What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-04-28 compared with 2021-10-28 · 138 added, 335 removed, 244 unchanged (66% of the section changed)

7 unchanged sentences

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

The full impact of the COVID-19 pandemic continues to evolve as of the date of this report.

As such, there is continued uncertainty as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations.

Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce.

Given the continuing evolution of the COVID-19 pandemic, its variants and the global responses to curb its spread, the Company is not able to fully estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2021.

The following discussions are subject to the future effects of the COVID-19 pandemic and its variants.

The Company, incorporated in 1979, is a leading rental provider of relocatable modular buildings for classroom and office space, electronic test equipment for general purpose and communications needs, and liquid and solid containment tanks and boxes.

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and (4) 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 10% of the Company’s total revenues in the nine months ended September 30, 2021.

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 in the three months ended March 31, 2022.

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

1 unchanged sentence

Design Space was acquired on May 17, 2021, with its results included in the Mobile Modular segment since that date.

See Note 7 to the Condensed Consolidated Financial Statements for the three months ended September 30, 2021, for more details about the acquisitions.

In the nine months ended September 30, 2021, Mobile Modular, TRS-RenTelco, Adler Tanks and Enviroplex contributed 64%, 30%, 5% and 1% of the Company’s income before provision for taxes (the equivalent of “pretax income”), respectively, compared to 65%, 26%, 6% and 3% for the same period in 2020.

See Note 6 to the Condensed Consolidated Financial Statements for the three months ended March 31, 2022, for more details about the acquisitions.

In the three months ended March 31, 2022, Mobile Modular, TRS-RenTelco, Adler Tanks and Enviroplex contributed 67%, 31%, 6% and negative 4% of the Company’s income before provision for taxes (the equivalent of “pretax income”), respectively, compared to 66%, 36%, 2% and negative 4% for the same period in 2021.

The Company generates its revenues primarily from the rental of its equipment on operating leases and from sales of equipment occurring in the normal course of business.

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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 education and commercial customers, with a majority of revenues generated by education customers.

Modular revenues are primarily 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.

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.

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.

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These tanks and boxes are rented to a broad range of industries and applications including oil and gas exploration and field services, refinery, chemical and industrial plant maintenance, environmental remediation and field services, infrastructure building construction, marine services, pipeline construction and maintenance, tank terminals services, wastewater treatment, and waste management and landfill services for the containment of hazardous and non-hazardous liquids and solids.

The Company’s rental operations include rental and rental related service revenues which comprised approximately 81% and 79% of consolidated revenues in the nine months ended September 30, 2021 and 2020, respectively.

Of the total rental operations revenues for the nine months ended September 30, 2021, Mobile Modular, TRS-RenTelco and Adler Tanks comprised 60%, 24% and 16%, respectively, compared to 58%, 25% and 17%, respectively, in the same period of 2020.

The Company’s rental operations include rental and rental related service revenues which comprised approximately 88% and 87% of consolidated revenues in the three months ended March 31, 2022 and 2021, respectively.

Of the total rental operations revenues for the three months ended March 31, 2022, Mobile Modular, TRS-RenTelco and Adler Tanks comprised 62%, 23% and 15%, respectively, compared to 57%, 27% and 16%, respectively, in the same period of 2021.

The Company’s direct costs of rental operations include depreciation of rental equipment, rental related service costs, impairment of rental equipment (if applicable), and other direct costs of rental operations (which include direct labor, supplies, repairs, insurance, property taxes, license fees, cost of sub-rentals and amortization of certain lease costs).

1 unchanged sentence

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

For the nine months ended September 30, 2021 and 2020, sales and other revenues of modular, electronic test equipment and liquid and solid containment tanks and boxes comprised approximately 19% and 21% of the Company’s consolidated revenues, respectively.

Of the total sales and other revenues for the nine months ended September 30, 2021 and 2020, Mobile Modular and Enviroplex together comprised 78% and 77%, respectively, TRS-RenTelco comprised 19% and 22%, respectively, and Adler Tanks comprised 3% and 1%, respectively.

For the three months ended March 31, 2022 and 2021, sales and other revenues of modular, electronic test equipment and liquid and solid containment tanks and boxes comprised approximately 12% and 13% of the Company’s consolidated revenues, respectively.

Of the total sales and other revenues for the three months ended March 31, 2022 and 2021, Mobile Modular and Enviroplex together comprised 69% and 59%, respectively, TRS-RenTelco comprised 26% and 36%, respectively, and Adler Tanks comprised 5% for both periods.

The Company’s cost of sales includes the carrying value of the equipment sold and the direct costs associated with the equipment sold, such as delivery, installation, modifications and related site work.

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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.

Adjusted EBITDA

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

The Company presents Adjusted EBITDA as a financial measure as management believes it provides useful information to investors regarding the Company’s liquidity and financial condition and because management, as well as the Company’s lenders, use this measure in evaluating the performance of the Company.

Management uses Adjusted EBITDA as a supplement to GAAP measures to further evaluate period-to-period operating performance, compliance with financial covenants in the Company’s revolving lines of credit and senior notes and the Company’s ability to meet future capital expenditure and working capital requirements.

Management believes the exclusion of non-cash charges, including share-based compensation, is useful in measuring the Company’s cash available for operations and performance of the Company.

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.

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 Net Income to Adjusted EBITDA

(dollar amounts in thousands)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Twelve Months Ended

September 30,

Provision for income taxes

Interest expense

Depreciation and amortization

Share-based compensation

Adjusted EBITDA 1

Adjusted EBITDA margin 2

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 (gain)

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 net income before interest expense, provision for income taxes, depreciation, amortization and share-based compensation.

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

Adjusted EBITDA is a component of two restrictive financial covenants for the Company’s unsecured Credit Facility, the Note Purchase Agreement, Series C Senior Notes, Series D Senior Notes and Series E Senior Notes (as defined and more fully described

under the heading “Liquidity and Capital Resources” 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, 2021, the actual ratio was 4.12 to 1.

Permit the Consolidated Leverage Ratio of funded debt (as defined in the Credit Facility and the Note Purchase Agreement) to Adjusted EBITDA at any time during any period of four consecutive quarters to be greater than 2.75 to 1.

At September 30, 2021, the actual ratio was 1.92 to 1.

At September 30, 2021, 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.

Recent Developments

On September 16, 2021, the Company announced that the Board of Directors declared a quarterly cash dividend of $0.435 per common share for the quarter ended September 30, 2021, an increase of 4% over the prior year’s comparable quarter.

On February 23, 2022, the Company announced that the Board of Directors declared a quarterly cash dividend of $0.455 per common share for the quarter ended March 31, 2022, an increase of 5% over the prior year’s comparable quarter.

The outbreak of a new strain of coronavirus, COVID-19, which began in December 2019, has continued to spread globally including to every state in the United States.

The Center for Disease Control (“CDC”) and World Health Organization (“WHO”) have recognized this outbreak as a pandemic, which has caused shutdowns to businesses and cities worldwide while disrupting supply chains, business operations, travel, consumer confidence and business sentiment.

Each of the states in which the Company operates, and in some cases the localities as well, have previously issued orders requiring the closure of non-essential business and/or requiring residents to stay at home, however, currently none of the Company’s locations are required to be closed by local or state order.

The Company is following guidelines established by the CDC and WHO and orders issued by state and local governments where the Company operates.

The Company has taken a number of precautionary health and safety measures to safeguard its employees and customers, while maintaining business continuity to enable each of its operating segments and branch locations to continue providing services to customers under the relevant state and local rules.

The Company has implemented remote work policies, restricted travel, separated work groups, enhanced cleaning and hygiene protocols in all of its facilities, products and vehicles, and requires distancing protocols for production and logistical personnel.

The Company is continuing to monitor and assessing orders issued by federal, state and local governments to ensure compliance with evolving COVID-19 guidelines.

The Center for Disease Control (“CDC”) and World Health Organization (“WHO”) recognized this outbreak as a pandemic, which has caused shutdowns to businesses and cities worldwide while disrupting supply chains, business operations, travel, consumer confidence and business sentiment.

The Company has taken a number of precautionary health and safety measures to safeguard its employees and customers, while maintaining business continuity.

The Company has implemented remote work policies and enhanced cleaning and hygiene protocols in all of its facilities, products and vehicles.

The Company is continuing to monitor and assess orders issued by federal, state and local governments to ensure compliance with evolving COVID-19 guidelines.

The Company also continues to monitor the impact of COVID-19 on its existing customers who themselves may be impacted by governmental shutdowns and other impacts due to the governmental orders.

As of the date of this filing, significant uncertainty continues to exist concerning the magnitude of the impact and duration of the COVID-19 pandemic and its variants.

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

elevated costs for materials and labor;

early returns of equipment currently on rent with customers;

overall decreased customer demand for new rental orders, rental related services and sales of new and used rental equipment;

and payment delay, or non-payment, by customers who are significantly impacted by COVID-19 .

In light of the uncertain and rapidly evolving situation relating to the COVID-19 pandemic, the Company has taken a number of precautionary measures to manage its resources conservatively by reducing and/or deferring non-essential capital expenditures and operating expenses to mitigate the adverse impact of the pandemic.

The Company will continue to assess its capital expenditure needs against its cash availability during the crisis to make the most strategic decisions for its business.

Furthermore, the Company believes that its recently renewed $420 million credit facility, coupled with its ability to access additional capital through the issuance of additional senior notes, has strengthened the Company’s liquidity position and serve to mitigate some of the operational risk related to decreased customer demand for new rental orders and sales resulting from the COVID-19 pandemic.

While the Company has not seen a significant impact from COVID-19 in the financial results for the three and nine months ended September 30, 2021 as set forth in the below section discussing the results of operations for the quarter ended September 30, 2021, the Company is currently unable to determine or predict the full nature, duration or scope of the overall impact the COVID-19 pandemic will have on its business, results of operations, liquidity or capital resources.

While the Company has not seen a significant impact from COVID-19 in the financial results for the quarter ended March 31, 2022 as set forth in the below section discussing the results of operations for the quarter ended March 31, 2022, the Company is currently unable to determine or predict the full nature, duration or scope of the overall impact the COVID-19 pandemic and related business and operational pressures will have on its business, results of operations, liquidity or capital resources.

The Company will continue to actively monitor the situation and may take further actions that alter its business operations as may be required by federal, state or local authorities or that the Company determines are in the best interests of employees, customers and shareholders.

Results of Operations

Three Months Ended September 30, 2021 Compared to

Three Months Ended September 30, 2020

Consolidated revenues for the three months ended September 30, 2021 increased 11% to $173.3 million from $156.4 million in the same period in 2020.

Consolidated net income for the three months ended September 30, 2021 decreased 17% to $23.3 million, from $28.1 million for the same period in 2020.

Earnings per diluted share for the three months ended September 30, 2021 decreased 17% to $0.95 from $1.15 for the same period in 2020.

For the three months ended September 30, 2021, on a consolidated basis:

Three Months Ended March 31, 2022 Compared to

Three Months Ended March 31, 2021

Consolidated revenues for the three months ended March 31, 2022 increased 20% to $145.4 million from $121.2 million in the same period in 2021.

Consolidated net income for the three months ended March 31, 2022 increased 8% to $18.8 million, from $17.4 million for the same period in 2021.

Earnings per diluted share for the three months ended March 31, 2022 increased 8% to $0.77 from $0.71 for the same period in 2021.

For the three months ended March 31, 2022, on a consolidated basis:

Gross profit increased $9.4 million, or 16%, to $66.5 million in 2022.

Mobile Modular’s gross profit increased $8.2 million, or 23%, primarily due to higher gross profit on rental, rental related services, and sales revenues.

TRS-RenTelco’s gross profit increased $0.5 million, or 4%, primarily due to higher gross profit on rental revenues.

Adler Tanks’ gross profit increased $0.6 million, or 7%, primarily due to higher gross profit on rental and sales revenues.

Enviroplex’s gross profit decreased $0.6 million, or 28%, primarily due to $0.4 million lower sales revenues in 2021 and lower gross margins of 26.9% compared to 35.1% in 2020.

Selling and administrative expenses increased $9.0 million, or 29%, to $39.9 million, primarily due to increased headcount and employees’ salaries and benefit costs totaling $3.6 million, primarily due to the addition of Design Space and Kitchens To Go employees, and $2.4 million higher amortization of intangible assets from the Design Space and Kitchens To Go acquisitions.

Interest expense increased 61%, to $3.2 million in 2021 compared to the same period in 2020, due to 77% higher average debt levels of the Company, partly offset by 9% lower net average interest rates of 2.69% in 2021 compared to 2.96% in 2020.

TRS-RenTelco’s gross profit was comparable at $14.7 million.

Adler Tanks’ gross profit increased $1.4 million, or 20%, primarily due to higher gross profit on rental and other revenues.

Enviroplex’s gross profit decreased $0.1 million, primarily due to $0.3 million lower sales revenues in 2022 and lower gross margins of 22% compared to 28% in 2021.

Selling and administrative expenses increased $6.0 million, or 18%, to $39.1 million, primarily due to increased headcount and employees’ salaries and benefit costs totaling $4.3 million, primarily due to the addition of Design Space and Kitchens To Go employees, and $1.4 million higher amortization of intangible assets primarily from the Design Space and Kitchens To Go acquisitions.

Interest expense increased $1.0 million, or 58%, to $2.8 million due to 94% higher average debt levels of the Company, partly offset by 19% lower net average interest rates of 2.68% in 2022 compared to 3.29% in 2021.

Pre-tax income contribution by Mobile Modular, TRS-RenTelco and Adler Tanks was 67%, 31% and 6%, respectively, compared to 66%, 36% and 2%, respectively, for the comparable 2021 period.

These results are discussed on a segment basis below.

Enviroplex pre-tax income contribution was 1% and 3% in 2021 and 2020, respectively.

The provision for income taxes resulted in an effective tax rate of 28.7% and 20.8% for the quarters ended September 30, 2021 and 2020, respectively.

Enviroplex pre-tax income contribution was negative 4% in 2022 and 2021, respectively.

The provision for income taxes resulted in an effective tax rate of 23.5% and 21.3% for the quarters ended March 31, 2022 and 2021, respectively.

The higher rate in 2022 was due to lower excess tax benefit from stock compensation and increased business activity levels in higher tax rate states.

1 unchanged sentence

Mobile Modular

For the three months ended September, 2021, Mobile Modular’s total revenues increased $15.0 million, or 16%, to $110.4 million compared to the same period in 2020, primarily due to higher rental and rental related services revenues, partly offset by lower sales revenues.

Higher selling and administrative expenses, partly offset by higher gross profit on rental, rental related services and sales revenues, resulted in a 9% decrease in pre-tax income to $21.6 million for the three months ended September 30, 2021, from $23.7 million for the same period in 2020.

For the three months ended March 31, 2022, Mobile Modular’s total revenues increased $22.0 million, or 32%, to $90.6 million compared to the same period in 2021, primarily due to higher rental, rental related services, and sales revenues.

The revenue increase, together with higher gross profit on rental, rental related services and sales revenues, partly offset by higher selling and administrative expenses, resulted in a 13% increase in pre-tax income to $16.6 million for the three months ended March 31, 2022, from $14.7 million for the same period in 2021.

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

2 unchanged sentences

Three Months Ended

September 30,

Increase (Decrease)

17 unchanged sentences

Other Selected Information

Adjusted EBITDA

Average rental equipment 1

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

Mobile Modular’s gross profit for the three months ended September 30, 2021 increased $7.0 million, or 17%, to $49.7 million.

For the three months ended September 30, 2021 compared to the same period in 2020:

Gross Profit on Rental Revenues – Rental revenues increased $12.1 million, or 26%, primarily due to 18% higher average rental equipment on rent and 7% higher average monthly rental rate in 2021, with approximately three quarters of the increase due to revenues earned during the quarter from new Design Space and Kitchens To Go customers.

Mobile Modular’s gross profit for the three months ended March 31, 2022 increased $8.2 million, or 23%, to $43.1 million.

For the three months ended March 31, 2022 compared to the same period in 2021:

Gross Profit on Rental Revenues – Rental revenues increased $14.9 million, or 32%, due to 22% higher average rental equipment on rent and 8% higher average monthly rental rate in 2022.

As a percentage of rental revenues, depreciation was 13% in 2022 and 12% in 2021, and other direct costs were 33% in 2022 and 28% in 2021, which resulted in gross margin percentages of 55% in 2022 compared to 60% in 2021.

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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, partly offset by lower gross margin percentage of 24% in 2021, compared to 28% in 2020, resulted in rental related services gross profit increasing $0.8 million, or 15%, to $6.0 million in 2021.

Gross Profit on Sales – Sales revenues decreased $2.9 million, or 10%, compared to 2020, due to lower new equipment sales.

The higher gross margin percentage of 31% in 2021 compared to 26% in 2020, and lower sales revenue resulted in gross profit on sales increasing $0.7 million, or 9%, to $8.2 million.

The higher gross margin on sales was primarily due to a higher mix of used sales with higher gross margins, compared to sales of new equipment.

The higher revenues and comparable gross margin percentage of 28% in 2022 and 2021, resulted in rental related services gross profit increasing $1.2 million, or 30%, to $5.2 million in 2022.

Gross Profit on Sales – Sales revenues increased $2.8 million, or 36%, compared to 2021, due to higher new and used equipment sales.

The higher gross margin percentage of 39% in 2022 compared to 35% in 2021, and higher sales revenue resulted in gross profit on sales increasing $1.4 million, or 51%, to $4.0 million.

The higher gross margin on sales in 2022 was primarily due to higher margins on used 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, equipment availability and funding.

For the three months ended September 30, 2021, selling and administrative expenses increased $8.4 million, or 47%, to $26.1 million, primarily due to increased employee salaries and benefit costs totaling $2.5 million, primarily due to the addition of Design Space and Kitchens To Go employees, $2.4 million higher amortization of intangible assets due to the Design Space and Kitchens To Go acquisitions and $1.4 million higher allocated corporate expenses.

For the three months ended September 30, 2021, TRS-RenTelco’s total revenues decreased $0.8 million, or 2%, to $35.1 million compared to the same period in 2020, primarily due to lower sales revenues, partly offset by higher rental revenues.

Pre-tax income was comparable at $8.7 million for the three months ended September 30, 2021 compared to the same period in 2020, primarily due to higher gross profit on rental revenues, partly offset by lower gross profit on sales and other revenues and higher selling and administrative expenses.

For the three months ended March 31, 2022, selling and administrative expenses increased $5.5 million, or 28%, to $24.7 million, primarily due to increased employee salaries and benefit costs totaling $2.8 million, primarily due to the addition of Design Space and Kitchens To Go employees, $1.4 million higher amortization of intangible assets primarily due to the Design Space and Kitchens To Go acquisitions and $1.6 million higher allocated corporate expenses, partly offset by lower marketing and administrative expenses.

For the three months ended March 31, 2022, TRS-RenTelco’s total revenues decreased $0.1 million to $33.5 million compared to the same period in 2021, primarily due to lower sales revenues, partly offset by higher rental revenues.

Higher selling and administrative expenses and a decrease in gross profit resulted in a 6% decrease in pre-tax income to $7.5 million for the three months ended March 31, 2022, from $8.0 million for the same period in 2021.

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

2 unchanged sentences

Three Months Ended

September 30,

Increase (Decrease)

15 unchanged sentences

Interest expense allocation

Foreign currency exchange (loss) gain

Foreign currency exchange gain (loss)

Pre-tax income

Other Selected Information

Adjusted EBITDA

Average rental equipment 1

11 unchanged sentences

nm = Not meaningful

TRS-RenTelco’s gross profit for the three months ended September 30, 2021 increased $0.5 million, or 4%, to $15.5 million.

For the three months ended September 30, 2021 compared to the same period in 2020:

TRS-RenTelco’s gross profit for the three months ended March 31, 2022 decreased $0.1 million, to $14.7 million.

For the three months ended March 31, 2022 compared to the same period in 2021:

Gross Profit on Rental Revenues – Rental revenues increased $1.2 million, or 5%, depreciation expense increased $0.7 million, or 6%, and other direct costs increased $0.2 million or 3%, resulting in a 4% increase in gross profit on rental revenues to $11.8 million.

As a percentage of rental revenues, depreciation was 42% in 2021 and 2020, and other direct costs were 17% in 2021 and 2020, which resulted in a gross margin percentage of 41% in 2021 and 2020.

The rental revenues increase was due to 7% higher average rental equipment on rent, partly offset by 1% lower average monthly rental rates in 2021 as compared to 2020.

The lower rental rates were primarily related to business mix, with more general purpose equipment on rent compared to the prior year.

Typically, general purpose equipment has longer useful lives, longer rental terms and lower average rental rates compared to communications equipment.

As a percentage of rental revenues, depreciation was 42% in 2022 and 2021, and other direct costs were 16% in 2022 and 17% in 2021, which resulted in a gross margin percentage of 41% in 2022 compared to 42% in 2021.

The rental revenues increase was due to 4% higher average rental equipment on rent and 1% higher average monthly rental rates in 2022 as compared to 2021.

Gross Profit on Sales – Sales revenues decreased $1.2 million, or 24%, to $3.9 million in 2022.

2 unchanged sentences

however, these sales and related gross margins can fluctuate from quarter to quarter depending on customer requirements and related mix of equipment sold, equipment availability and funding.

For the three months ended September 30, 2021, selling and administrative expenses increased 1%, to $6.0 million compared to the same period in 2020.

For the three months ended September 30, 2021, Adler Tanks’ total revenues increased $3.0 million, or 16%, to $22.3 million compared to the same period in 2020, due to higher rental, rental related services and sales revenues.

Higher gross profit on rental and sales revenues, partly offset by an increase in selling and administrative expenses and higher allocated interest expense, resulted in a 3% decrease in pre-tax income to $2.2 million for the three months ended September 30, 2021, compared to the same period in 2020.

For the three months ended March 31, 2022, selling and administrative expenses increased $0.3 million, or 5%, to $6.6 million.

For the three months ended March 31, 2022, Adler Tanks’ total revenues increased $2.6 million, or 15%, to $20.3 million compared to the same period in 2021, due to higher rental, rental related services and sales revenues.

Higher gross profit on rental revenues, partly offset by an increase in selling and administrative expenses and higher allocated interest expense, resulted in a $1.0 million increase in pre-tax income to $1.4 million for the three months ended March 31, 2022, compared to the same period in 2021.

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

2 unchanged sentences

Three Months Ended

September 30,

Increase (Decrease)

17 unchanged sentences

Other Selected Information

Adjusted EBITDA

Average rental equipment 1

11 unchanged sentences

nm = Not meaningful

Adler Tanks’ gross profit for the three months ended September 30, 2021 increased $0.6 million, or 7%, to $9.1 million.

For the three months ended September 30, 2021 compared to the same period in 2020:

Adler Tanks’ gross profit for the three months ended March 31, 2022 increased $1.4 million, or 20%, to $8.5 million.

For the three months ended March 31, 2022 compared to the same period in 2021:

Gross Profit on Rental Revenues – Rental revenues increased $2.0 million, or 17%, primarily due to 18% higher average equipment on rent in 2022 compared to 2021.

As a percentage of rental revenues, depreciation was 28% in 2022 and 34% in 2021, and other direct costs were 21% and 19% in 2022 and 2021, respectively, which resulted in gross margin percentages of 51% and 48% in 2022 and 2021, respectively.

The higher rental revenues and lower rental margins resulted in an increase in gross profit on rental revenues of $0.2 million, or 3%, to $7.6 million in 2021 compared to 2020.

Gross Profit on Rental Related Services – Rental related services revenues increased $0.8 million, or 14%, to $6.3 million compared to 2020 with lower gross margin percentage of 18% in 2021 compared to 20% in 2020 resulted in rental related services gross profit increasing 2% to $1.2 million in 2021.

For the three months ended September 30, 2021, selling and administrative expenses increased 9% to $6.3 million compared to the same period in 2020 primarily due to higher allocated corporate expenses.

Nine Months Ended September 30, 2021 Compared to

Nine Months Ended September 30, 2020

Consolidated revenues for the nine months ended September 30, 2021 increased 4% to $441.0 million from $423.6 million for the same period in 2020.

Consolidated net income for the nine months ended September 30, 2021 decreased 13% to $61.3 million, from $70.8 million for the same period in 2020.

Earnings per diluted share for the nine months ended September 30, 2021 decreased 13% to $2.50 from $2.88 for the same period in 2020.

For the nine months ended September 30, 2021, on a consolidated basis:

Gross profit increased $5.7 million, or 3%, to $198.8 million in 2021.

Mobile Modular’s gross profit increased $8.4 million, or 7%, primarily due to higher gross profit on rental and sales revenues.

TRS-RenTelco’s gross profit increased $0.9 million, or 2%, primarily due to higher gross profit on rental and sales services revenues, partly offset by lower gross profit on rental related services revenues.

Adler Tanks’ gross profit decreased $1.9 million, or 7%, primarily due to lower gross profit on rental and rental related services revenues, partly offset by higher gross profit on sales revenues.

Enviroplex’s gross profit decreased $1.8 million, primarily due to $1.7 million lower sales revenues of $14.9 million in 2021 and lower gross margins in 2021 compared to 2020.

Selling and administrative expenses increased 17% to $109.3 million from $93.4 million for the same period in 2020, primarily due to increased employee salaries and employee benefit costs of $7.0 million, primarily due to the addition of Design Space and Kitchens To Go employees, $4.1 million higher amortization of intangible assets from the Design Space and Kitchens to Go acquisitions and $1.3 million of acquisition related transaction costs.

Interest expense increased 6% to $7.2 million, due to 24% higher average debt levels of the Company partly offset by 15% lower net average interest rates of 2.75% in 2021 compared to 3.22% in 2020.

Pre-tax income contribution by Mobile Modular, TRS-RenTelco and Adler Tanks was 64%, 30% and 5%, respectively, compared to 65%, 26% and 6%, respectively, for the comparable 2020 period.

These results are discussed on a segment basis below.

Pre-tax income contribution by Enviroplex was 1% in 2021, compared to 3% in 2020.

The provision for income taxes resulted in an effective tax rate of 25.3% and 23.6% for the nine months ended September 30, 2021 and 2020, respectively.

The higher rate in 2021 was due to lower excess tax benefit from stock compensation and increased business activity levels in higher tax rate states.

Adjusted EBITDA decreased $2.1 million, or 1%, to $173.6 million in 2021.

Mobile Modular

For the nine months ended September 30, 2021, Mobile Modular’s total revenues increased $18.2 million, or 7%, to $263.6 million compared to the same period in 2020, primarily due to higher rental revenues and rental related services, partly offset by lower sales revenues.

The revenue increase, together with higher gross profit on sales and rental revenues, offset by higher selling and administrative expenses, resulted in a 13% decrease in pre-tax income to $53.0 million for the nine months ended September 30, 2021, from $60.9 million for the same period in 2020.

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 9/30/21 compared to Nine Months Ended 9/30/20 (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

Average rental equipment 1

Average rental equipment on rent

Average monthly total yield 2

Average utilization 3

Average monthly rental rate 4

Period end rental equipment 1

Period end utilization 3

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

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

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

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

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

Mobile Modular’s gross profit for the nine months ended September 30, 2021 increased $8.4 million, or 7%, to $125.4 million.

For the nine months ended September 30, 2021 compared to the same period in 2020:

Gross Profit on Rental Revenues – Rental revenues increased $17.9 million, or 13%, due to 8% higher average rental equipment on rent in 2021 and 4% higher average rental rates, with approximately three quarters of the increase resulting from the Design Space and Kitchens To Go acquisitions.

The rental revenue increase was due in part to the Design Space and Kitchens To Go, acquisitions.

As a percentage of rental revenues, depreciation was 13% and 12% in 2021 and 2020, respectively and other direct costs were 28% in 2021 and 26% in 2020, which resulted in gross margin percentages of 59% in 2021 and 62% in 2020.

The higher rental revenues, partly offset by lower rental margins resulted in gross profit on rental revenues increasing $6.2 million, or 7%, to $93.4 million in 2021.

Gross Profit on Rental Related Services – Rental related services revenues increased by $3.4 million, or 7%, compared to 2020.

Most of these service revenues are negotiated with the initial modular building lease and are recognized on a straight-line basis with the associated costs over the initial term of the lease.

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

The higher revenues, partly offset by lower gross margin percentage of 26% in 2021, compared to 27% in 2020, resulted in rental related services gross profit increasing $0.3 million, or 2%, to $14.3 million in 2021.

Gross Profit on Sales – Sales revenues decreased $3.1 million, or 6%, compared to 2020, due to lower new and used equipment sales.

The higher gross margin percentage of 34% in 2021 compared to 28% in 2020, due to a higher mix of used equipment sales, resulted in gross profit on sales increasing $2.1 million, or 14%, to $16.6 million in 2021.

Used equipment sales typically have higher gross margins compared to 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, equipment availability and funding.

For the nine months ended September 30, 2021, selling and administrative expenses increased $16.0 million, or 31%, to $68.0 million, primarily due to increased employee salaries and benefit costs of $4.7 million, primarily due to the addition of Design Space and Kitchens To Go employees, $4.1 million higher amortization of intangible assets due to the Design Space and Kitchens To Go acquisitions, a $2.1 million non-operating legal expense recorded in 2021, $1.9 million higher allocated corporate expenses and $1.3 million acquisition related transaction costs in 2021.

For the nine months ended September 30, 2021, TRS-RenTelco’s total revenues decreased $0.5 million, to $102.5 million compared to the same period in 2020, primarily due to lower sale revenues, partly offset by higher rental revenues.

Pre-tax income increased $0.8 million, or 3%, to $24.7 million for the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to higher gross profit on rental and sales revenues.

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 9/30/21 compared to Nine Months Ended 9/30/20 (Unaudited)

The higher rental revenues and higher rental margins resulted in an increase in gross profit on rental revenues of $1.4 million, or 25%, to $7.2 million in 2022 compared to 2021.

Gross Profit on Rental Related Services – Rental related services revenues increased $0.4 million, or 8%, to $5.3 million compared to 2021.

The higher rental related services revenues with lower gross margin percentage of 17% in 2022 compared to 21% in 2021, resulted in rental related services gross profit decreasing 10% to $0.9 million in 2022.

For the three months ended March 31, 2022, selling and administrative expenses increased 4% to $6.5 million compared to the same period in 2021, primarily due to higher allocated corporate expenses.

Adjusted EBITDA

Management believes the exclusion of non-cash charges, including share-based compensation, is useful in measuring the Company’s cash available for operations and performance of the Company.

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 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.

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.

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.

Reconciliation of Net Income to Adjusted EBITDA

(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

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 accessory equipment.

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

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

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

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

TRS-RenTelco’s gross profit for the nine months ended September 30, 2021 increased $0.9 million, or 2%, to $44.9 million.

For the nine months ended September 30, 2021 compared to the same period in 2020:

Gross Profit on Rental Revenues – Rental revenues increased $3.2 million, or 4%, and depreciation expense increased $0.3 million, or 1%, resulting in a 4% increase in gross profit on rental revenues to $34.6 million.

As a percentage of rental revenues, depreciation was 42% in 2021 and 43% in 2020, and other direct costs were 17% in 2021 and 16% in 2020, which resulted in a gross margin percentage of 41% in 2021 and 2020.

The rental revenues increase was due to 6% higher average rental equipment on rent, partly offset by 2% lower average monthly rental rates in 2021 as compared to 2020.

The lower rental rates were primarily related to business mix, with more general purpose equipment on rent compared to the prior year.

Typically, general purpose equipment has longer useful lives, longer rental terms and lower average rental rates compared to communications equipment.

Gross Profit on Sales – Sales revenues decreased $3.3 million, or 18%, to $14.7 million in 2021.

Gross profit on sales increased $0.2 million, or 3%, to $8.8 million with gross margin percentage of 60% in 2021, compared to 48% in 2020.

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, 2021, selling and administrative expenses increased $0.2 million, or 1%, to $18.4 million.

For the nine months ended September 30, 2021, Adler Tanks’ total revenues increased $1.4 million, or 2%, to $60.0 million compared to the same period in 2020, primarily due to higher rental related services and sales revenues, partly offset by lower rental revenues.

Lower gross profit on rental and rental related services revenues, partly offset by higher gross profit on sales, resulted in a $1.7 million, or 31%, decrease in pre-tax income to $3.8 million for the nine months ended September 30, 2021, compared to the same period in 2020.

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

Adler Tanks – Nine Months Ended 9/30/21 compared to Nine Months Ended 9/30/20 (Unaudited)

Three Months Ended

Twelve Months Ended

Provision for income taxes

Interest expense

Depreciation and amortization

Share-based compensation

Adjusted EBITDA 1

Adjusted EBITDA margin 2

Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities

(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

Average rental equipment 1

Average rental equipment on rent

Average monthly total yield 2

Average utilization 3

Average monthly rental rate 4

Period end rental equipment 1

Period end utilization 3

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

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

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

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

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

nm = Not meaningful

Adler Tanks’ gross profit for the nine months ended September 30, 2021 decreased $1.9 million, or 7%, to $24.2 million.

For the nine months ended September 30, 2021 compared to the same period in 2020:

Gross Profit on Rental Revenues – Rental revenues decreased $0.5 million, or 1%, due to 4% lower average rental equipment on rent, partly offset by 3% higher average monthly rental rates in 2021 compared to 2020.

As a percentage of rental revenues, depreciation was 31% in 2021 and 30% in 2020, and other direct costs were 20% and 16% in 2021 and 2020, respectively, which resulted in gross margin percentages of 49% and 54% in 2021 and 2020, respectively.

The lower rental revenues and lower rental margins resulted in a 9% decrease in gross profit on rental revenues to $20.0 million in 2021.

Gross Profit on Rental Related Services – Rental related services revenues increased $0.6 million, or 3%, to $17.0 million compared to 2020.

Higher rental related services revenues and lower gross margin percentage of 19% in 2021, compared to 23% in 2020 resulted in rental related services gross profit decreasing 14% to $3.2 million in 2021.

For the nine months ended September 30, 2021, selling and administrative expenses decreased 1% to $18.9 million compared to the same period in 2020.

Three Months Ended

Twelve Months Ended

Adjusted EBITDA 1

Interest paid

Income taxes paid, net of refunds received

Gain on sale of used rental equipment

Foreign currency exchange (gain) 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 net income before interest expense, provision for income taxes, depreciation, amortization and share-based compensation.

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

These instruments contain financial covenants requiring the Company to not:

At March 31, 2022, the actual ratio was 4.12 to 1.

At March 31, 2022, the actual ratio was 1.67 to 1.

At March 31, 2022, the Company was in compliance with each of the aforementioned 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, 2021 compared to the same period in 2020 are summarized as follows:

Cash flows for the Company for the three months ended March 31, 2022 compared to the same period in 2021 are summarized as follows:

Cash Flows from Operating Activities:

The Company’s operations provided net cash of $51.3 million in 2022, compared to $37.6 million in 2021.

The 10% increase in net cash provided by operating activities was primarily attributable to an increase in accounts payable and accrued liabilities, deferred income and deferred income taxes, partly offset by increased prepaid and other expenses and accounts receivable in 2021.

The 36% increase in net cash provided by operating activities was primarily attributable to higher income from operations, a decrease in accounts receivable and prepaid expenses and other assets, partly offset by a decrease in accounts payable and accrued liabilities.

Cash Flows from Investing Activities:

Net cash used in investing activities was $34.5 million in 2022, compared to $8.5 million in 2021.

The $294.0 million increase was primarily due to $285.6 million cash paid for acquisition of businesses during 2021.

The $26.0 million increase was primarily attributable to $21.4 million higher purchases of rental equipment and $4.4 million higher purchases of property, plant and equipment during 2022.

Cash Flows from Financing Activities:

Net cash provided by financing activities was $200.3 million in 2021, compared to cash used in financing activities of $90.6 million in 2020.

The $290.9 million change was due to $220.2 million higher net borrowing under bank lines of credit to fund the Design Space and Kitchens To Go acquisitions, $60 million net borrowings under the note purchase agreement and $13.6 million lower repurchase of common stock in 2021.

Net cash used in financing activities was $16.6 million in 2022, compared to $28.0 million in 2021.

The $11.4 million change was primarily attributable to lower net repayments under bank lines of credit.

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

1 unchanged sentence

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.

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.

12 unchanged sentences

The Sweep Service Facility replaced the Company’s prior $12.0 million sweep service facility, dated as of March 31, 2016.

At September 30, 2021, under the Credit Facility and Sweep Service Facility, the Company had unsecured lines of credit that permit it to borrow up to $432.0 million of which $299.5 million was outstanding, and had capacity to borrow up to an additional $132.5 million.

At March 31, 2022, under the Credit Facility and Sweep Service Facility, the Company had unsecured lines of credit that permit it to borrow up to $432.0 million of which $264.0 million was outstanding, and had capacity to borrow up to an additional $168.0 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, 2021, the actual ratio was 4.12 to 1.

At March 31, 2022, the actual ratio was 4.12 to 1.

Permit the Consolidated Leverage Ratio at any time during any period of four consecutive fiscal quarters to be greater than 2.75 to 1.

At September 30, 2021, the actual ratio was 1.92 to 1.

At September 30 , 202 1 , the Company was in compliance with each of the aforementioned covenants.

At March 31, 2022, the actual ratio was 1.67 to 1.

At March 31, 2022, 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.

9 unchanged sentences

3.84% Senior Notes Due in 2022

On November 5, 2015, the Company issued and sold to the purchaser a $60.0 million aggregate principal amount of its 3.84% Series C Senior Notes (the “Series C Senior Notes”) pursuant to the terms of the Prior NPA.

On November 5, 2015, the Company issued and sold to the purchasers a $60.0 million aggregate principal amount of its 3.84% Series C Senior Notes (the “Series C Senior Notes”) pursuant to the terms of the Prior NPA.

The Series C Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 3.84% per annum and mature on November 5, 2022.

2 unchanged sentences

The full net proceeds from the Series C Senior Notes were used to reduce the outstanding balance on the Company’s revolving credit line.

At September 30, 2021, the principal balance outstanding under the Series C Senior Notes was $60.0 million.

At March 31, 2022, the principal balance outstanding under the Series C Senior Notes was $60.0 million.

2.57% Senior Notes Due in 2028

On March 17, 2021, the Company issued and sold to Prudential Retirement Insurance and Annuity Company, The Prudential Insurance Company of America and The Prudential Insurance Company of America (collectively, the “Purchasers”) $40 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.

On March 17, 2021, the Company issued and sold to the purchasers $40 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.

3 unchanged sentences

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

At September 30, 2021, the principal balance outstanding under the Series D Senior Notes was $40.0 million.

At March 31, 2022, 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 Prudential Retirement Insurance and Annuity Company, The Prudential Insurance Company of America and The Prudential Insurance Company of America (collectively, the “Purchasers”) $60 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.

On June 16, 2021, the Company issued and sold to the purchasers $60 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.

3 unchanged sentences

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

At September 30, 2021, the principal balance outstanding under the Series E Senior Notes was $60.0 million.

Among other restrictions, the Note Purchase Agreement, which has superseded in its entirety the Prior NPA, under which the Series C Senior Notes , Series D Senior Notes and Series E S enior Notes were sold, contains financial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to such terms in the Note Purchase Agreement):

At March 31, 2022, the principal balance outstanding under the Series E Senior Notes was $60.0 million.

Among other restrictions, the Note Purchase Agreement, which has superseded in its entirety the Prior NPA, under which the Series C Senior Notes, Series D Senior Notes and Series E Senior Notes were sold, contains financial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to such terms in the Note Purchase Agreement):

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, 2021, the actual ratio was 4.12 to 1.

At March 31, 2022, the actual ratio was 4.12 to 1.

Permit the Consolidated Leverage Ratio of funded debt to EBITDA at any time during any period of four consecutive quarters to be greater than 2.75 to 1.

At September 30, 2021, the actual ratio was 1.92 to 1.

At September 30, 2021, the Company was in compliance with each of the aforementioned covenants.

At March 31, 2022, the actual ratio was 1.67 to 1.

At March 31, 2022, the Company was in compliance with each of the aforementioned covenants.

5 unchanged sentences

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”).

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, 2021.

There were 282,221 shares of common stock repurchased during the nine months ended September, 2020 for the aggregate purchase price of $13.6 million or an average price of $48.25 per repurchased share.

As of September 30, 2021, 1,309,805 shares remained authorized for repurchase under the Repurchase Plan.

Contractual Obligations

We believe that our contractual obligations have not changed materially from those included in our 2020 Annual Report.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of September 30, 2021.

There can be no assurance that any authorized shares will be repurchased and the R epurchase Plan may be modified, extended or terminated by the Company’s B oard of D irectors at any time.

There were no shares repurchased in the three months ended March 31 , 202 2 and 2021 .

As of March 3 1 , 202 2 , 1, 309,805 shares remain ed authorize d 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 2021 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 March 31, 2022.

Refer to our 2021 Annual Report for a discussion of our critical accounting policies and estimates.

Quantitative and Qualitative Disclosures About Market Risk

1 unchanged sentence

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 2. Management’s Discussion and Analysis