MCGRATH RENTCORP 10-Q

Item 1. Financial Statements REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders McGrath RentCorp Results of review of interim financial statements We have reviewed the accompanying condensed consolidated balance sheet of McGrath RentCorp (a California Corporation), and subsidiaries (the “Company”) as of June 30, 2022, and the related condensed consolidated statements of income, comprehensive income, and shareholders’ equity, for the three-month and six-month periods ended June 30, 2022 and 2021, cash flows for the six-month periods ended June 30, 2022 and 2021 and the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company as of December 31, 2021, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 23, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Basis for review results These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our reviews in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. /s/ GRANT THORNTON LLP San Francisco, California July 28, 2022 3 MCGRATH RENTCORP CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended June 30, Six Months Ended June 30, (in thousands, except per share amounts) 2022 2021 2022 2021 Revenues Rental $ 110,624 $ 94,581 $ 214,865 $ 180,668 Rental related services 28,819 22,688 53,136 42,357 Rental operations 139,443 117,269 268,001 223,025 Sales 36,471 28,256 52,347 42,867 Other 1,117 910 2,056 1,738 Total revenues 177,031 146,435 322,404 267,630 Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 24,064 23,159 47,938 44,414 Rental related services 20,853 17,276 38,996 31,880 Other 32,825 23,278 60,648 42,985 Total direct costs of rental operations 77,742 63,713 147,582 119,279 Costs of sales 21,452 16,855 30,496 25,403 Total costs of revenues 99,194 80,568 178,078 144,682 Gross profit 77,837 65,867 144,326 122,948 Selling and administrative expenses 40,788 36,261 79,915 69,398 Income from operations 37,049 29,606 64,411 53,550 Other expense: Interest expense ( 3,001 ) ( 2,257 ) ( 5,821 ) ( 4,040 ) Foreign currency exchange loss ( 181 ) ( 2 ) ( 168 ) ( 57 ) Income before provision for income taxes 33,867 27,347 58,422 49,453 Provision for income taxes 7,730 6,739 13,492 11,447 Net income $ 26,137 $ 20,608 $ 44,930 $ 38,006 Earnings per share: Basic $ 1.07 $ 0.85 $ 1.85 $ 1.57 Diluted $ 1.07 $ 0.84 $ 1.83 $ 1.55 Shares used in per share calculation: Basic 24,360 24,229 24,323 24,191 Diluted 24,509 24,494 24,522 24,505 Cash dividends declared per share $ 0.455 $ 0.435 $ 0.910 $ 0.870 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 MCGRATH RENTCORP CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Net income $ 26,137 $ 20,608 $ 44,930 $ 38,006 Other comprehensive income (loss): Foreign currency translation adjustment, net of tax impact 61 ( 3 ) 64 35 Comprehensive income $ 26,198 $ 20,605 $ 44,994 $ 38,041 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 McGrath RentCorp CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) June 30, December 31, (in thousands) 2022 2021 Assets Cash $ 874 $ 1,491 Accounts receivable, net of allowance for credit losses of $ 2,125 in 2022 and 2021 167,329 159,499 Rental equipment, at cost: Relocatable modular buildings 1,075,898 1,040,094 Electronic test equipment 389,383 361,391 Liquid and solid containment tanks and boxes 309,010 309,908 1,774,291 1,711,393 Less: accumulated depreciation ( 676,766 ) ( 646,169 ) Rental equipment, net 1,097,525 1,065,224 Property, plant and equipment, net 137,465 135,325 Prepaid expenses and other assets 65,800 54,945 Intangible assets, net 44,086 47,049 Goodwill 132,305 132,393 Total assets $ 1,645,384 $ 1,595,926 Liabilities and Shareholders' Equity Liabilities: Notes payable $ 441,460 $ 426,451 Accounts payable and accrued liabilities 137,729 136,313 Deferred income 77,551 58,716 Deferred income taxes, net 236,610 242,425 Total liabilities 893,350 863,905 Shareholders’ equity: Common stock, no par value - Authorized 40,000 shares Issued and outstanding - 24,378 shares as of June 30, 2022 and 24,260 shares as of December 31, 2021 105,894 108,610 Retained earnings 646,130 623,465 Accumulated other comprehensive income (loss) 10 ( 54 ) Total shareholders’ equity 752,034 732,021 Total liabilities and shareholders’ equity $ 1,645,384 $ 1,595,926 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 McGrath RentCorp CONDENSED Consolidated Statements OF SHAREHOLDERS’ EQUITY (unaudited) Common Stock Retained Accumulated Other Comprehensive Total Shareholders’ (in thousands, except per share amounts) Shares Amount Earnings Income (Loss) Equity Balance at December 31, 2021 24,260 $ 108,610 $ 623,465 $ ( 54 ) $ 732,021 Net income — — 18,793 — 18,793 Share-based compensation — 1,760 — — 1,760 Common stock issued under stock plans, net of shares withheld for employee taxes 75 — — — — Taxes paid related to net share settlement of stock awards — ( 3,605 ) — — ( 3,605 ) Dividends accrued of $ 0.455 per share — — ( 11,084 ) — ( 11,084 ) Other comprehensive income — — — 3 3 Balance at March 31, 2022 24,335 $ 106,765 $ 631,174 $ ( 51 ) $ 737,888 Net income — — 26,137 — 26,137 Share-based compensation — 1,652 — — 1,652 Common stock issued under stock plans, net of shares withheld for employee taxes 43 — — — — Taxes paid related to net share settlement of stock awards — ( 2,523 ) — — ( 2,523 ) Dividends accrued of $ 0.455 per share — — ( 11,181 ) — ( 11,181 ) Other comprehensive income — — — 61 61 Balance at June 30, 2022 24,378 $ 105,894 $ 646,130 $ 10 $ 752,034 The accompanying notes are an integral part of these condensed consolidated financial statements. Common Stock Retained Accumulated Other Comprehensive Total Shareholders’ (in thousands, except per share amounts) Shares Amount Earnings Income (Loss) Equity Balance at December 31, 2020 24,128 $ 106,289 $ 576,419 $ ( 104 ) $ 682,604 Net income — — 17,398 — 17,398 Share-based compensation — 1,777 — — 1,777 Common stock issued under stock plans, net of shares withheld for employee taxes 78 — — — — Taxes paid related to net share settlement of stock awards — ( 3,482 ) — — ( 3,482 ) Dividends accrued of $ 0.435 per share — — ( 10,650 ) — ( 10,650 ) Other comprehensive income — — — 38 38 Balance at March 31, 2021 24,206 $ 104,584 $ 583,167 $ ( 66 ) $ 687,685 Net income — — 20,608 — 20,608 Share-based compensation — 1,820 — — 1,820 Common stock issued under stock plans, net of shares withheld for employee taxes 39 — — — — Taxes paid related to net share settlement of stock awards — ( 1,346 ) — — ( 1,346 ) Dividends accrued of $ 0.435 per share — — ( 10,643 ) — ( 10,643 ) Other comprehensive loss — — — ( 3 ) ( 3 ) Balance at June 30, 2021 24,245 $ 105,058 $ 593,132 $ ( 69 ) $ 698,121 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 McGrath RentCorp CONDENSED Consolidated Statements of Cash Flows (unaudited) Six Months Ended June 30, (in thousands) 2022 2021 Cash Flows from Operating Activities: Net income $ 44,930 $ 38,006 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 55,355 50,559 Deferred income taxes ( 5,815 ) 7,268 Provision for doubtful accounts 49 138 Share-based compensation 3,412 3,597 Gain on sale of used rental equipment ( 16,093 ) ( 11,870 ) Foreign currency exchange loss 168 57 Amortization of debt issuance costs 9 6 Change in: Accounts receivable ( 7,879 ) ( 5,494 ) Prepaid expenses and other assets ( 10,855 ) ( 9,385 ) Accounts payable and accrued liabilities ( 73 ) 17,642 Deferred income 18,835 7,458 Net cash provided by operating activities 82,043 97,982 Cash Flows from Investing Activities: Purchases of rental equipment ( 94,820 ) ( 58,902 ) Purchases of property, plant and equipment ( 6,594 ) ( 2,272 ) Cash paid for acquisition of businesses — ( 284,341 ) Proceeds from sales of used rental equipment 31,830 24,674 Net cash used in investing activities ( 69,584 ) ( 320,841 ) Cash Flows from Financing Activities: Net borrowings under bank lines of credit 15,000 189,983 Borrowings under note purchase agreement — 60,000 Taxes paid related to net share settlement of stock awards ( 6,128 ) ( 4,828 ) Payment of dividends ( 22,083 ) ( 21,089 ) Net cash (used in) provided by financing activities ( 13,211 ) 224,066 Effect of foreign currency exchange rate changes on cash 135 ( 33 ) Net (decrease) increase in cash ( 617 ) 1,174 Cash balance, beginning of period 1,491 1,238 Cash balance, end of period $ 874 $ 2,412 Supplemental Disclosure of Cash Flow Information: Interest paid, during the period $ 5,821 $ 3,987 Net income taxes paid, during the period $ 17,078 $ 6,990 Dividends accrued during the period, not yet paid $ 11,009 $ 9,918 Rental equipment acquisitions, not yet paid $ 6,906 $ 8,502 The accompanying notes are an integral part of these condensed consolidated financial statements. 8 McGRATH RENTCORP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2022 NOTE 1. CONDENSED CONSOLIDATED FINANCIAL INFORMATION The condensed consolidated financial statements for the three and six months ended June 30, 2022 and 2021 have not been audited, but in the opinion of management, all adjustments (consisting of normal recurring accruals, consolidating and eliminating entries) necessary for the fair presentation of the consolidated financial position, results of operations and cash flows of McGrath RentCorp (the “Company”) have been made. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to those rules and regulations. The consolidated results for the three and six months ended June 30, 2022 should not be considered as necessarily indicative of the consolidated results for the entire fiscal year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K, filed with the SEC on February 23, 2022 for the year ended December 31, 2021 (the “2021 Annual Report”). NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS In March 2022, the FASB issued Accounting Standards Update (“ASU”) 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the separate recognition and measurement guidance for troubled debt restructurings by creditors. In addition, the ASU requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of FASB ASC 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements. NOTE 3. REVENUE RECOGNITION The Company’s accounting for revenues is governed by two accounting standards. The majority of the Company’s revenues are considered lease or lease related and are accounted for in accordance with Accounting Standards Codification (ASC) 842, Leases. Revenues determined to be non-lease related are accounted for in accordance with ASC 606, Revenue from Contracts with Customers. The Company accounts for revenues when approval and commitment from both parties have been obtained, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company typically recognizes non-lease related revenues at a point in time because the customer does not simultaneously consume the benefits of the Company’s promised goods and services, or performance obligations, and obtains control when delivery and installation are complete. For contracts that have multiple performance obligations, the transaction price is allocated to each performance obligation in the contract based on the Company’s best estimate of the standalone selling prices of each distinct performance obligation in the contract. The standalone selling price is typically determined based upon the expected cost plus an estimated margin of each performance obligation. The Company generally rents and sells to customers on 30 day payment terms. The Company does not typically offer variable payment terms or accept non-monetary consideration. Amounts billed and due from the Company’s customers are classified as Accounts receivable on the Company’s consolidated balance sheet. For certain sales of modular buildings, progress payments from the customer are received during the manufacturing of new equipment, or the preparation of used equipment. The advance payments are not considered a significant financing component because the payments are used to meet working capital needs during the contract and to protect the Company from the customer failing to adequately complete their obligations under the contract. These contract liabilities are included in Deferred income on the Company’s consolidated balance sheet and totaled $ 34.3 million and $ 16.8 million at June 30, 2022 and December 31, 2021, respectively. Sales revenues totaling $ 4.2 million and $ 6.5 million were recognized during the three and six months ended June 30, 2022, which were included in the contract liability balance at December 31, 2021. For certain modular building sales, the customer retains a small portion of the contract price until full completion of the contract, which results in revenue earned in excess of billings. These unbilled contract assets are included in Accounts receivable on the Company’s consolidated balance sheet and totaled $ 1.8 million and $ 1.3 million at June 30, 2022 and December 31, 2021, respectively. Lease Revenues Rental revenues from operating leases are recognized on a straight-line basis over the term of the lease for all operating segments. Rental billings for periods extending beyond period end are recorded as deferred income and are recognized in the period earned. Rental related services revenues are primarily associated with relocatable modular buildings and liquid and solid containment tanks and boxes leases. For modular building leases, rental related services revenues for modifications, delivery, installation, dismantle and return delivery are lease related because the payments are considered minimum lease payments that are an integral part of the negotiated lease agreement with the customer. These revenues are recognized on a straight-line basis over the term of the lease. Certain leases are 9 accounted for as finance leases. For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and the unearned interest is recognized over the lease term on a basis which results in a constant rate of return on the unrecovered lease investment. Other revenues include interest income on finance leases and rental income on facility leases. In the three and six months ended June 30, 2022, the Company’s lease revenues were $ 126.8 million and $ 245.3 million, respectively, consisting of $ 125.8 million and $ 243.6 million of operating lease revenues, respectively, and $ 1.0 million and $ 1.7 million of finance lease revenues, respectively. The Company has entered into finance leases to finance certain equipment sales to customers. The lease agreements have a bargain purchase option at the end of the lease term. For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and the unearned interest is recognized over the lease term on a straight-line basis, which results in a constant rate of return on the unrecovered lease investment. The Company’s finance lease revenues for the three and six months ended June 30, 2022 include $ 0.9 million and $ 1.5 million of sales revenues, respectively, and $ 0.1 million and $ 0.2 million of interest income, respectively. Non-Lease Revenues Non-lease revenues are recognized in the period when control of the performance obligation is transferred, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. For liquid and solid containment solutions, portable storage containers and electronic test equipment, rental related services revenues for delivery and return delivery are considered non-lease revenues. Sales revenues are typically recognized at a point in time, which occurs upon the completion of delivery, installation and acceptance of the equipment by the customer. Accounting for non-lease revenues requires judgment in determining the point in time the customer gains control of the equipment and the appropriate accounting period to recognize revenue. Sales taxes charged to customers are reported on a net basis and are excluded from revenues and expenses. 10 The following table disaggregates the Company’s revenues by lease (within the scope of ASC 842) and non-lease revenues (within the scope of ASC 606) and the underlying service provided for the three months ended June 30, 2022 and 2021: (in thousands) Mobile Modular TRS- RenTelco Adler Tanks Enviroplex Consolidated Three Months Ended June 30, 2022 Leasing $ 79,671 $ 30,909 $ 16,244 $ — $ 126,824 Non-lease: Rental related services 6,883 683 6,636 — 14,202 Sales 24,816 5,462 601 4,650 35,529 Other 7 287 182 — 476 Total non-lease 31,706 6,432 7,419 4,650 50,207 Total revenues $ 111,377 $ 37,341 $ 23,663 $ 4,650 $ 177,031 2021 Leasing $ 65,184 $ 28,717 $ 13,609 $ — $ 107,510 Non-lease: Rental related services 4,584 621 5,713 — 10,918 Sales 14,784 4,108 593 8,122 27,607 Other 20 337 43 — 400 Total non-lease 19,388 5,066 6,349 8,122 38,925 Total revenues $ 84,572 $ 33,783 $ 19,958 $ 8,122 $ 146,435 Six Months Ended June 30, 2022 Leasing $ 154,265 $ 60,319 $ 30,723 $ — $ 245,307 Non-lease: Rental related services 12,533 1,235 11,821 — 25,589 Sales 35,191 8,741 1,258 5,567 50,757 Other 33 537 181 — 751 Total non-lease 47,757 10,513 13,260 5,567 77,097 Total revenues $ 202,022 $ 70,832 $ 43,983 $ 5,567 $ 322,404 2021 Leasing $ 122,987 $ 56,530 $ 25,947 $ — $ 205,464 Non-lease: Rental related services 7,790 1,229 10,474 — 19,493 Sales 22,404 8,984 1,201 9,356 41,945 Other 39 643 46 — 728 Total non-lease 30,233 10,856 11,721 9,356 62,166 Total revenues $ 153,220 $ 67,386 $ 37,668 $ 9,356 $ 267,630 Customer returns of rental equipment prior to the end of the rental contract term are typically billed a cancellation fee, which is recorded as rental revenue in the period billed. Sales of new relocatable modular buildings, portable storage containers, electronic test equipment and related accessories and liquid and solid containment tanks and boxes not manufactured by the Company are typically covered by warranties provided by the manufacturer of the products sold. The Company typically provides limited 90 -day warranties for certain sales of used rental equipment and one-year warranties on equipment manufactured by Enviroplex. Although the Company’s policy is to provide reserves for warranties when required for specific circumstances, warranty costs have not been significant to date. The Company’s incremental cost of obtaining lease contracts, which consists of salesperson commissions, are deferred and amortized over the initial lease term for modular leases. Incremental costs for obtaining a contract for all other operating segments are expensed in the period incurred because the lease term is typically less than 12 months. 11 NOTE 4. EARNINGS PER SHARE Basic earnings per share (“EPS”) is computed as net income divided by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS is computed assuming conversion of all potentially dilutive securities including the dilutive effect of stock options, unvested restricted stock awards and other potentially dilutive securities. The table below presents the weighted-average number of shares of common stock used to calculate basic and diluted earnings per share: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Weighted-average number of shares of common stock for calculating basic earnings per share 24,360 24,229 24,323 24,191 Effect of potentially dilutive securities from equity-based compensation 149 265 199 314 Weighted-average number of shares of common stock for calculating diluted earnings per share 24,509 24,494 24,522 24,505 There were 7,315 anti-dilutive securities excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2022 and no anti-dilutive securities excluded for the same period in 2021. The Company has in the past made purchases of shares of its common stock from time to time in over-the-counter market (NASDAQ) transactions, through privately negotiated, large block transactions and through a share repurchase plan, in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. In August 2015, the Company’s Board of Directors authorized the Company to repurchase up to 2,000,000 shares of the Company's outstanding common stock (the “Repurchase Plan”). The amount and time of the specific repurchases are subject to prevailing market conditions, applicable legal requirements and other factors, including management’s discretion. All shares repurchased by the Company are canceled and returned to the status of authorized but unissued shares of common stock. There can be no assurance that any authorized shares will be repurchased, and the Repurchase Plan may be modified, extended or terminated by the Company’s Board of Directors at any time. There were no shares repurchased during the three and six months ended June 30, 2022 and 2021. As of June 30, 2022, 1,309,805 shares remained authorized for repurchase under the Repurchase Plan. NOTE 5. INTANGIBLE ASSETS Intangible assets consist of the following: (dollar amounts in thousands) Estimated useful life in years Average remaining life in years Cost Accumulated amortization Net book value June 30, 2022 Customer relationships 8 to 11 6.8 $ 50,285 $ ( 15,548 ) $ 34,737 Non-compete agreements 5 3.7 3,296 ( 830 ) 2,466 Customer backlog 0.5 — 2,200 ( 2,200 ) — Trade name 8 6.8 1,200 ( 188 ) 1,012 Total amortizing 56,981 ( 18,766 ) 38,215 Trade name - non-amortizing Indefinite 5,871 — 5,871 Total $ 62,852 $ ( 18,766 ) $ 44,086 December 31, 2021 Customer relationships 8 to 11 7.3 $ 50,285 $ ( 12,991 ) $ 37,294 Non-compete agreements 5 4.2 3,296 ( 499 ) 2,797 Customer backlog 0.5 — 1,900 ( 1,900 ) — Trade name 8 7.3 1,200 ( 113 ) 1,087 Total amortizing 56,681 ( 15,503 ) 41,178 Trade name - non-amortizing Indefinite 5,871 — 5,871 Total $ 62,552 $ ( 15,503 ) $ 47,049 12 The Company assesses potential impairment of its goodwill and intangible assets when there is evidence that events or circumstances have occurred that would indicate the recovery of an asset’s carrying value is unlikely. The Company also assesses potential impairment of its goodwill and intangible assets with indefinite lives on an annual basis regardless of whether there is evidence of impairment. If indicators of impairment were to be present in intangible assets used in operations and future discounted cash flows were not expected to be sufficient to recover the asset’s carrying amount, an impairment loss would be charged to expense in the period identified. The amount of an impairment loss that would be recognized is the excess of the asset’s carrying value over its fair value. Factors the Company considers important, which may cause impairment include, among others, significant changes in the manner of use of the acquired asset, negative industry or economic trends, and significant underperformance relative to historical or projected operating results. The Company last conducted a qualitative analysis of its goodwill and intangible assets in the fourth quarter 2021, with no indicators of impairment. In addition, no impairment triggering events occurred during the six months ended June 30, 2022. Determining fair value of a reporting unit is judgmental and involves the use of significant estimates and assumptions. The Company bases its fair value estimates on assumptions that it believes are reasonable but are uncertain and subject to changes in market conditions. Intangible assets with finite useful lives are amortized over their respective useful lives. Amortization expense in the six months ended June 30, 2022 and 2021, was $ 3.0 million and $ 1.7 million, respectively. Based on the carrying values at June 30, 2022 and assuming no subsequent impairment of the underlying assets, the amortization expense is expected to be $ 3.0 million for the remainder of fiscal year 2022, $ 5.9 million annually in 2023 through 2025, $ 5.4 million in 2026 and $ 5.2 million in 2027. 13 NOTE 6. SEGMENT REPORTING The Company’s four reportable segments are (1) its modular building and portable storage container rental segment (“Mobile Modular”); (2) its electronic test equipment segment (“TRS-RenTelco”); (3) its containment solutions for the storage of hazardous and non-hazardous liquids and solids segment (“Adler Tanks”); and (4) its classroom manufacturing segment selling modular buildings used primarily as classrooms in California (“Enviroplex”). The operations of each of these segments are described in Part I – Item 1, “Business,” and the accounting policies of the segments are described in “Note 1 – Summary of Significant Accounting Policies” in the Company’s 2021 Annual Report. Management focuses on several key measures to evaluate and assess each segment’s performance, including rental revenue growth, gross profit and gross margins, income from operations, income before provision for income taxes and adjusted EBITDA. Excluding interest expense, allocations of revenue and expense not directly associated with one of these segments are generally allocated to Mobile Modular, TRS-RenTelco and Adler Tanks based on their pro-rata share of direct revenues. Interest expense is allocated amongst Mobile Modular, TRS-RenTelco and Adler Tanks based on their pro-rata share of average rental equipment at cost, intangible assets, accounts receivable, deferred income and customer security deposits. The Company does not report total assets by business segment. Summarized financial information for the six months ended June 30, 2022 and 2021 for the Company’s reportable segments is shown in the following table: (dollar amounts in thousands) Mobile Modular TRS- RenTelco Adler Tanks Enviroplex 1 Consolidated Six Months Ended June 30, 2022 Rental revenues $ 126,487 $ 58,230 $ 30,148 $ — $ 214,865 Rental related services revenues 39,594 1,484 12,058 — 53,136 Sales and other revenues 35,941 11,118 1,777 5,567 54,403 Total revenues 202,022 70,832 43,983 5,567 322,404 Depreciation of rental equipment 15,582 24,362 7,994 — 47,938 Gross profit 92,820 30,826 19,335 1,345 144,326 Selling and administrative expenses 50,447 13,204 13,501 2,763 79,915 Income (loss) from operations 42,373 17,622 5,834 ( 1,418 ) 64,411 Interest (expense) income allocation ( 3,821 ) ( 1,232 ) ( 1,119 ) 351 ( 5,821 ) Income (loss) before provision for income taxes 38,552 16,222 4,715 ( 1,067 ) 58,422 Adjusted EBITDA 66,178 42,781 15,327 ( 1,276 ) 123,010 Rental equipment acquisitions 51,575 42,791 1,610 — 95,976 Accounts receivable, net (period end) 118,865 24,796 17,248 6,420 167,329 Rental equipment, at cost (period end) 1,075,898 389,383 309,010 — 1,774,291 Rental equipment, net book value (period end) 776,003 177,038 144,484 — 1,097,525 Utilization (period end) 2 78.6 % 65.3 % 51.8 % Average utilization 2 77.6 % 64.6 % 49.9 % 2021 Rental revenues $ 99,895 $ 55,136 $ 25,637 $ — $ 180,668 Rental related services revenues 30,258 1,450 10,649 — 42,357 Sales and other revenues 23,067 10,800 1,382 9,356 44,605 Total revenues 153,220 67,386 37,668 9,356 267,630 Depreciation of rental equipment 12,893 23,278 8,243 — 44,414 Gross profit 75,693 29,365 15,019 2,871 122,948 Selling and administrative expenses 41,839 12,371 12,520 2,668 69,398 Income from operations 33,854 16,994 2,499 203 53,550 Interest (expense) income allocation ( 2,426 ) ( 920 ) ( 922 ) 228 ( 4,040 ) Income before provision for income taxes 31,428 16,017 1,577 431 49,453 Adjusted EBITDA 53,473 41,411 12,436 329 107,649 Rental equipment acquisitions 148,252 42,421 74 — 190,747 Accounts receivable, net (period end) 96,976 22,678 13,545 7,710 140,909 Rental equipment, at cost (period end) 1,019,697 360,720 313,677 — 1,694,094 Rental equipment, net book value (period end) 739,916 172,035 161,104 — 1,073,055 Utilization (period end) 2 76.3 % 66.9 % 45.8 % Average utilization 2 75.7 % 67.7 % 42.1 % 1. Gross Enviroplex sales revenues were $ 6,423 and $ 10,211 for the six months ended June 30, 2022 and 2021, respectively. There were $ 856 and $ 855 inter-segment sales to Mobile Modular in the six months ended June 30, 2022 and 2021, respectively, which required elimination in consolidation. 2. Utilization is calculated each month by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding accessory equipment, and for Mobile Modular and Adler Tanks, excluding new equipment inventory. The Average utilization for the period is calculated using the average costs of rental equipment. 14 No single customer accounted for more than 10% of total revenues for the six months ended June 30, 2022 and 2021. Revenues from foreign country customers accounted for 4 % and 5 % of the Company’s total revenues for the same periods, respectively. NOTE 7. ACQUISITIONS On May 17, 2021, the Company completed the purchase of substantially all of the assets of Design Space Modular Buildings PNW, LP (“Design Space”) for $ 267.3 million in cash consideration on the closing date. Design Space provides modular buildings and portable storage containers rental and sale solutions to customers in the West and Pacific Northwest states in the U.S. The acquisition was accounted for as a purchase of a “business” in accordance with criteria in ASC 805, Business Combinations, using the purchase method of accounting. Under the purchase method of accounting, the total purchase price is assigned to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values on the closing date. The excess of the purchase price over those fair values is recorded as goodwill. The financial results of Design Space were a part of the Mobile Modular segment since May 17, 2021, including $ 1.7 million of transaction costs. On April 1, 2021 the Company completed the purchase of assets of GRS Holding LLC, DBA Kitchens To Go (“Kitchens To Go”) for $ 18.3 million in cash consideration. Kitchens To Go provides interim and permanent modular kitchen solutions for foodservice providers that require flexible facilities to continue or expand operations. The acquisition was accounted for as a purchase of a “business” in accordance with criteria in ASC 805 using the purchase method of accounting. The financial results of Kitchens To Go were a part of the Mobile Modular segment since April 1, 2021, including $ 0.3 million of transaction costs. The following tables summarize the purchase price allocations reflecting estimated fair values of assets acquired and liabilities assumed in the Design Space and Kitchens To Go acquisitions, with excess amounts allocated to goodwill. The valuation of intangible assets acquired is based on certain valuation assumptions including cash flow projections, discount rates, contributory asset charges and other valuation model inputs. The valuation of tangible long-lived assets acquired is dependent upon various analyses including an analysis of the condition and estimated remaining economic lives of the assets acquired. Design Space: (dollar amounts in thousands) Rental equipment $ 116,272 Intangible assets: Goodwill 101,874 Customer relationships 37,900 Non-compete 2,500 Customer backlog 1,600 Accounts receivable 12,025 Property, plant and equipment 4,139 Prepaid expenses and other assets 5,366 Accounts payable and accrued liabilities ( 11,613 ) Deferred income ( 2,784 ) Total purchase price $ 267,279 Kitchens To Go: (dollar amounts in thousands) Rental equipment $ 12,853 Intangible assets: Goodwill 2,322 Customer relationships 1,700 Trade name 1,200 Non-compete 600 Customer backlog 300 Accounts receivable 212 Property, plant and equipment 365 Prepaid expenses and other assets 1,199 Accounts payable and accrued liabilities ( 1,659 ) Deferred income ( 747 ) Total purchase price $ 18,345 15 The value assigned to identifiable intangible assets was determined based on discounted estimated future cash flows associated with such assets to their present value. The combined acquired goodwill of $ 104,196 reflects the strategic fit of Design Space and Kitchens to Go with the Company’s modular business operations. The Company will amortize the acquired customer relationships, tradename, non-compete and customer backlog over their expected useful lives of 8 years, 8 years, 5 years and 6 months, respectively. Goodwill is expected to have an indefinite life and will be subject to future impairment testing. The goodwill is deductible for tax purposes over 15 years. The following unaudited pro forma financial information shows the combined results of operations of the Company, Design Space and Kitchens To Go as if the acquisitions occurred as of the beginning of the periods presented. The pro forma results include the effects of the amortization of the purchased intangible assets and depreciation expense of acquired rental equipment valuation step up, interest expense on the debt incurred to finance the acquisitions. A pro forma adjustment has been made to reflect the income taxes that would have been recorded at the combined federal and state statutory rate of 28 % on the acquisitions’ combined net income. The pro forma results for the six months ended June 30, 2021 have been adjusted to include transaction related costs. This pro forma data is presented for informational purposes only and does not purport to be indicative of the results of the future operations or the results that would have occurred had the acquisitions taken place in the periods noted below: (Unaudited) Six months ended June 30, (dollar amounts in thousands, except for per share amounts) 2022 2021 Pro-forma total revenues $ 322,404 $ 298,663 Pro-forma net income $ 44,930 $ 41,436 Pro-forma basic earnings per share $ 1.85 $ 1.71 Pro-forma diluted earnings per share $ 1.83 $ 1.69 Design Space and Kitchens To Go Actual total revenues $ 36,187 Actual net income $ 3,484 Actual basic earnings per share $ 0.14 Actual diluted earnings per share $ 0.14 On December 31, 2021 the Company completed the purchase of the assets of Titan Storage Containers, LLC (“Titan”) for $ 6.6 million in cash consideration on the closing date and $ 0.3 million remaining liability to the seller. The acquisition was accounted for as a purchase of “assets” in accordance with criteria in ASC 805 and the assessment of the fair value of the purchased assets was allocated primarily to rental equipment totaling $ 6.2 million and rolling stock assets totaling $ 0.8 million, partially offset by accrued liabilities of $ 0.2 million. The rolling stock assets include delivery trucks, delivery trailers, trucks and forklifts. Supplemental pro forma prior year information has not been provided as the historical financial results of Titan were not significant. Incremental transaction costs associated with the asset purchase were not significant. NOTE 8. SUBSEQUENT EVENTS On July 15 th , 2022, the Company entered into an amended and restated credit agreement with Bank of America, N.A., as Administrative Agent, Swing Line Lender, L/C Issuer and lender, and other lenders named therein (the “Credit Facility”). The Credit Facility provides for a $ 650.0 million unsecured revolving credit facility (which may be further increased to $ 950.0 million by adding one or more tranches of term loans and/or increasing the aggregate revolving commitments), which includes a $ 40.0 million sublimit for the issuance of standby letters of credit and a $ 20.0 million sublimit for swingline loans. The proceeds of the Credit Facility are available to be used for general corporate purposes, including permitted acquisitions. The Credit Facility permits the Company’s existing indebtedness to remain, which includes the Company’s $ 12.0 million Treasury Sweep Note due March 31, 2025 , the Company’s existing senior notes issued pursuant to the Note Purchase and Private Shelf Agreement with Prudential Investment Management, Inc., dated as of April 21, 2011 (as amended): (i) the $ 60.0 million aggregate outstanding principal of notes issued November 5, 2015 and due November 5, 2022 , (ii) the $ 40.0 million aggregate outstanding principal of notes issued March 17, 2021 and due March 17, 2028 , and (iii) the $ 60.0 million aggregate outstanding principal of notes issued June 16, 2021 and due June 16, 2026 . In addition, the Company may incur additional senior note indebtedness in an aggregate amount not to exceed $ 250.0 million. The Credit Facility matures on July 15, 2027 and replaced the Company’s prior $ 420.0 million credit facility dated March 31, 2020 with Bank of America, N.A., as agent, as amended. All obligations outstanding under the prior credit facility as of the date of the Credit Facility were refinanced by the Credit Facility on July 15, 2022. 16