What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-04-28 · 250 added, 71 removed, 311 unchanged (51% of the section changed)

14 unchanged sentences

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 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.

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

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.

See Note 7 to the Condensed Consolidated Financial Statements for the six months ended June 30, 2022, for more details about the acquisitions.

In the six months ended June 30, 2022, Mobile Modular, TRS-RenTelco, Adler Tanks and Enviroplex contributed 66%, 28%, 8% and negative 2% of the Company’s income before provision for taxes (the equivalent of “pretax income”), respectively, compared to 64%, 32%, 3% and 1% 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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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 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 rental operations include rental and rental related service revenues which comprised approximately 83% of consolidated revenues in the six months ended June 30, 2022 and 2021.

Of the total rental operations revenues for the six months ended June 30, 2022, Mobile Modular, TRS-RenTelco and Adler Tanks comprised 62%, 22% and 16%, respectively, compared to 59%, 25% 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 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.

For the six months ended June 30, 2022 and 2021, sales and other revenues of modular, electronic test equipment and liquid and solid containment tanks and boxes comprised approximately 17% of the Company’s consolidated revenues.

Of the total sales and other revenues for the six months ended June 30, 2022 and 2021, Mobile Modular and Enviroplex together comprised 76% and 73%, respectively, TRS-RenTelco comprised 21% and 24%, respectively, and Adler Tanks comprised 3%.

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

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Recent Developments

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.

Amended Credit Agreement

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

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

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

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

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

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

On June 8, 2022, the Company announced that the Board of Directors declared a quarterly cash dividend of $0.455 per common share for the quarter ended June 30, 2022, an increase of 5% over the prior year’s comparable quarter.

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

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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 is

continuing to monitor and asses s orders issued by federal, state and local governments to ensure compliance with evolving COVID-19 guidelines.

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

While the Company has not seen a significant impact from COVID-19 in the financial results for the 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.

While the Company has not seen a significant impact from COVID-19 in the financial results for the three and six months ended June 30, 2022 as set forth in the below sections discussing the results of operations for the three and six months ended June 30, 2022, the Company is currently unable to determine or predict the full nature, duration or scope of the overall impact the COVID-19 pandemic and related business and operational pressures will have on its business, results of operations, liquidity or capital resources.

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

Results of Operations

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:

Three Months Ended June 30, 2022 Compared to

Three Months Ended June 30, 2021

Consolidated revenues for the three months ended June 30, 2022 increased 21% to $177.0 million from $146.4 million in the same period in 2021.

Consolidated net income for the three months ended June 30, 2022 increased 27% to $26.1 million, from $20.6 million for the same period in 2021.

Earnings per diluted share for the three months ended June 30, 2022 increased 27% to $1.07 from $0.84 for the same period in 2021.

For the three months ended June 30, 2022, on a consolidated basis:

Gross profit increased $12.0 million, or 18%, to $77.8 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 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.

Mobile Modular’s gross profit increased $8.9 million, or 22%, primarily due to higher gross profit on sales, rental, and rental related services revenues.

TRS-RenTelco’s gross profit increased $1.5 million, or 10%, primarily due to higher gross profit on rental and sales revenues.

Adler Tanks’ gross profit increased $2.9 million, or 36%, primarily due to higher gross profit on rental and rental related services revenues.

Enviroplex’s gross profit decreased $1.4 million, primarily due to $3.5 million lower sales revenues in 2022 and lower gross margins of 25% compared to 31% 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.

Selling and administrative expenses increased $4.5 million, or 13%, to $40.8 million, primarily due to increased headcount and employees’ salaries and benefit costs totaling $3.1 million, primarily due to the addition of Design Space employees, $0.6 million higher travel, meals and meetings and $0.7 million higher legal and accounting costs.

Interest expense increased $0.7 million, or 33%, to $3.0 million due to 20% higher average debt levels of the Company and 11% higher net average interest rates of 2.79% in 2022 compared to 2.52% in 2021.

Pre-tax income contribution by Mobile Modular, TRS-RenTelco and Adler Tanks was 65%, 26% and 10%, respectively, compared to 61%, 29% and 5%, respectively, for the comparable 2021 period.

These results are discussed on a segment basis below.

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.

Enviroplex pre-tax income contribution was negative 1% and 5% in 2022 and 2021, respectively.

The provision for income taxes resulted in an effective tax rate of 22.8% and 24.6% for the quarters ended June 30, 2022 and 2021, respectively.

The lower rate in 2022 was primarily due to higher excess tax benefit from stock compensation.

Adjusted EBITDA increased $7.8 million, or 13%, to $66.3 million in 2022.

Mobile Modular

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.

For the three months ended June 30, 2022, Mobile Modular’s total revenues increased $26.8 million, or 32%, to $111.4 million compared to the same period in 2021, primarily due to higher rental, sales, and rental related services revenues.

The revenue increase, together with higher gross profit on rental, sales, and rental related services revenues, partly offset by higher selling and administrative expenses, resulted in a 31% increase in pre-tax income to $21.9 million for the three months ended June 30, 2022, from $16.8 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.

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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 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.

Mobile Modular’s gross profit for the three months ended June 30, 2022 increased $8.9 million, or 22%, to $49.7 million.

For the three months ended June 30, 2022 compared to the same period in 2021:

Gross Profit on Rental Revenues – Rental revenues increased $11.7 million, or 22%, due to 16% higher average rental equipment on rent and 5% higher average monthly rental rates in 2022.

As a percentage of rental revenues, depreciation was 12% in 2022 and 13% in 2021, and other direct costs were 37% in 2022 and 30% in 2021, which resulted in gross margin percentages of 51% in 2022 compared to 57% in 2021.

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Gross Profit on Rental Related Services – Rental related services revenues increased $5.0 million, or 31%, compared to 2021.

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, higher site related revenues and revenues derived from other services performed during the lease and increased delivery and return delivery revenues at Portable Storage.

The higher revenues and 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.

The higher revenues and higher gross margin percentage of 29% in 2022, compared to 27% in 2021, resulted in rental related services gross profit increasing $1.7 million, or 39%, to $6.1 million in 2022.

Gross Profit on Sales – Sales revenues increased $10.0 million, or 68%, compared to 2021, due to higher new and used equipment sales.

The higher gross margin percentage of 41% in 2022 compared to 39% in 2021, and higher sales revenue resulted in gross profit on sales increasing $4.3 million, or 75%, to $10.1 million.

The higher gross margin on sales in 2022 was primarily due to higher margins on used sales.

The higher gross margin on sales in 2022 was primarily due to higher margins on both new and 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 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.

For the three months ended June 30, 2022, selling and administrative expenses increased $3.2 million, or 14%, to $25.8 million, primarily due to increased employee salaries and benefit costs totaling $1.5 million, primarily due to the addition of Design Space employees, and $1.3 million higher allocated corporate expenses.

For the three months ended June 30, 2022, TRS-RenTelco’s total revenues increased $3.6 million to $37.3 million compared to the same period in 2021, primarily due to higher rental and sales revenues.

Higher selling and administrative expenses and an increase in gross profit resulted in an 8% increase in pre-tax income to $8.7 million for the three months ended June 30, 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.

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Interest expense allocation

Foreign currency exchange gain (loss)

Foreign currency exchange loss

Pre-tax income

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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:

TRS-RenTelco’s gross profit for the three months ended June 30, 2022 increased $1.5 million, or 10%, to $16.1 million.

For the three months ended June 30, 2022 compared to the same period in 2021:

Gross Profit on Rental Revenues – Rental revenues increased $1.9 million, or 7%, depreciation expense increased $0.4 million, or 3%, and other direct costs increased $0.7 million or 15%, resulting in a 6% increase in gross profit on rental revenues to $11.9 million.

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.

As a percentage of rental revenues, depreciation was 42% and 43% in 2022 and 2021, respectively, and other direct costs were 18% in 2022 and 17% in 2021, which resulted in a gross margin percentage of 40% in 2022 and 2021.

The rental revenues increase was due to 4% higher average rental equipment on rent and 2% higher average monthly rental rates in 2022 as compared to 2021.

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

Gross profit on sales decreased 15%, to $2.4 million, with gross margin percentage of 62% in 2022, compared to 55% in 2021.

Gross Profit on Sales – Sales revenues increased $1.6 million, or 35%, to $6.4 million in 2022.

Gross profit on sales increased 23%, to $3.6 million, with gross margin percentage of 57% in 2022, compared to 62% in 2021.

Sales occur as a normal part of TRS-RenTelco’s rental business;

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

For the three months ended 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.

For the three months ended June 30, 2022, selling and administrative expenses increased $0.5 million, or 9%, to $6.6 million.

For the three months ended June 30, 2022, Adler Tanks’ total revenues increased $3.7 million, or 19%, to $23.7 million compared to the same period in 2021, due to higher rental, rental related services, and other revenues.

Higher gross profit on rental, rental related services, and other revenues, partly offset by an increase in selling and administrative expenses and higher allocated interest expense, resulted in a $2.1 million increase in pre-tax income to $3.3 million for the three months ended June 30, 2022, compared to the same period in 2021.

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

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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.

Adler Tanks’ gross profit for the three months ended June 30, 2022 increased $2.9 million, or 36%, to $10.9 million.

For the three months ended June 30, 2022 compared to the same period in 2021:

Gross Profit on Rental Revenues – Rental revenues increased $2.5 million, or 18%, primarily due to 15% higher average equipment on rent and 2% higher average rental rates in 2022 compared to 2021.

As a percentage of rental revenues, depreciation was 25% in 2022 and 31% in 2021, and other direct costs were 21% and 20% in 2022 and 2021, respectively, which resulted in gross margin percentages of 54% and 49% in 2022 and 2021, respectively.

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Gross Profit on Rental Related Services – Rental related services revenues increased $1.0 million, or 17%, to $6.8 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.

The higher rental related services revenues with higher gross margin percentage of 25% in 2022 compared to 18% in 2021, resulted in rental related services gross profit increasing 63% to $1.7 million in 2022.

For the three months ended June 30, 2022, selling and administrative expenses increased $0.7 million, or 12%, to $7.0 million compared to the same period in 2021, primarily due to higher employees’ salaries and benefit costs.

Six Months Ended June 30, 2022 Compared to

Six Months Ended June 30, 2021

Consolidated revenues for the six months ended June 30, 2022 increased to $322.4 million from $267.6 million for the same period in 2021.

Consolidated net income for the six months ended June 30, 2022 increased 18% to $44.9 million, from $38.0 million for the same period in 2021.

Earnings per diluted share for the six months ended June 30, 2022 increased 18% to $1.83 from $1.55 for the same period in 2021.

For the six months ended June 30, 2022, on a consolidated basis:

Gross profit increased $21.4 million, or 17%, to $144.3 million in 2022.

Mobile Modular’s gross profit increased $17.1 million, or 23%, primarily due to higher gross profit on rental, sales, and rental related services revenues.

TRS-RenTelco’s gross profit increased $1.5 million, or 5%, primarily due to higher gross profit on rental and sales revenues.

Adler Tanks’ gross profit increased $4.3 million, or 29%, primarily due to higher gross profit on rental and rental related services revenues.

Enviroplex’s gross profit decreased $1.5 million, primarily due to $3.8 million lower sales revenues of $5.6 million in 2022.

Selling and administrative expenses increased 15% to $79.9 million from $69.4 million for the same period in 2021, primarily due to increased employee salaries and employee benefit costs of $7.4 million, primarily due to the addition of Design Space and Kitchens To Go employees, and $1.2 million higher amortization of intangible assets from the Design Space and Kitchens to Go acquisitions.

Interest expense increased $1.8 million to $5.8 million, due to 48% higher average debt levels of the Company, partly offset by 3% lower net average interest rates of 2.74% in 2022 compared to 2.81% in 2021.

Pre-tax income contribution by Mobile Modular, TRS-RenTelco and Adler Tanks was 66%, 28% and 8%, respectively, compared to 64%, 32% and 3%, respectively, for the comparable 2021 period.

These results are discussed on a segment basis below.

Pre-tax income contribution by Enviroplex was negative 2% in 2022, compared to 1% in 2021.

The provision for income taxes resulted in an effective tax rate of 23.1% for the six months ended June 30, 2022 and 2021.

Adjusted EBITDA increased $15.4 million, or 14%, to $123.0 million in 2022.

Mobile Modular

For the six months ended June 30, 2022, Mobile Modular’s total revenues increased $48.8 million, or 32%, to $202.0 million compared to the same period in 2021, primarily due to higher rental, sales, and rental related services revenues.

The revenue increase, together with higher gross profit on rental, sales, and rental related services revenues, partly offset by higher selling and administrative expenses resulted in a 23% increase in pre-tax income to $38.6 million for the six months ended June 30, 2022, from $31.4 million for the same period in 2021.

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

Mobile Modular – Six Months Ended 6/30/22 compared to Six Months Ended 6/30/21 (Unaudited)

(dollar amounts in thousands)

Six Months Ended

Increase (Decrease)

Rental related services

Rental operations

Total revenues

Costs and Expenses

Direct costs of rental operations:

Depreciation of rental equipment

Rental related services

Total direct costs of rental operations

Costs of sales

Total costs of revenues

Rental related services

Rental operations

Total gross profit

Selling and administrative expenses

Income from operations

Interest expense allocation

Pre-tax income

Other Selected Information

Adjusted EBITDA

Average rental equipment 1

Average rental equipment on rent

Average monthly total yield 2

Average utilization 3

Average monthly rental rate 4

Period end rental equipment 1

Period end utilization 3

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

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

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

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

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

Mobile Modular’s gross profit for the six months ended June 30, 2022 increased $17.1 million, or 23%, to $92.8 million.

For the six months ended June 30, 2022 compared to the same period in 2021:

Gross Profit on Rental Revenues – Rental revenues increased $26.6 million, or 27%, primarily due to 19% higher average rental equipment on rent and 10% higher average rental rates in 2022.

The increase in rental revenue and average equipment on rent was due in part to the Design Space and Kitchens To Go acquisitions.

As a percentage of rental revenues, depreciation was 12% and 13% in 2022 and 2021, respectively and other direct costs were 35% in 2022 and 29% in 2021, which resulted in gross margin percentages of 53% in 2022 and 58% in 2021.

The higher rental revenues, partly offset by lower rental margins resulted in gross profit on rental revenues increasing $8.4 million, or 15%, to $66.7 million in 2022.

Gross Profit on Rental Related Services – Rental related services revenues increased $9.3 million, or 31%, compared to 2021.

The higher revenues and higher gross margin percentage of 29% in 2022, compared to 28% in 2021, resulted in rental related services gross profit increasing $2.9 million, or 35%, to $11.3 million in 2022.

Gross Profit on Sales – Sales revenues increased $12.8 million, or 57%, compared to 2021, due to higher new and used equipment sales.

The higher gross margin percentage of 40% in 2022 compared to 38% in 2021, primarily due to higher margins on used equipment sales revenues, resulted in gross profit on sales increasing $5.7 million, or 67%, to $14.1 million.

Sales occur routinely as a normal part of Mobile Modular’s rental business;

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

For the six months ended June 30, 2022, selling and administrative expenses increased $8.6 million, or 21%, to $50.4 million, primarily due to increased employee salaries and benefit costs of $4.3 million, primarily due to the addition of Design Space and Kitchens To Go employees, $1.2 million higher amortization of intangible assets due to the Design Space and Kitchens To Go acquisitions, and $2.9 million higher allocated corporate expenses.

For the six months ended June 30, 2022, TRS-RenTelco’s total revenues increased $3.4 million, to $70.8 million compared to the same period in 2021, primarily due to higher rental and sales revenues, partly offset by lower other revenues.

Pre-tax income increased $0.2 million, or 1%, to $16.2 million for the six months ended June 30, 2022 compared to the same period in 2021, primarily due to higher gross profit on rental, sales, and rental related services revenues, partly offset by lower gross profit on other revenues and higher interest expense allocation.

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

TRS-RenTelco – Six Months Ended 6/30/22 compared to Six Months Ended 6/30/21 (Unaudited)

(dollar amounts in thousands)

Six Months Ended

Increase (Decrease)

Rental related services

Rental operations

Total revenues

Costs and Expenses

Direct costs of rental operations:

Depreciation of rental equipment

Rental related services

Total direct costs of rental operations

Costs of sales

Total costs of revenues

Rental related services

Rental operations

Total gross profit

Selling and administrative expenses

Income from operations

Interest expense allocation

Foreign currency exchange loss

Pre-tax income

Other Selected Information

Adjusted EBITDA

Average rental equipment 1

Average rental equipment on rent

Average monthly total yield 2

Average utilization 3

Average monthly rental rate 4

Period end rental equipment 1

Period end utilization 3

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

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

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

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

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

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TRS-RenTelco’s gross profit for the six months ended June 30, 2022 increased $1.5 million, or 5%, to $30.8 million.

For the six months ended June 30, 2022 compared to the same period in 2021:

Gross Profit on Rental Revenues – Rental revenues increased $3.1 million, or 6%, and depreciation expense increased $1.1 million, or 5%, resulting in a 5% increase in gross profit on rental revenues to $23.7 million.

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

The rental revenues increase was due to 4% higher average rental equipment on rent and 2% higher average monthly rental rates, partly offset by 5% lower average utilization of rental equipment in 2022 as compared to 2021.

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

Gross Profit on Sales – Sales revenues increased $0.4 million, or 4%, to $10.3 million in 2022.

Gross profit on sales increased $0.3 million, or 4%, to $6.1 million with gross margin percentage of 59% in 2022, unchanged from 2021.

Sales occur as a normal part of TRS-RenTelco’s rental business;

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

For the six months ended June 30, 2022, selling and administrative expenses increased $0.8 million, or 7%, to $13.2 million, primarily due to increased employee salaries and benefit costs.

For the six months ended June 30, 2022, Adler Tanks’ total revenues increased $6.3 million, or 17%, to $44.0 million compared to the same period in 2021, primarily due to higher rental and rental related services revenues.

Higher gross profit on rental and rental related services, partly offset by higher selling and administrative expenses, resulted in a $3.1 million increase in pre-tax income to $4.7 million for the six months ended June 30, 2022, compared to the same period in 2021.

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

Adler Tanks – Six Months Ended 6/30/22 compared to Six Months Ended 6/30/21 (Unaudited)

(dollar amounts in thousands)

Six Months Ended

Increase (Decrease)

Rental related services

Rental operations

Total revenues

Costs and Expenses

Direct costs of rental operations:

Depreciation of rental equipment

Rental related services

Total direct costs of rental operations

Costs of sales

Total costs of revenues

Rental related services

Rental operations

Total gross profit

Selling and administrative expenses

Income from operations

Interest expense allocation

Pre-tax income

Other Selected Information

Adjusted EBITDA

Average rental equipment 1

Average rental equipment on rent

Average monthly total yield 2

Average utilization 3

Average monthly rental rate 4

Period end rental equipment 1

Period end utilization 3

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

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

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

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

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

nm = Not meaningful

Adler Tanks’ gross profit for the six months ended June 30, 2022 increased $4.3 million, or 29%, to $19.3 million.

For the six months ended June 30, 2022 compared to the same period in 2021:

Gross Profit on Rental Revenues – Rental revenues increased $4.5 million, or 18%, due to 17% higher average rental equipment on rent and 1% higher average monthly rental rates in 2022 compared to 2021.

Stronger business activity levels in multiple geographic and market segments resulted in increased rental revenues when compared to 2021.

As a percentage of rental revenues, depreciation was 27% in 2022 and 32% in 2021, and other direct costs were 21% and 19% in 2022 and 2021, respectively, which resulted in gross margin percentages of 53% and 49% in 2022 and 2021, respectively.

The higher rental revenues and rental margins resulted in a 28% increase in gross profit on rental revenues to $15.9 million in 2022.

Gross Profit on Rental Related Services – Rental related services revenues increased $1.4 million, or 13%, to $12.1 million compared to 2021.

Higher rental related services revenues and higher gross margin percentage of 22% in 2022, compared to 19% in 2021 resulted in rental related services gross profit increasing 27% to $2.6 million in 2022.

For the six months ended June 30, 2022, selling and administrative expenses increased 8% to $13.5 million compared to the same period in 2021, primarily due to increased marketing and administrative costs and higher allocated corporate expenses.

Adjusted EBITDA

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

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Three Months Ended

Six Months Ended

Twelve Months Ended

8 unchanged sentences

Three Months Ended

Six Months Ended

Twelve Months Ended

3 unchanged sentences

Gain on sale of used rental equipment

Foreign currency exchange (gain) loss

Foreign currency exchange loss (gain)

Amortization of debt issuance costs

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

At June 30, 2022, the actual ratio was 4.15 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 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.

At June 30, 2022, the actual ratio was 1.69 to 1.

At June 30, 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.

1 unchanged sentence

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

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 for the Company for the six months ended June 30, 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 $82.0 million in 2022, compared to $98.0 million 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.

The 16% decrease in net cash provided by operating activities was primarily attributable to lower deferred income taxes and accounts payable and accrued liabilities, partly offset by higher income from operations.

Cash Flows from Investing Activities:

Net cash used in investing activities was $69.6 million in 2022, compared to $320.8 million in 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.

The $251.2 million decrease was primarily due to the $284.3 million acquisition of Design Space and Kitchens To Go in 2021, partly offset by $35.9 million higher purchases of rental equipment in 2022.

Cash Flows from Financing Activities:

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.

Net cash used in financing activities was $13.2 million in 2022, compared to net cash provided of $224.1 million in 2021.

The reduction in net cash used in 2022 was primarily attributable to reduced borrowings under bank lines of credit and note purchase agreements as the borrowings were primarily related to the funding of the Design Space and Kitchens to Go acquisitions.

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

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

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.

At June 30, 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 $281.5 million was outstanding, and had capacity to borrow up to an additional $150.5 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 March 31, 2022, the actual ratio was 4.12 to 1.

At June 30, 2022, the actual ratio was 4.15 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 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.

At June 30, 2022, the actual ratio was 1.69 to 1.

At June 30, 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.

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

At June 30, 2022, the principal balance outstanding under the Series C Senior Notes was $60.0 million.

2.57% Senior Notes Due in 2028

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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 March 31, 2022, the principal balance outstanding under the Series D Senior Notes was $40.0 million.

At June 30, 2022, the principal balance outstanding under the Series D Senior Notes was $40.0 million.

2.35% Senior Notes Due in 2026

5 unchanged sentences

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

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

At June 30, 2022, the principal balance outstanding under the Series E Senior Notes was $60.0 million.

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

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

At June 30, 2022, the actual ratio was 4.15 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 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.

At June 30, 2022, the actual ratio was 1.69 to 1.

At June 30, 2022, the Company was in compliance with each of the aforementioned covenants.

10 unchanged sentences

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 .

There were no shares repurchased in the six months ended June 30 , 202 2 and 2021 .

As of June 30 , 202 2 , 1, 309,805 shares remain ed authorize d for repurchase under the Repurchase Plan .

Contractual Obligations and Commitments

1 unchanged sentence

Critical Accounting Estimates

There were no material changes in our judgments and assumptions associated with the development of our critical accounting estimates during the period ended March 31, 2022.

There were no material changes in our judgments and assumptions associated with the development of our critical accounting estimates during the period ended June 30, 2022.

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

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis