling and administrative expenses was primarily the result of allocated transaction costs of $1.1 million in 2023, attributed to the acquisitions of Vesta Modular, Brekke Storage, Dixie Storage and Inland Leasing, and the divestiture of Adler Tanks.
37
TRS-RenTelco
For the nine months ended September 30, 2024, TRS-RenTelco’s total revenues decreased $11.8 million to $101.2 million, compared to the same period in 2023, primarily due to lower rental and sales revenues. Lower gross profit on rental revenues, partly offset by a $1.7 million allocated net gain on the sale of a corporate property, resulted in a 13% decrease in pre-tax income to $16.2 million for the nine months ended September 30, 2024, from $18.6 million for the same period in 2023.
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 9/30/24 compared to Nine Months Ended 9/30/23 (Unaudited)
(dollar amounts in thousands)
Nine Months Ended
September 30,
Increase (Decrease)
2024
2023
$
%
Revenues
Rental
$
76,398
$
86,375
$
(9,977
)
(12
)%
Rental related services
2,422
2,323
99
4
%
Rental operations
78,820
88,698
(9,878
)
(11
)%
Sales
20,261
21,368
(1,107
)
(5
)%
Other
2,153
3,008
(855
)
(28
)%
Total revenues
101,234
113,074
(11,840
)
(10
)%
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment
33,547
36,733
(3,186
)
(9
)%
Rental related services
2,029
2,007
22
1
%
Other
15,373
15,843
(470
)
(3
)%
Total direct costs of rental operations
50,949
54,583
(3,634
)
(7
)%
Costs of sales
9,346
11,307
(1,961
)
(17
)%
Total costs of revenues
60,295
65,890
(5,595
)
(8
)%
Gross Profit
Rental
27,478
33,799
(6,321
)
(19
)%
Rental related services
393
316
77
24
%
Rental operations
27,871
34,115
(6,244
)
(18
)%
Sales
10,915
10,061
854
8
%
Other
2,153
3,008
(855
)
(28
)%
Total gross profit
40,939
47,184
(6,245
)
(13
)%
Expenses:
Selling and administrative expenses 5
20,450
23,576
(3,126
)
(13
)%
Other income, net
(1,742
)
(819
)
(923
)
nm
Income from operations
22,231
24,427
(2,196
)
(9
)%
Interest expense allocation
6,070
6,008
62
1
%
Foreign currency exchange gain
(53
)
(166
)
(113
)
nm
Pre-tax income
$
16,214
$
18,585
$
(2,371
)
(13
)%
Other Selected Information
Adjusted EBITDA
$
55,426
$
63,212
$
(7,786
)
(12
)%
Average rental equipment 1
$
367,137
$
391,993
$
(24,856
)
(6
)%
Average rental equipment on rent
$
208,639
$
231,273
$
(22,634
)
(10
)%
Average monthly total yield 2
2.31
%
2.43
%
(5
)%
Average utilization 3
56.8
%
59.0
%
(4
)%
Average monthly rental rate 4
4.07
%
4.15
%
(2
)%
Period end rental equipment 1
$
354,183
$
383,952
$
(29,769
)
(8
)%
Period end utilization 3
59.0
%
60.3
%
(2
)%
1. Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.
2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period.
3. 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.
4. 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.
5. During the period ended September 30, 2024, the Company determined that transaction costs incurred by the Company attributed to the terminated Merger Agreement were significant and required separate presentation. The Company reported such expenses separately under the Corporate segment and excluded such costs from Selling and administrative expenses.
38
nm = Not meaningful
TRS-RenTelco’s gross profit for the nine months ended September 30, 2024 decreased $6.2 million, or 13%, to $40.9 million. For the nine months ended September 30, 2024 compared to the same period in 2023:
• Gross Profit on Rental Revenues – Rental revenues decreased $10.0 million, or 12%, depreciation expense decreased $3.2 million, or 9%, and other direct costs decreased by $0.5 million, or 3%, resulting in a 19% decrease in gross profit on rental revenues to $27.5 million. As a percentage of rental revenues, depreciation was 44% and 43% in 2024 and 2023, respectively, and other direct costs were 20% and 18%, in 2024 and 2023, respectively, which resulted in a gross margin percentage of 36% and 39% in 2024 and 2023, respectively. The decrease in rental revenues was primarily due to a 10% reduction in average rental equipment on rent and 2% lower average monthly rental rates in 2024, as compared to 2023.
• Gross Profit on Sales – Sales revenues decreased $1.1 million, or 5%, to $20.3 million in 2024. Gross profit on sales was $10.9 million, an increase of $0.9 million when compared to 2023, with a gross margin percentage of 54% in 2024, up from 47% in 2023. 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, 2024, selling and administrative expenses decreased $3.1 million, or 13%, to $20.5 million, when compared to the same period in 2023. The reduction in selling and administrative expenses was primarily the result of allocated transaction costs of $1.4 million in 2023, attributed to the acquisitions of Vesta Modular, Brekke Storage, Dixie Storage and Inland Leasing, and the divestiture of Adler Tanks.
39
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, non-cash impairment costs, share-based compensation, transaction costs, gains on property sales and non-operating transactions. 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 and non-recurring transactions, including share-based compensation, transaction costs and gains on property sales 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, transaction costs, gains on property sales and non-operating transactions. 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,
2024
2023
2024
2023
2024
2023
Income from continuing operations
$
149,317
$
40,366
$
192,778
$
79,836
$
224,799
$
114,828
Provision for income taxes from continuing operations
53,502
15,152
68,913
25,934
80,586
35,624
Interest expense
12,642
11,025
38,383
28,434
50,509
32,607
Depreciation and amortization
26,693
26,884
80,824
80,385
108,357
103,893
EBITDA
242,154
93,427
380,898
214,589
464,249
286,952
Share-based compensation
2,393
1,891
6,949
5,155
9,951
7,658
Transaction costs 3
39,436
10
61,157
14,302
62,732
18,188
Other income, net 4
—
(3,559
)
(9,281
)
(3,559
)
(9,340
)
(3,559
)
Gain on merger termination from WillScot Mobile Mini 5
(180,000
)
—
(180,000
)
—
(180,000
)
—
Adjusted EBITDA 1
$
103,983
$
91,769
$
259,723
$
230,487
$
347,592
$
309,239
Adjusted EBITDA margin 2
39
%
39
%
38
%
38
%
39
%
39
%
1. Adjusted EBITDA is defined as income from operations before interest expense, provision for income taxes, depreciation, amortization, share-based compensation, other income, net and non-operating transactions.
2. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total revenues for the period.
3. Transaction costs include acquisition and divestiture related legal and professional fees and other costs specific to these transactions.
4. Other income, net consists of net gains on property, plant and equipment sales that are infrequent in nature and excluded from Adjusted EBITDA.
5. The gain on merger termination from WillScot Mobile Mini was considered a non-operating transaction and is excluded from Adjusted EBITDA.
For the nine months ended September 30, 2024, total Adjusted EBITDA from both continuing and discontinued operations was $259.7 million, compared to $234.2 million for the same period in 2023, excluding the gain on sale of the divestiture of Adler Tanks. For the nine months ended September 30, 2024 and 2023, the total Adjusted EBITDA from continuing operations was $259.7 million
40
and $230.5 million, respectively. There were no adjusted earnings from discontinued operations during the nine months ended September 30, 2024, and total Adjusted EBITDA from discontinued operations of $3.7 million during the comparable period in 2023.
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,
2024
2023
2024
2023
2024
2023
Adjusted EBITDA 1
$
103,983
$
91,769
$
259,723
$
234,169
$
347,592
$
325,138
Interest paid
(13,944
)
(11,016
)
(40,338
)
(27,818
)
(51,123
)
(33,611
)
Income taxes paid, net of refunds received
(773
)
(2,616
)
3,826
(9,547
)
(78,192
)
(12,024
)
Gain on sale of used rental equipment
(9,648
)
(8,714
)
(25,185
)
(22,964
)
(33,863
)
(34,238
)
Foreign currency exchange loss
(216
)
42
(53
)
(166
)
(197
)
(192
)
Amortization of debt issuance costs
2
2
6
6
8
9
Change in certain assets and liabilities:
Accounts receivable, net
(7,150
)
(26,223
)
2,839
(25,939
)
(6,365
)
(26,003
)
Prepaid expenses and other assets
14,171
1,114
19,988
(7,390
)
(1,948
)
(6,561
)
Accounts payable and other liabilities
123,241
4,476
104,293
(29,356
)
119,382
(30,691
)
Deferred income
(10,699
)
(1,382
)
12,497
7,908
18,683
(1,790
)
Net cash provided by operating activities
$
198,967
$
47,452
$
337,596
$
118,903
$
313,977
$
180,037
1. Adjusted EBITDA is defined as income from operations before interest expense, provision for income taxes, depreciation, amortization, share-based compensation and non-operating transactions.
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, 2024, the actual ratio was 3.07 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, 2024, the actual ratio was 1.75 to 1.
At September 30, 2024, 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, 2024 compared to the same period in 2023 are summarized as follows:
Cash Flows from Operating Activities: The Company’s operations provided net cash of $337.6 million in 2024, compared to $118.9 million in 2023. The $218.7 million increase in net cash provided by operating activities was primarily attributable to the gain on merger termination from WillScot Mobile Mini after transaction costs, which provided $87.6 million of net income during the period. Further, operating activities provided for a $61.9 million increase in deferred income taxes, a $29.1 million reduction in accounts receivable and a $25.4 million reduction in prepaid expenses and other assets, which contributed to the net cash provided by operating activities during the period.
Cash Flows from Investing Activities: Net cash used in investing activities was $140.8 million in 2024, down from $331.5 million in 2023. The $190.7 million decrease in net cash used was primarily due to the $461.8 million paid for the business acquisitions of Vesta Modular, Brekke Storage, Dixie Storage and Inland Leasing acquisitions in 2023, which was partly offset by $268.0 million in
41
proceeds from the sale of discontinued operations during the same period. The net effect of these transactions in 2023 was $193.8 million in net cash used by investing activities.
Cash Flows from Financing Activities: Net cash used in financing activities was $193.6 million in 2024, compared to $213.6 million in net cash provided during 2023. The $407.2 million change was primarily attributable to reduced borrowings under bank lines of credit and note purchase agreements in 2024, as during 2023 the net borrowings were required for the funding of the Vesta Modular, Brekke Storage, Dixie Storage and Inland Leasing business acquisitions. Further, during the 2024 period the Company made net payments of $154.4 million under bank lines of credit, primarily attributable to proceeds received from the merger termination with WillScot Mobile Mini.
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, of which as of September 30, 2024, $73.0 million was utilized through the term loan entered on April 23, 2024, 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 April 23, 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.
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 were 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 approximately $75.0 million.
At September 30, 2024, 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 $360.6 million was outstanding and had capacity to borrow up to an additional $289.4
42
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, 2024, the actual ratio was 3.07 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, 2024, the actual ratio was 1.75 to 1.
At September 30, 2024, 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
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 the income tax obligations incurred from the divestiture of Adler Tanks. At September 30, 2024, 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, 2024, the principal balance outstanding under the Series D Senior Notes was $40.0 million.
43
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, 2024, 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, 2024, the actual ratio was 3.07 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, 2024, the actual ratio was 1.75 to 1.
At September 30, 2024, 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.
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.
Contractual Obligations and Commitments
We believe that our contractual obligations and commitments have not changed materially from those included in our 2023 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 nine month period ended September 30, 2024. Refer to our 2023 Annual Report for a discussion of our critical accounting policies and estimates.
Item 3. 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 2023 Annual Report.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.