MCGRATH RENTCORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Form 10-Q, including the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contains forward-looking statements under federal securities laws. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. Our actual results could differ materially from those indicated by forward-looking statements as a result of various factors. These factors include, but are not limited to, those set forth under this Item, those discussed in Part II—Item 1a, “Risk Factors” and elsewhere in this Form 10-Q and those that may be identified from time to time in our reports and registration statements filed with the SEC. This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes included in Part I—Item 1 of this Form 10-Q and the Consolidated Financial Statements and related Notes and the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 23, 2022 (the “2021 Annual Report”). In preparing the following MD&A, we presume that readers have access to and have read the MD&A in our 2021 Annual Report, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K. We undertake no duty to update any of these forward-looking statements after the date of filing of this Form 10-Q to conform such forward-looking statements to actual results or revised expectations, except as otherwise required by law. General The Company, incorporated in 1979, is a leading rental provider of relocatable modular buildings for classroom and office space, electronic test equipment for general purpose and communications needs, and liquid and solid containment tanks and boxes. The Company’s primary emphasis is on equipment rentals. The Company is comprised of four reportable business segments: (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 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 six months ended June 30, 2022. Mobile Modular Portable Storage offers portable storage units and high security portable office units for rent, lease and purchase. Kitchens To Go was acquired on April 1, 2021, with its results included in the Mobile Modular segment since that date. 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 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. The Company requires significant capital outlay to purchase its rental inventory and recovers its investment through rental and sales revenues. Rental revenues and certain other service revenues negotiated as part of lease agreements with customers and related costs are recognized on a straight-line basis over the terms of the leases. Sales revenues and related costs are recognized upon delivery and installation of the equipment to customers. Sales revenues are less predictable and can fluctuate from quarter to quarter and year to year depending on customer demands and requirements. Generally, rental revenues less cash operating costs recover the equipment’s capitalized cost in a short period of time relative to the equipment’s potential rental life and when sold, sale proceeds are usually above its net book value. The Company’s modular revenues (consisting of revenues from Mobile Modular, Mobile Modular Portable Storage, Kitchens To Go and Enviroplex) are derived from rentals and sales to commercial and education customers. Modular revenues are affected by demand for classrooms, which in turn is affected by shifting and fluctuating school populations, the levels of state funding to public schools, the need for temporary classroom space during reconstruction of older schools and changes in policies regarding class size. As a result of any reduced funding, lower expenditures by these schools may result in certain planned programs to increase the number of classrooms, such as those that the Company provides, to be postponed or terminated. However, reduced expenditures may also result in schools reducing their long-term facility construction projects in favor of using the Company’s modular classroom solutions. At this time, the Company can provide no assurances as to whether public schools will either reduce or increase their demand for the Company's modular classrooms as a result of fluctuations in state funding of public schools. Looking forward, the Company believes that any interruption in the passage of facility bonds or contraction of class size reduction programs by public schools may have a material adverse effect on both rental and sales revenues of the Company. (For more information, see “ Item 1. Business – Relocatable Modular Buildings – Classroom Rentals and Sales to Public Schools (K-12) ” in the Company’s 2021 Annual Report and “ Item 1a. Risk Factors – Significant reductions of, or delays in, funding to public schools have caused the demand and pricing for our modular classroom units to decline, which has in the past caused, and may cause in the future, a reduction in our revenues and profitability ” in Part II – Other Information of this Form 10-Q.) 17 Revenues of TRS-RenTelco are derived from the rental and sale of general purpose and communications test equipment to a broad range of companies, from Fortune 500 to middle and smaller market companies primarily in the aerospace, defense, communications, manufacturing and semiconductor industries. Electronic test equipment revenues are primarily affected by the business activity within these industries related to research and development, manufacturing, and communication infrastructure installation and maintenance. Revenues of Adler Tanks are derived from the rental and sale of fixed axle tanks (“tanks”) and vacuum containers, dewatering containers and roll-off containers (collectively referred to as “boxes”). 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 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). The Company’s Mobile Modular, TRS-RenTelco and Adler Tanks business segments sell modular units, electronic test equipment and liquid and solid containment tanks and boxes, respectively, which are either new or previously rented. In addition, Enviroplex sells new modular buildings used primarily as classrooms in California. 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. Selling and administrative expenses primarily include personnel and benefit costs, which include share-based compensation, depreciation and amortization, bad debt expense, advertising costs, and professional service fees. The Company believes that sharing of common facilities, financing, senior management, and operating and accounting systems by all of the Company’s operations results in an efficient use of overhead. Historically, the Company’s operating margins have been impacted favorably to the extent its costs and expenses are leveraged over a large installed customer base. However, there can be no assurances as to the Company’s ability to maintain a large installed customer base or ability to sustain its historical operating margins. Recent Developments 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. Dividends 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. COVID-19 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”) 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 18 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 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. 19 Results of Operations Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021 Overview 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 $8.9 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 $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 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. 20 Mobile Modular 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. Mobile Modular – Three Months Ended 6/30/22 compared to Three Months Ended 6/30/21 (Unaudited) (dollar amounts in thousands) Three Months Ended June 30, Increase (Decrease) 2022 2021 $ % Revenues Rental $ 64,949 $ 53,238 $ 11,711 22 % Rental related services 21,233 16,207 5,026 31 % Rental operations 86,182 69,445 16,737 24 % Sales 24,816 14,784 10,032 68 % Other 379 343 36 10 % Total revenues 111,377 84,572 26,805 32 % Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 7,749 7,074 675 10 % Rental related services 15,116 11,804 3,312 28 % Other 24,073 15,901 8,172 51 % Total direct costs of rental operations 46,938 34,779 12,159 35 % Costs of sales 14,760 9,034 5,726 63 % Total costs of revenues 61,698 43,813 17,885 41 % Gross Profit Rental 33,127 30,264 2,863 9 % Rental related services 6,117 4,401 1,716 39 % Rental operations 39,244 34,665 4,579 13 % Sales 10,056 5,751 4,305 75 % Other 379 343 36 10 % Total gross profit 49,679 40,759 8,920 22 % Selling and administrative expenses 25,755 22,602 3,153 14 % Income from operations 23,924 18,157 5,767 32 % Interest expense allocation (2,000 ) (1,380 ) (620 ) 45 % Pre-tax income $ 21,924 $ 16,777 $ 5,147 31 % Other Selected Information Adjusted EBITDA $ 35,773 $ 29,519 $ 6,254 21 % Average rental equipment 1 $ 1,019,927 $ 906,653 $ 113,274 12 % Average rental equipment on rent $ 796,430 $ 684,789 $ 111,641 16 % Average monthly total yield 2 2.12 % 1.96 % 8 % Average utilization 3 78.1 % 75.5 % 3 % Average monthly rental rate 4 2.72 % 2.59 % 5 % Period end rental equipment 1 $ 1,025,645 $ 969,852 $ 55,793 6 % Period end utilization 3 78.6 % 76.3 % 3 % 1 . Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment. 2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period. 3. Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding new equipment inventory and accessory equipment. Average utilization for the period is calculated using the average month end costs of rental equipment. 4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent, for the period. 21 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. The higher rental revenues and lower rental margins, resulted in gross profit on rental revenues increasing $2.9 million, or 9%, to $33.1 million in 2022. • Gross Profit on Rental Related Services – Rental related services revenues increased $5.0 million, or 31%, compared to 2021. The increase in rental related services revenues was primarily attributable to higher amortization of modular building delivery and return delivery and dismantle revenues, higher site related revenues and revenues derived from other services performed during the lease and increased delivery and return delivery revenues at Portable Storage. The higher revenues and higher gross margin percentage of 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 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 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. 22 TRS-RenTelco 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. TRS-RenTelco – Three Months Ended 6/30/22 compared to Three Months Ended 6/30/21 (Unaudited) (dollar amounts in thousands) Three Months Ended June 30, Increase (Decrease) 2022 2021 $ % Revenues Rental $ 29,718 $ 27,860 $ 1,858 7 % Rental related services 813 710 103 15 % Rental operations 30,531 28,570 1,961 7 % Sales 6,404 4,757 1,647 35 % Other 406 456 (50 ) (11 )% Total revenues 37,341 33,783 3,558 11 % Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 12,333 11,916 417 3 % Rental related services 664 745 (81 ) (11 )% Other 5,443 4,718 725 15 % Total direct costs of rental operations 18,440 17,379 1,061 6 % Costs of sales 2,765 1,792 973 54 % Total costs of revenues 21,205 19,171 2,034 11 % Gross Profit Rental 11,942 11,225 717 6 % Rental related services 149 (33 ) 182 nm Rental operations 12,091 11,192 899 8 % Sales 3,639 2,964 675 23 % Other 406 456 (50 ) (11 )% Total gross profit 16,136 14,612 1,524 10 % Selling and administrative expenses 6,614 6,073 541 9 % Income from operations 9,522 8,539 983 12 % Interest expense allocation (646 ) (500 ) 146 29 % Foreign currency exchange loss (181 ) (2 ) (179 ) nm Pre-tax income $ 8,695 $ 8,037 $ 658 8 % Other Selected Information Adjusted EBITDA $ 22,128 $ 21,019 $ 1,109 5 % Average rental equipment 1 $ 382,068 $ 349,480 $ 32,588 9 % Average rental equipment on rent $ 246,533 $ 236,503 $ 10,030 4 % Average monthly total yield 2 2.59 % 2.66 % (3 )% Average utilization 3 64.5 % 67.7 % (5 )% Average monthly rental rate 4 4.02 % 3.93 % 2 % Period end rental equipment 1 $ 387,437 $ 358,611 $ 28,826 8 % Period end utilization 3 65.3 % 66.9 % (2 )% 1. Average and Period end rental equipment represents the cost of rental equipment, excluding accessory equipment. 2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period. 3. Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding accessory equipment. Average utilization for the period is calculated using the average month end costs of rental equipment. 4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent, for the period. nm = Not meaningful 23 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% 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 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 June 30, 2022, selling and administrative expenses increased $0.5 million, or 9%, to $6.6 million. 24 Adler Tanks 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. Adler Tanks – Three Months Ended 6/30/22 compared to Three Months Ended 6/30/21 (Unaudited) (dollar amounts in thousands) Three Months Ended June 30, Increase (Decrease) 2022 2021 $ % Revenues Rental $ 15,957 $ 13,483 $ 2,474 18 % Rental related services 6,773 5,771 1,002 17 % Rental operations 22,730 19,254 3,476 18 % Sales 601 593 8 1 % Other 332 111 221 nm Total revenues 23,663 19,958 3,705 19 % Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 3,982 4,169 (187 ) (4 )% Rental related services 5,073 4,727 346 7 % Other 3,309 2,659 650 24 % Total direct costs of rental operations 12,364 11,555 809 7 % Costs of sales 418 427 (9 ) (2 )% Total costs of revenues 12,782 11,982 800 7 % Gross Profit Rental 8,666 6,655 2,011 30 % Rental related services 1,700 1,044 656 63 % Rental operations 10,366 7,699 2,667 35 % Sales 183 166 17 10 % Other 332 111 221 nm Total gross profit 10,881 7,976 2,905 36 % Selling and administrative expenses 6,979 6,253 726 12 % Income from operations 3,902 1,723 2,179 126 % Interest expense allocation (575 ) (491 ) 84 17 % Pre-tax income $ 3,327 $ 1,232 $ 2,095 nm Other Selected Information Adjusted EBITDA $ 8,620 $ 6,736 $ 1,884 28 % Average rental equipment 1 $ 307,402 $ 313,108 $ (5,706 ) (2 )% Average rental equipment on rent $ 158,593 $ 137,615 $ 20,978 15 % Average monthly total yield 2 1.73 % 1.44 % 20 % Average utilization 3 51.6 % 44.0 % 17 % Average monthly rental rate 4 3.35 % 3.27 % 2 % Period end rental equipment 1 $ 307,202 $ 312,713 $ (5,511 ) (2 )% Period end utilization 3 51.8 % 45.8 % 13 % 1. Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment. 2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period. 3. Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding new equipment inventory and accessory equipment. Average utilization for the period is calculated using the average month end costs of rental equipment. 4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent, for the period . nm = Not meaningful 25 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. The higher rental revenues and higher rental margins resulted in an increase in gross profit on rental revenues of $2.0 million, or 30%, to $8.7 million in 2022 compared to 2021. • 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 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. 26 Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021 Overview 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. 27 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 June 30, Increase (Decrease) 2022 2021 $ % Revenues Rental $ 126,487 $ 99,895 $ 26,592 27 % Rental related services 39,594 30,258 9,336 31 % Rental operations 166,081 130,153 35,928 28 % Sales 35,191 22,404 12,787 57 % Other 750 663 87 13 % Total revenues 202,022 153,220 48,802 32 % Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 15,582 12,893 2,689 21 % Rental related services 28,296 21,876 6,420 29 % Other 44,235 28,776 15,459 54 % Total direct costs of rental operations 88,113 63,545 24,568 39 % Costs of sales 21,089 13,982 7,107 51 % Total costs of revenues 109,202 77,527 31,675 41 % Gross Profit Rental 66,670 58,227 8,443 15 % Rental related services 11,298 8,380 2,918 35 % Rental operations 77,968 66,607 11,361 17 % Sales 14,102 8,423 5,679 67 % Other 750 663 87 13 % Total gross profit 92,820 75,693 17,127 23 % Selling and administrative expenses 50,447 41,839 8,608 21 % Income from operations 42,373 33,854 8,519 25 % Interest expense allocation (3,821 ) (2,426 ) 1,395 58 % Pre-tax income $ 38,552 $ 31,428 $ 7,124 23 % Other Selected Information Adjusted EBITDA $ 66,178 $ 53,473 $ 12,705 24 % Average rental equipment 1 $ 1,013,361 $ 876,529 $ 136,832 16 % Average rental equipment on rent $ 786,333 $ 663,122 $ 123,211 19 % Average monthly total yield 2 2.08 % 1.90 % 9 % Average utilization 3 77.6 % 75.7 % 3 % Average monthly rental rate 4 2.68 % 2.44 % 10 % Period end rental equipment 1 $ 1,025,645 $ 969,852 $ 55,793 6 % Period end utilization 3 78.6 % 76.3 % 3 % 1 . Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment. 2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period. 3. Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding new equipment inventory and accessory equipment. Average utilization for the period is calculated using the average month end costs of rental equipment. 4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent, for the period. 28 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 increase in rental related services revenues was primarily attributable to higher amortization of modular building delivery and return delivery and dismantle revenues, higher site related revenues and revenues derived from other services performed during the lease and increased delivery and return delivery revenues at Portable Storage. The higher revenues and higher gross margin percentage of 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. 29 TRS-RenTelco 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 June 30, Increase (Decrease) 2022 2021 $ % Revenues Rental $ 58,230 $ 55,136 $ 3,094 6 % Rental related services 1,484 1,450 34 2 % Rental operations 59,714 56,586 3,128 6 % Sales 10,331 9,906 425 4 % Other 787 894 (107 ) (12 )% Total revenues 70,832 67,386 3,446 5 % Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 24,362 23,278 1,084 5 % Rental related services 1,244 1,398 (154 ) (11 )% Other 10,135 9,252 883 10 % Total direct costs of rental operations 35,741 33,928 1,813 5 % Costs of sales 4,265 4,093 172 4 % Total costs of revenues 40,006 38,021 1,985 5 % Gross Profit Rental 23,733 22,605 1,128 5 % Rental related services 240 54 186 nm Rental operations 23,973 22,659 1,314 6 % Sales 6,066 5,812 254 4 % Other 787 894 (107 ) (12 )% Total gross profit 30,826 29,365 1,461 5 % Selling and administrative expenses 13,204 12,371 833 7 % Income from operations 17,622 16,994 628 4 % Interest expense allocation (1,232 ) (920 ) 312 34 % Foreign currency exchange loss (168 ) (57 ) (111 ) nm Pre-tax income $ 16,222 $ 16,017 $ 205 1 % Other Selected Information Adjusted EBITDA $ 42,781 $ 41,411 $ 1,370 3 % Average rental equipment 1 $ 374,364 $ 342,526 $ 31,838 9 % Average rental equipment on rent $ 241,655 $ 231,792 $ 9,863 4 % Average monthly total yield 2 2.59 % 2.68 % (3 )% Average utilization 3 64.6 % 67.7 % (5 )% Average monthly rental rate 4 4.02 % 3.96 % 2 % Period end rental equipment 1 $ 387,437 $ 358,611 $ 28,826 8 % Period end utilization 3 65.3 % 66.9 % (2 )% 1. Average and Period end rental equipment represents the cost of rental equipment, excluding accessory equipment. 2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period. 3. Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding accessory equipment. Average utilization for the period is calculated using the average month end costs of rental equipment. 4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent, for the period. nm = Not meaningful 30 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. 31 Adler Tanks 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 June 30, Increase (Decrease) 2022 2021 $ % Revenues Rental $ 30,148 $ 25,637 $ 4,511 18 % Rental related services 12,058 10,649 1,409 13 % Rental operations 42,206 36,286 5,920 16 % Sales 1,258 1,201 57 5 % Other 519 181 338 nm Total revenues 43,983 37,668 6,315 17 % Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 7,994 8,243 (249 ) (3 )% Rental related services 9,456 8,606 850 10 % Other 6,278 4,957 1,321 27 % Total direct costs of rental operations 23,728 21,806 1,922 9 % Costs of sales 920 843 77 9 % Total costs of revenues 24,648 22,649 1,999 9 % Gross Profit Rental 15,876 12,437 3,439 28 % Rental related services 2,602 2,043 559 27 % Rental operations 18,478 14,480 3,998 28 % Sales 338 358 (20 ) (6 )% Other 519 181 338 nm Total gross profit 19,335 15,019 4,316 29 % Selling and administrative expenses 13,501 12,520 981 8 % Income from operations 5,834 2,499 3,335 133 % Interest expense allocation (1,119 ) (922 ) 197 21 % Pre-tax income $ 4,715 $ 1,577 $ 3,138 nm Other Selected Information Adjusted EBITDA $ 15,327 $ 12,436 $ 2,891 23 % Average rental equipment 1 $ 307,985 $ 313,498 $ (5,513 ) (2 )% Average rental equipment on rent $ 153,671 $ 131,578 $ 22,093 17 % Average monthly total yield 2 1.63 % 1.36 % 20 % Average utilization 3 49.9 % 42.1 % 19 % Average monthly rental rate 4 3.27 % 3.24 % 1 % Period end rental equipment 1 $ 307,202 $ 312,713 $ (5,511 ) (2 )% Period end utilization 3 51.8 % 45.8 % 13 % 1. Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment. 2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period. 3. Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding new equipment inventory and accessory equipment. Average utilization for the period is calculated using the average month end costs of rental equipment. 4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent, for the period . nm = Not meaningful 32 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. 33 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 June 30, Six Months Ended June 30, Twelve Months Ended June 30, 2022 2021 2022 2021 2022 2021 Net income $ 26,137 $ 20,608 $ 44,930 $ 38,006 $ 96,629 $ 97,282 Provision for income taxes 7,730 6,739 13,492 11,447 34,096 26,976 Interest expense 3,001 2,257 5,821 4,040 12,236 7,991 Depreciation and amortization 27,771 27,099 55,355 50,559 111,491 97,539 EBITDA 64,639 56,703 119,598 104,052 254,452 229,788 Share-based compensation 1,652 1,820 3,412 3,597 7,481 5,922 Adjusted EBITDA 1 $ 66,291 $ 58,523 $ 123,010 $ 107,649 $ 261,933 $ 235,710 Adjusted EBITDA margin 2 37 % 40 % 38 % 40 % 39 % 41 % 34 Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities (dollar amounts in thousands) Three Months Ended June 30, Six Months Ended June 30, Twelve Months Ended June 30, 2022 2021 2022 2021 2022 2021 Adjusted EBITDA 1 $ 66,291 $ 58,523 $ 123,010 $ 107,649 $ 261,933 $ 235,710 Interest paid (3,684 ) (2,362 ) (5,821 ) (3,987 ) (12,160 ) (8,006 ) Income taxes paid, net of refunds received (16,658 ) (6,618 ) (17,078 ) (6,990 ) (19,175 ) (39,740 ) Gain on sale of used rental equipment (10,729 ) (7,076 ) (16,093 ) (11,870 ) (29,664 ) (21,597 ) Foreign currency exchange loss (gain) 181 2 168 57 321 (340 ) Amortization of debt issuance costs 5 3 9 6 18 12 Change in certain assets and liabilities: Accounts receivable, net (15,765 ) (6,464 ) (7,830 ) (5,356 ) (26,420 ) (2,732 ) Prepaid expenses and other assets (15,068 ) (9,291 ) (10,855 ) (9,385 ) (8,286 ) (3,937 ) Accounts payable and other liabilities 12,115 30,785 (2,302 ) 20,400 (7,221 ) 28,940 Deferred income 13,612 2,871 18,835 7,458 20,459 (7,346 ) Net cash provided by operating activities $ 30,300 $ 60,373 $ 82,043 $ 97,982 $ 179,805 $ 180,964 1. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization and share-based compensation. 2. 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 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 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. Liquidity and Capital Resources The Company’s rental businesses are capital intensive and generate significant cash flows. 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 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 $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 $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. During the last three years, the Company has financed its working capital and capital expenditure requirements through cash flow from operations, proceeds from the sale of rental equipment and from borrowings. Sales occur routinely as a normal part of the Company’s rental business. However, these 35 sales can fluctuate from period to period depending on customer requirements and funding. Although the net proceeds received from sales may fluctuate from period to period, the Company believes its liquidity will not be adversely impacted from lower sales in any given year because it believes it has the ability to increase its bank borrowings and conserve its cash in the future by reducing the amount of cash it uses to purchase rental equipment, pay dividends, or repurchase the Company’s common stock. Unsecured Revolving Lines of Credit On March 31, 2020, 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 $420.0 million unsecured revolving credit facility (which may be further increased to $670.0 million by adding one or more tranches of term loans and/or increasing the aggregate revolving commitments), which includes a $25.0 million sublimit for the issuance of standby letters of credit and a $10.0 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, the “the Prior NPA”): (i) the $40.0 million aggregate outstanding principal of notes issued March 17, 2014 which were repaid on March 17, 2021, and (ii) the $60.0 million aggregate outstanding principal of notes issued November 5, 2015 and due November 5, 2022. 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 March 31, 2025 and replaced the Company’s prior $420.0 million credit facility dated March 31, 2016 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 March 31, 2020. On March 30, 2020, the Company entered into an amended and restated Credit Facility Letter Agreement and a Credit Line Note in favor of MUFG Union Bank, N.A., which provides for a $12.0 million line of credit facility related to its cash management services (“Sweep Service Facility”). The Sweep Service Facility matures on the earlier of March 31, 2025, or the date the Company ceases to utilize MUFG Union Bank, N.A. for its cash management services. The Sweep Service Facility replaced the Company’s prior $12.0 million sweep service facility, dated as of March 31, 2016. 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 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 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. Note Purchase and Private Shelf Agreement On March 31, 2020, the Company entered into an Amended and Restated Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”) with PGIM, Inc. (“PGIM”) and the holders of Series B and Series C Notes previously issued pursuant to the Prior NPA, among the Company and the other parties to the Note Purchase Agreement. The Note Purchase Agreement amended and restated, and superseded in its entirety, the Prior NPA. Pursuant to the Prior NPA, the Company issued (i) $40.0 million aggregate principal amount of its 3.68% Series B Senior Notes, which were repaid on March 17, 2021, and (ii) $60.0 million aggregate principal amount of its 3.84% Series C Senior Notes due November 5, 2022, to which the terms of the Note Purchase Agreement shall apply. In addition, pursuant to the Note Purchase Agreement, the Company may authorize the issuance and sale of additional senior notes (the “Shelf Notes”) in the aggregate principal amount of (x) $250 million minus (y) the amount of other notes (such as the Series C Senior Notes, Series D Senior Notes and Series E Senior Notes, each defined below) then outstanding, to be dated the date of issuance thereof, to mature, in case of each Shelf Note so issued, no more than 15 years after the date of original issuance thereof, to have an average life, in the case of each Shelf Note so issued, of no more than 15 years after the date of original issuance thereof, to bear interest on the unpaid balance thereof from the date thereof at the rate per annum, and to have such other particular terms, as shall be set forth, in the case of each Shelf Note so issued, in accordance with the Note Purchase Agreement. Shelf Notes may be issued and sold from time to time at the discretion of the Company’s Board of Directors and in such amounts as the Board of Directors may determine, subject to prospective purchasers’ agreement to purchase the Shelf Notes. The Company will sell the Shelf Notes directly to such purchasers. 36 The full net proceeds of each Shelf Note will be used in the manner described in the applicable Request for Purchase with respect to such Shelf Note. 3.84% Senior Notes Due in 2022 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. Interest on the Series C Senior Notes is payable semi-annually beginning on May 5, 2016 and continuing thereafter on November 5 and May 5 of each year until maturity. The principal balance is due when the notes mature on November 5, 2022. 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 June 30, 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 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. The Series D Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 2.57% per annum and mature on March 17, 2028. Interest on the Series D Senior Notes is payable semi-annually beginning on September 17, 2021 and continuing thereafter on March 17 and September 17 of each year until maturity. The principal balance is due when the notes mature on March 17, 2028. The full net proceeds from the Series D Senior Notes were used to pay off the Company’s $40 million Series B Senior Notes. At June 30, 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 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. The Series E Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 2.35% per annum and mature on June 16, 2026. Interest on the Series E Senior Notes is payable semi-annually beginning on December 16, 2021 and continuing thereafter on June 16 and December 16 of each year until maturity. The principal balance is due when the notes mature on June 16, 2026. The full net proceeds from the Series E Senior Notes were used to pay down the Company’s credit facility. At 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 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 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. Although no assurance can be given, the Company believes it will continue to be able to negotiate general bank lines of credit and issue senior notes adequate to meet capital requirements not otherwise met by operational cash flows and proceeds from sales of rental equipment. Furthermore, the Company believes it has the financial resources to weather any short-term impacts of COVID-19. However, the Company has limited insight into the extent to which its business may be impacted by COVID-19, and there are many uncertainties, including how long and how severely the Company will be impacted. An extended and severe impact may materially and adversely affect the Company’s future operations, financial position and liquidity. Common Stock Purchase 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 37 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 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 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 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 June 30, 2022. Refer to our 2021 Annual Report for a discussion of our critical accounting policies and estimates. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the Company’s market risk exposures from those reported in our 2021 Annual Report.