WillScot Holdings Corp 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand WillScot Mobile Mini Holdings Corp. ("WillScot Mobile Mini"), our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes thereto, contained in Part I, Item 1 of this report. The discussion of results of operations in this MD&A is presented on a historical basis, as of or for the three and six months ended June 30, 2022 or prior periods. The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the US (“GAAP”). We use certain non-GAAP financial metrics to supplement the GAAP reported results to highlight key operational metrics that are used by management to evaluate Company performance. Reconciliations of GAAP financial information to the disclosed non-GAAP measures are provided in the Reconciliation of Non-GAAP Financial Measures section. Executive Summary and Outlook We are a leading business services provider specializing in innovative flexible work space and portable storage solutions. We service diverse end markets across all sectors of the economy throughout the United States ("US"), Canada, Mexico and the United Kingdom ("UK"). We are also a leading provider of specialty containment solutions in the US with approximately 13,500 tank and pump units in our fleet. As of June 30, 2022, our branch network included approximately 280 branch locations and additional drop lots to service over 85,000 customers. We offer our customers an extensive selection of “Ready to Work” modular space and portable storage solutions with over 164,000 modular space units and over 218,000 portable storage units in our fleet. We primarily lease, rather than sell, our modular and portable storage units to customers, which results in a highly diversified and predictable recurring revenue stream. Over 90% of new lease orders are on our standard lease agreement, pre-negotiated master lease or national account agreements. The initial lease periods vary, and our leases are customarily renewable on a month-to-month basis after their initial term. Our lease revenue is highly predictable due to its recurring nature and the underlying stability and diversification of our lease portfolio. Furthermore, given that our customers value flexibility, they consistently extend their leases or renew on a month-to-month basis such that the average effective duration of our modular space and portable storage lease portfolio, excluding seasonal portable storage units, is approximately 30 months. We complement our core leasing business by selling both new and used units, allowing us to leverage scale, achieve purchasing benefits and redeploy capital employed in our lease fleet. Our customers operate in a diversified set of end markets, including construction, commercial and industrial, retail and wholesale trade, energy and natural resources, education, government and institutions, and healthcare. Core to our operating model is the ability to redeploy standardized assets across end markets, as we did in 2020 and 2021 to service emerging demand in the healthcare and government sectors related to COVID-19, as well as expanded space requirements related to social distancing. We track several market leading indicators to predict demand, including those related to our two largest end markets, the commercial and industrial segment and the construction segment, which collectively accounted for approximately 47% and 40% of our revenues, respectively, for the three months ended June 30, 2022. We remain focused on our core priorities of growing leasing revenues by increasing units on rent, both organically and through our consolidation strategy, delivering “Ready to Work” solutions to our customers with value added products and services ("VAPS"), and on continually improving the overall customer experience. Significant Developments Amendment to the ABL Facility On June 30, 2022, the Company amended its ABL Facility to, among other things, extend the expiration date until June 30, 2027 and increase the aggregate principal amount of revolving credit facilities from $2.4 billion to $3.7 billion. The amendment also converted the interest rate for borrowings denominated in US dollars from a LIBOR-based rate to a Term SOFR-based rate with an interest period of one month and adjusted the applicable margins. The applicable margin for Canadian BA rate, Term SOFR, British Pounds Sterling and Euros loans decreased to 1.50%. The applicable margin for base rate and Canadian Prime Rate loans decreased to 0.50%. The applicable margins are subject to one step down of 0.25% based on excess availability or one step up of 0.25% based on the Company's leverage ratio. 28 Asset Acquisitions During the second quarter of 2022, the Company acquired certain assets and liabilities of several entities, which consisted primarily of approximately 4,100 storage units and 1,000 modular un its for $46.4 million in cash, net of cash acquired. When combined with other recent acquisitions over the past four quarters, we have acquired assets and liabilities from 12 regional and local storage and modular companies, consisting primarily of 22,300 storage units and 4,700 modular units. Share and Warrant Repurchases During the six months ended June 30, 2022, we repurchased and cancelled 33,965 of the 2018 Warrants for $0.6 million. In addition, for the six months ended June 30, 2022, 1,037,379 of the 2018 Warrants were exercised on a cashless basis, resulting in the issuance of 631,863 shares of common stock. At June 30, 2022, 3,006,829 of the 2018 Warrants were outstanding. During the six months ended June 30, 2022, we repurchased a total of 9,304,626 shares of Common Stock and stock equivalents for $326.9 million, including the repurchased warrants. As of June 30, 2022, we had $629.8 million remaining of a $1 billion share repurchase authorization under our stock repurchase program. In July 2022, the Company's Board of Directors approved an increase to the share repurchase program that authorizes the Company to repurchase up to $1.0 billion of its outstanding shares of Common Stock and equivalents. Given our growth strategy and the predictability of our free cash flow, we believe that repurchases will be a reoccurring capital allocation priority. Second Quarter Highlights For the three months ended June 30, 2022, as compared to the three months ended June 30, 2021 unless otherwise noted, key drivers of our financial performance included: • Total revenues increased by $120.5 million, or 26.1%, attributable to organic revenue growth levers in the business and due to the impact of acquisitions. Leasing revenue increased $85.4 million, or 24.9%, and delivery and installation revenue increased $33.7 million, or 36.8%. Additionally, rental unit sales increased $1.3 million, or 8.6%, and new unit sales revenue increased $0.1 million, or 0.9%. We estimate that recent acquisitions completed over the past four quarters contributed approximately $19.0 million to total revenues for the three months ended June 30, 2022. Key leasing revenue drivers include: – Average portable storage units on rent increased 32,056 units, or 21.1%, and average modular space units on rent increased 2,534 units, or 2.3%, across all segments. Approximately 35% of the increase in total average units on rent was driven by increases in organic delivery activity and lower return activity during 2021 and into the first half of 2022 as economic activity rebounded versus 2020 and the other 65% was driven by units on rent added through recent acquisitions. – Average modular space monthly rental rate increased $117, or 15.9%, to $853 driven by strong pricing performance across NA Modular and NA Storage segments. Average modular space monthly rental rates increased by $130, or 16.2%, in the NA Modular segment and by $110, or 19.2%, in the NA Storage segment. Average modular space monthly rental rates decreased by $29, or 6.6%, in the UK Storage segment due to the weakening of the British Pound and were up £12 or 3.8% in local currency. – Average portable storage monthly rental rate increased $33, or 23.7%, to $172 driven by increased pricing as a result of our price management tools and processes, further supported by tight supply of portable storage containers in the markets in which we operate. – Average utilization for portable storage units increased to 86.0% from 77.7% for the same period in 2021 driven by increased demand in 2022 as compared to the same period in 2021. Average utilization for modular space units decreased 150 basis points ("bps") to 68.8%. • NA Modular segment revenue, which represented 59.8% of consolidated revenue for the three months ended June 30, 2022, increased $58.3 million, or 20.1%, to $347.7 million. The increase was driven by our core leasing revenue, which grew $34.4 million, or 15.8%, due to continued growth of pricing and value added products. Delivery and installation revenues increased $18.8 million, or 34.2%, driven by increased pricing on new deliveries and returns and increased volumes as compared to 2021. Rental unit sales increased $3.4 million, or 34.0%, and new unit sales increased $1.6 million, or 23.2%, due to higher activity levels. NA Modular revenue drivers for the three months ended June 30, 2022 included: – Modular space average monthly rental rate of $931 increased 16.2% year over year representing a continuation of our long-term price optimization initiative and VAPS penetration opportunities across our portfolio. – Average modular space units on rent increased 1,804, or 2.1%, year over year driven primarily by units on rent added through recent acquisitions. 29 – Average modular space monthly utilization decreased 10 bps to 67.6% for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021 due to lower utilized fleet added through acquisitions. • NA Storage segment revenue, which represented 30.1% of consolidated revenue for the three months ended June 30, 2022, increased $59.4 million, or 51.3%, to $175.2 million. The increase was driven by our core leasing revenue, which grew $48.3 million, or 56.2%, due to increased units on rent driven by significant increases in delivery activity during 2021 and into the first half of 2022 as economic activity rebounded versus 2020, recent acquisition activity, and increased pricing. Delivery and installation revenues increased $13.7 million, or 58.3%, driven by increased demand for new project deliveries, and by increased pricing on new deliveries and returns as compared to 2021. The increases to leasing revenue and delivery and installation revenues in the NA Storage segment were also impacted as a result of transitioning the majority of the portable storage product business within the NA Modular segment to the NA Storage segment in the third quarter of 2021. Rental unit sales decreased $2.1 million, or 47.7%, and new unit sales decreased $0.5 million, or 26.3% given constrained container supply. NA Storage revenue drivers for the three months ended June 30, 2022 included: • Portable storage average monthly rental rate of $186, increased 23.2% year over year as a result of our price management tools and processes, further supported by tight supply of portable storage containers in the markets in which we operate. Modular space average monthly rental rate of $683 increased 19.2% year over year as a result of price optimization and early benefits from increased VAPS penetration opportunities. • Average portable storage units on rent increased 42,859, or 38.0%, year over year. Increases in organic activity in 2021 and the first half of 2022 drove an increase in average portable storage units on rent of approximately 11% or 12,000 units on rent. Of the remaining increase, approximately 18,700 units on rent were driven by units added in recent acquisitions, and approximately 12,000 units on rent were driven by transitioning the portable storage product business within the NA Modular segment to the NA Storage segment, which occurred in the third quarter of 2021. Combined, average portable storage units on rent for the NA Storage and NA Modular segments increased approximately 30,034 units, or 23.8%. Average modular space units on rent increased 1,697, or 10.4%, year over year driven by increases in organic delivery activity as well as due to units on rent acquired. • Average portable storage monthly utilization increased 940 bps to 85.5% for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021. Average modular space monthly utilization decreased 420 bps to 74.2% for three months ended June 30, 2022, as compared to the three months ended June 30, 2021. • Generated consolidated net income of $73.4 million for the three months ended June 30, 2022 representing an increase of $53.0 million, or 259.8%, versus the three months ended June 30, 2021, and included $5.2 million of discrete costs expensed in the period related to integration costs. • Generated Adjusted EBITDA of $233.3 million for the three months ended June 30, 2022, representing an increase of $57.8 million, or 32.9%, as compared to the same period in 2021. This increase was driven primarily by increased leasing gross profit. ▪ Consolidated Adjusted EBITDA Margin was 40.1% in the second quarter of 2022 and increased 200 bps versus prior year driven by increased leasing and delivery and installation margins as a result of increased volumes and pricing, partially offset by increased selling, general and administrative expense. • Generated Free Cash Flow of $69.4 million for the three months ended June 30, 2022 representing a decrease of $12.7 million as compared to the same period in 2021. Net cash provided by operating activities increased $48.8 million to $188.3 million. Net cash used in investing activities excluding acquisitions increased by $61.4 million to $118.9 million to support increases in delivery activity during 2022 as economic activity rebounded versus 2021, and the related unit on rent growth. • Returned $249.5 million to shareholders through stock and warrant repurchases and closed four acquisitions totaling approximately 4,100 storage units and 1,000 modular un its for $46.4 million in cash, net of cash acquired, during the three months ended June 30, 2022. We believe the predictability of our free cash flow allows us to pursue multiple capital allocation priorities opportunistically, including investing in organic opportunities we see in the market, continuing our deleveraging trajectory, opportunistically executing accretive acquisitions, and returning capital to shareholders. 30 Consolidated Results of Operations Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021 Our condensed consolidated statements of operations for the three months ended June 30, 2022 and 2021 are presented below. Three Months Ended June 30, 2022 vs. 2021 $ Change (in thousands) 2022 2021 Revenues: Leasing and services revenue: Leasing $ 428,620 $ 343,179 $ 85,441 Delivery and installation 125,403 91,680 33,723 Sales revenue: New units 11,094 11,008 86 Rental units 16,525 15,235 1,290 Total revenues 581,642 461,102 120,540 Costs: Costs of leasing and services: Leasing 96,912 83,032 13,880 Delivery and installation 93,587 77,153 16,434 Costs of sales: New units 6,139 7,052 (913) Rental units 8,955 8,162 793 Depreciation of rental equipment 67,176 62,893 4,283 Gross profit 308,873 222,810 86,063 Expenses: Selling, general and administrative 162,164 122,387 39,777 Other depreciation and amortization 19,054 21,622 (2,568) Lease impairment expense and other related charges (9) 474 (483) Restructuring costs (86) 6,960 (7,046) Currency (gains) losses, net (127) 33 (160) Other (income) expense, net (3,784) 719 (4,503) Operating income 131,661 70,615 61,046 Interest expense 33,574 29,212 4,362 Fair value loss on common stock warrant liabilities — (610) 610 Loss on extinguishment of debt — 2,814 (2,814) Income before income tax 98,087 39,199 58,888 Income tax expense 24,711 18,828 5,883 Net income $ 73,376 $ 20,371 $ 53,005 Comparison of Three Months Ended June 30, 2022 and 2021 Revenue: Total revenue increased $120.5 million, or 26.1%, to $581.6 million for the three months ended June 30, 2022 from $461.1 million for the three months ended June 30, 2021. Leasing revenue increased $85.4 million, or 24.9%, as compared to the same period in 2021 driven by improved pricing and value added products, and an increase of 32,056 average portable storage units on rent driven by significant increases in delivery activity during 2021 and into the first half of 2022 as economic activity rebounded versus 2020 and recent acquisition activity. Delivery and installation revenues increased $33.7 million, or 36.8%, due to increased overall activity. Rental unit sales increased $1.3 million, or 8.6%, and new unit sales increased $0.1 million, or 0.9%. We estimate that recent acquisitions completed over the past four quarters contributed approximately $19.0 million to total revenues for three months ended June 30, 2022. Total average units on rent for the three months ended June 30, 2022 and 2021 were 296,794 and 262,204, respectively, representing an increase of 34,590, or 13.2%. Portable storage average units on rent increased by 32,056 units, or 21.1%, for the three months ended June 30, 2022 driven by strong demand. The average portable storage unit utilization 31 rate during the three months ended June 30, 2022 was 86.0%, as compared to 77.7% during the same period in 2021. Modular space average units on rent increased 2,534 units, or 2.3%, for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 driven primarily by acquisitions. The average modular space unit utilization rate during the three months ended June 30, 2022 was 68.8%, as compared to 70.3% during the same period in 2021. Modular space average monthly rental rates increased 15.9% to $853 for the three months ended June 30, 2022. Improved pricing was achieved across all relevant segments. Average modular space monthly rental rates increased by $130, or 16.2%, to $931 in the NA Modular segment and by $110, or 19.2%, in the NA Storage segment. Increases were driven by a continuation of our long-term price optimization initiative and VAPS penetration opportunities across our NA Modular segment as well as by some early application of these same price management tools and processes across the NA Storage segment. NA Storage also began to see early benefits from increased VAPS penetration opportunities. Average portable storage monthly rental rates increased 23.7% to $172 for the three months ended June 30, 2022 driven by our price management tools and processes, further supported by tight supply of portable storage containers in the markets in which we operate. Gross Profit: Our gross profit percentage was 53.1% and 48.3% for the three months ended June 30, 2022 and 2021, respectively. Our adjusted gross profit percentage, which excludes the effects of depreciation, was 64.7% and 62.0% for the three months ended June 30, 2022 and 2021, respectively. Gross profit increased $86.1 million, or 38.6%, to $308.9 million for the three months ended June 30, 2022 from $222.8 million for the three months ended June 30, 2021. The increase in gross profit was a result of a $71.5 million increase in leasing gross profit, increased delivery and installation gross profit of $17.3 million and increased new and rental unit sale margins of $1.6 million. These increases were primarily a result of increased revenues due to favorable average monthly rental rates across both portable storage and modular space units, increased pricing on delivery and installation, as well as due to higher units on rent and increased activity levels driving higher delivery and installation revenues, partially offset by increased variable costs during the period as a result of higher activity levels in the current quarter and inflationary pressures across many of our cost categories. Depreciation increased $4.3 million as a result of capital investments made over the past twelve months in our existing rental equipment, including the impact of recent acquisitions. SG&A: Selling, general and administrative expense ("SG&A") increased $39.8 million, or 32.5%, to $162.2 million for the three months ended June 30, 2022, compared to $122.4 million for the three months ended June 30, 2021. Employee costs excluding stock compensation increased $15.3 million, or 28.2%, driven by a 16% increase in SG&A headcount to support both organic and inorganic growth, and increased variable compensation as a result of the growth achieved. Stock compensation expense increased $4.6 million to $9.3 million for the three months ended June 30, 2022, compared to $4.7 million for the three months ended June 30, 2021. Integration costs decreased $2.4 million to $5.2 million for the three months ended June 30, 2022, compared to $7.6 million for the three months ended June 30, 2021. The remaining increases were primarily driven by increased economic activity, including increased occupancy and office costs, legal and professional fees, travel expenses, and marketing cost increases. Other Depreciation and Amortization: Other depreciation and amortization decreased $2.5 million to $19.1 million for the three months ended June 30, 2022 compared to $21.6 million for the three months ended June 30, 2021. The decrease was driven by a reduction in depreciation of buildings and office equipment. Lease Impairment Expense and Other Related Charges: Lease impairment expense and other related charges were $0 for the three months ended June 30, 2022 as compared to $0.5 million for the three months ended June 30, 2021. The decrease resulted from fewer closed locations during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. Restructuring Costs: Restructuring costs were $7.0 million for the three months ended June 30, 2021 primarily driven by employee termination costs resulting from the elimination of positions due to the Merger. Currency (Gains) Losses, net: Currency (gains) losses, net changed by $0.1 million to a $0.1 million gain for the three months ended June 30, 2022 from $0 for the three months ended June 30, 2021. This change was primarily attributable to the impact of foreign currency exchanges rate changes on intercompany receivables and payables denominated in a currency other than the subsidiary's functional currency. Other (Income) Expense, net: Other (income) expense, net was $3.8 million of income for the three months ended June 30, 2022 compared to $0.7 million of expense for the three months ended June 30, 2021. Other income, net of $3.8 million for the three months ended June 30, 2022 was primarily related to insurance proceeds received related to Hurricane Ida in the Gulf Coast area of the United States. Interest Expense: Interest expense increased $4.4 million, or 15.1%, to $33.6 million for the three months ended June 30, 2022 from $29.2 million for the three months ended June 30, 2021 due to both an increase in outstanding borrowings and an increase in the weighted average interest rate for borrowings under the ABL Facility prior to the June 30, 2022 amendment to the credit facility. See Note 9 to the condensed consolidated financial statements for further discussion of our debt. Fair Value Loss on Common Stock Warrant Liabilities: The fair value loss on common stock warrant liabilities was $0.6 million for the three months ended June 30, 2021, primarily due to the change in estimated fair value of common stock 32 warrant liabilities. Subsequent to May 2021, no 2015 Private Warrants were outstanding, and as a result, there was no fair value loss on common stock warrant liabilities recorded for the three months ended June 30, 2022. Loss on Extinguishment of Debt: During the three months ended June 30, 2021, the Company redeemed 10% of the outstanding principal, $58.5 million, of its 2025 Secured Notes and recorded a loss on extinguishment of debt of $2.8 million comprised of a redemption premium of $1.8 million and write off of unamortized deferred financing fees of $1.0 million. There was no similar transaction in the three months ended June 30, 2022. Income Tax Expense: Income tax expense increased $5.9 million to $24.7 million for the three months ended June 30, 2022 compared to $18.8 million for the three months ended June 30, 2021. The increase in expense was driven by the pre-tax income increase for the three months ended June 30, 2022. The tax expense for the three months ended June 30, 2021 included the impact of the UK statutory rate increase enactment. Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021 Our condensed consolidated statements of operations for the six months ended June 30, 2022 and 2021 are presented below. Six Months Ended June 30, 2022 vs. 2021 $ Change (in thousands) 2022 2021 Revenues: Leasing and services revenue: Leasing $ 821,812 $ 658,841 $ 162,971 Delivery and installation 225,734 175,184 50,550 Sales revenue: New units 17,691 21,963 (4,272) Rental units 25,299 30,437 (5,138) Total revenues 1,090,536 886,425 204,111 Costs: Costs of leasing and services: Leasing 185,790 152,927 32,863 Delivery and installation 175,102 147,289 27,813 Costs of sales: New units 10,465 14,161 (3,696) Rental units 14,099 17,267 (3,168) Depreciation of rental equipment 129,392 118,591 10,801 Gross profit 575,688 436,190 139,498 Expenses: Selling, general and administrative 312,374 239,716 72,658 Other depreciation and amortization 38,658 39,946 (1,288) Lease impairment expense and other related charges 254 1,727 (1,473) Restructuring costs (86) 10,102 (10,188) Currency losses, net 11 69 (58) Other income, net (5,093) (1,269) (3,824) Operating income 229,570 145,899 83,671 Interest expense 64,564 59,176 5,388 Fair value loss on common stock warrant liabilities — 26,597 (26,597) Loss on extinguishment of debt — 5,999 (5,999) Income before income tax 165,006 54,127 110,879 Income tax expense 40,459 29,309 11,150 Net income $ 124,547 $ 24,818 $ 99,729 33 Comparison of Six Months Ended June 30, 2022 and 2021 Revenue: Total revenue increased $204.1 million, or 23.0%, to $1,090.5 million for the six months ended June 30, 2022 from $886.4 million for the six months ended June 30, 2021. Leasing revenue increased $163.0 million, or 24.7%, as compared to the same period in 2021 driven by an increase of 35,501 average modular space and portable storage units on rent as a result of increased economic activity, acquisitions, and improved pricing and value added products. Delivery and installation revenues increased $50.5 million, or 28.8%, due to increased overall activity and increased pricing. Rental unit sales decreased $5.1 million, or 16.8%, and new unit sales decreased $4.3 million, or 19.5%. Total average units on rent for the six months ended June 30, 2022 and 2021 were 294,525 and 259,024, respectively. Modular space average units on rent increased 2,140 units, or 1.9%, for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. Modular space average monthly rental rates increased 18.9% to $836 for the six months ended June 30, 2022. Portable storage average units on rent increased by 33,361 units, or 22.4%, for the six months ended June 30, 2022. Average portable storage monthly rental rates increased 19.7% to $164 for the six months ended June 30, 2022. The average modular space unit utilization rate during the six months ended June 30, 2022 was 68.9%, as compared to 70.3% during the same period in 2021. The average portable storage unit utilization rate during the six months ended June 30, 2022 was 85.0%, as compared to 76.1% during the same period in 2021. Gross Profit: Our gross profit percentage was 52.8% and 49.2% for the six months ended June 30, 2022 and 2021, respectively. Our adjusted gross profit percentage, which excludes the effects of depreciation, was 64.7% and 62.6% for the six months ended June 30, 2022 and 2021, respectively. Gross profit increased $139.5 million, or 32.0%, to $575.7 million for the six months ended June 30, 2022 from $436.2 million for the six months ended June 30, 2021. The increase in gross profit was a result of a $130.1 million increase in leasing gross profit and increased delivery and installation gross profit of $22.7 million, partially offset by decreased new and rental unit sale margins of $2.5 million. The increases in leasing gross profit and delivery and installation gross profit were driven by favorable average monthly rental rates on modular space and portable storage units, increased pricing on delivery and installation, as well as due to higher units on rent and increased activity levels driving higher delivery and installation revenues. Depreciation increased to $129.4 million as a result of fleet acquired through acquisitions and capital investments made in our existing rental equipment. SG&A: SG&A increased $72.7 million, or 30.3%, to $312.4 million for the six months ended June 30, 2022, compared to $239.7 million for the six months ended June 30, 2021. Employee costs excluding stock compensation increased $32.0 million, or 29.5%, driven by recent investments in new roles to fund both organic and inorganic growth, and increased variable compensation as a result of the growth achieved. Stock compensation expense increased $7.5 million to $15.7 million for the six months ended June 30, 2022, compared to $8.2 million for the six months ended June 30, 2021. Integration costs decreased $5.7 million to $9.3 million for the six months ended June 30, 2022, compared to $15.0 million for the six months ended June 30, 2021. The remaining increases were primarily driven by increased economic activity, including increased occupancy and office costs, legal and professional fees, travel expenses and marketing cost increases. Other Depreciation and Amortization: Other depreciation and amortization decreased $1.2 million to $38.7 million for the six months ended June 30, 2022 compared to $39.9 million for the six months ended June 30, 2021. Lease Impairment Expense and Other Related Charges: Lease impairment expense and other related charges was $0.3 million for the six months ended June 30, 2022 as compared to $1.7 million for the six months ended June 30, 2021. Restructuring Costs: In the six months ended June 30, 2021, the Company recorded $10.1 million of restructuring costs primarily as a result of employee termination costs from the elimination of positions due to the Merger. Employee termination costs of $5.8 million were settled in stock, which is non-cash, non-recurring and not included in stock compensation expense. Currency Losses, Net: Currency losses, net decreased by $0.1 million to $0 for the six months ended June 30, 2022 from $0.1 million for the six months ended June 30, 2021. This decrease was primarily attributable to the impact of foreign currency exchanges rate changes on intercompany receivables and payables denominated in a currency other than the subsidiary's functional currency. Other Income, Net: Other income, net was $5.1 million for the six months ended June 30, 2022 compared to $1.3 million for the six months ended June 30, 2021. The increase was primarily attributable to insurance proceeds received related to Hurricane Ida in the Gulf Coast area of the United States. Interest Expense: Interest expense increased $5.4 million to $64.6 million for the six months ended June 30, 2022 from $59.2 million for the six months ended June 30, 2021 due to both an increase in outstanding borrowings and an increase in the weighted average interest rate for borrowings under the ABL Facility prior to the June 30, 2022 amendment to the credit facility. See Note 9 to the condensed consolidated financial statements for further discussion of our debt. Fair Value Loss on Common Stock Warrant Liabilities: The fair value loss on common stock warrant liabilities was $26.6 million for the six months ended June 30, 2021, primarily due to the change in estimated fair value of common stock warrant liabilities. Subsequent to May 2021, no 2015 Private Warrants were outstanding, and as a result, there was no fair value loss on common stock warrant liabilities recorded for the six months ended June 30, 2022. Loss on Extinguishment of Debt: During the six months ended June 30, 2021, the Company redeemed $123.5 million of the outstanding principal of its 2025 Secured Notes and recorded a loss on extinguishment of debt of $6.0 million. There was no similar transaction in the six months ended June 30, 2022. Income Tax Expense: Income tax expense increased $11.2 million to expense of $40.5 million for the six months ended June 30, 2022 compared to $29.3 million for the six months ended June 30, 2021. The increase in expense was driven by the pre-tax income increase for the six months ended June 30, 2022. The tax expense for the six months ended June 30, 2021 included the impact of the UK statutory rate increase enactment. 34 Business Segment Results The Company operates in four reportable segments as follows: NA Modular, NA Storage, UK Storage and Tank and Pump. NA Modular represents the activities of the North American modular business. NA Storage represents the activities of the North American portable storage business. UK Storage represents the results of all modular and portable storage operations in the UK. Tank and Pump represents the results of all operations for Tank and Pump services. During the third quarter of 2021, the majority of the portable storage product business within the NA Modular segment was transitioned to the NA Storage segment, and associated revenues, expenses, and operating metrics beginning in the third quarter of 2021 were transferred to the NA Storage segment, representing a shift of approximately $5.0 million of revenue and gross margin per quarter from the NA Modular segment to the NA Storage segment. This adjustment was not made to the historical segment results of prior periods, given its relative immateriality. The following tables and discussion summarize our reportable segment financial information for the three and six months ended June 30, 2022 and 2021. Comparison of Three Months Ended June 30, 2022 and 2021 Three Months Ended June 30, 2022 (in thousands, except for units on rent and rates) NA Modular NA Storage UK Storage Tank and Pump Total Revenue $ 347,670 $ 175,220 $ 26,666 $ 32,086 $ 581,642 Gross profit $ 153,808 $ 121,404 $ 17,089 $ 16,572 $ 308,873 Adjusted EBITDA $ 127,881 $ 80,762 $ 12,230 $ 12,462 $ 233,335 Capital expenditures for rental equipment $ 82,482 $ 34,282 $ 7,604 $ 5,785 $ 130,153 Average modular space units on rent 86,558 18,057 8,387 — 113,002 Average modular space utilization rate 67.6 % 74.2 % 71.0 % — % 68.8 % Average modular space monthly rental rate $ 931 $ 683 $ 409 $ — $ 853 Average portable storage units on rent 476 155,721 27,595 — 183,792 Average portable storage utilization rate 53.7 % 85.5 % 89.8 % — % 86.0 % Average portable storage monthly rental rate $ 211 $ 186 $ 93 $ — $ 172 Average tank and pump solutions rental fleet utilization based on original equipment cost N/A N/A N/A 75.7 % 75.7 % Three Months Ended June 30, 2021 (in thousands, except for units on rent and rates) NA Modular NA Storage UK Storage Tank and Pump Total Revenue $ 289,382 $ 115,794 $ 28,432 $ 27,494 $ 461,102 Gross profit $ 116,136 $ 75,721 $ 17,937 $ 13,016 $ 222,810 Adjusted EBITDA $ 103,545 $ 49,526 $ 12,328 $ 10,096 $ 175,495 Capital expenditures for rental equipment $ 49,364 $ 8,773 $ 4,226 $ 2,919 $ 65,282 Average modular space units on rent 84,754 16,360 9,354 — 110,468 Average modular space utilization rate 67.7 % 78.4 % 84.3 % — % 70.3 % Average modular space monthly rental rate $ 801 $ 573 $ 438 $ — $ 736 Average portable storage units on rent 13,301 112,862 25,573 — 151,736 Average portable storage utilization rate 69.8 % 76.1 % 91.8 % — % 77.7 % Average portable storage monthly rental rate $ 133 $ 151 $ 88 $ — $ 139 Average tank and pump solutions rental fleet utilization based on original equipment cost N/A N/A N/A 71.2 % 71.2 % NA Modular Revenue: Total revenue increased $58.3 million, or 20.1%, to $347.7 million for the three months ended June 30, 2022 from $289.4 million for the three months ended June 30, 2021. The increase was primarily the result of a $34.4 million, or 15.8%, increase in leasing revenue, an $18.8 million, or 34.2%, increase in modular delivery and installation revenue, a $3.4 million, or 34.0%, increase in rental unit sales revenue and a $1.6 million, or 23.2%, increase in new unit sales. The increases to leasing revenue and delivery and installation revenues were partially offset by declines in revenues for portable storage units as a result of transitioning the majority of the portable storage product business within the NA Modular segment to the NA 35 Storage segment during the third quarter of 2021. Approximately 12,000 units were transferred during the third quarter of 2021 to the NA Storage segment, reallocating approximately $5.0 million of revenue from the NA Modular segment to the NA Storage segment relative to the three months ended June 30, 2021. Average modular space monthly rental rates increased 16.2% for the three months ended June 30, 2022 to $931 driven by the continuation of our long-term price optimization initiative and VAPS penetration opportunities across our portfolio. Average modular space units on rent increased by 1,804 units, or 2.1%, year over year. Gross Profit: Gross profit increased $37.7 million, or 32.5%, to $153.8 million for the three months ended June 30, 2022 from $116.1 million for the three months ended June 30, 2021. Gross profit percentage increased 410 bps to 44.2%. The increase in gross profit was driven by higher leasing gross profit, which increased $27.9 million, or 17.9%, driven by improved pricing including VAPS. The increase in gross profit from leasing for the three months ended June 30, 2022 was further complemented by an $11.0 million increase in delivery and installation gross profit, a $1.6 million increase in rental unit sales gross profit, and a $1.8 million increase in new unit sales gross profit. These increases were partially offset by a $4.6 million increase in depreciation of rental equipment related to capital investments made in our existing rental equipment and additional depreciation from recent acquisitions. Adjusted EBITDA: Adjusted EBITDA increased $24.4 million, or 23.6%, to $127.9 million for the three months ended June 30, 2022 from $103.5 million for the three months ended June 30, 2021. Adjusted EBITDA margin percentage increased 100 bps to 36.8%. The increase was driven by higher leasing gross profit discussed above. SG&A, excluding discrete items, increased $22.0 million, or 34.7%, for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021 driven primarily by increased costs for personnel, including commissions and other variable compensation, the return of more normal travel expenses, and increased subscription, legal and professional fees. Capital Expenditures for Rental Equipment: Purchases of rental equipment and refurbishments increased $33.1 million, or 67.0%, to $82.5 million for the three months ended June 30, 2022 from $49.4 million for the three months ended June 30, 2021. Net CAPEX increased $34.5 million, or 90.1%, to $72.8 million. These increases were driven by increased refurbishments, and increased new fleet and VAPS purchases. NA Storage Revenue: Total revenue increased $59.4 million, or 51.3%, to $175.2 million for the three months ended June 30, 2022 from $115.8 million for the three months ended June 30, 2021. Leasing revenues increased $48.3 million in the current quarter compared to the prior-year quarter. Modular space average units on rent increased 10.4% and average modular space monthly rental rates increased 19.2% year-over-year driven primarily by increased pricing on new deliveries. Portable storage units on rent increased 42,859, or 38.0%, driven by increased organic economic activity (approximately 12,000 units on rent increase) and acquisitions (approximately 18,700 units on rent increase), and due to the transfer of approximately 12,000 portable storage units on rent from the NA Modular segment, which occurred in the third quarter of 2021. Combined, average portable storage units on rent for the NA Storage and NA Modular segments increased approximately 30,034 units, or 23.8%. Average portable storage monthly rental rates increased 23.2% year-over-year also as a result of increased pricing on new deliveries. Delivery and installation revenues increased $13.7 million year-over-year driven by the increase in overall volumes. Sales revenues decreased $2.6 million compared to the prior-year quarter. Gross Profit: Gross profit increased by $45.7 million, or 60.4%, to $121.4 million for the three months ended June 30, 2022 compared to $75.7 million for the three months ended June 30, 2021. Gross profit percentage increased 390 bps to 69.3%. Gross profit on leasing activity increased by $40.7 million year-over-year driven both by increased volume and pricing as described above. For delivery and installation, gross profit increased $6.8 million. Sales gross profit decreased by $1.5 million to $1.1 million. Adjusted EBITDA: Adjusted EBITDA increased $31.3 million, or 63.2%, to $80.8 million for the three months ended June 30, 2022 from $49.5 million for the three months ended June 30, 2021. Adjusted EBITDA margin percentage increased 332 bps to 46.1%. The increase in Adjusted EBITDA was driven primarily by increased leasing gross profit as described above, partially offset by increased SG&A. Excluding acquisition costs and stock-based compensation, SG&A increased $14.8 million in this segment. The increase was comprised of increased costs for personnel, including commissions and other variable compensation to support increased commercial activity, the return of more normal travel expenses, and increased subscription and professional fees. Capital Expenditures for Rental Equipment: Purchases of rental equipment and refurbishments increased $25.5 million, or 289.8%, to $34.3 million for the three months ended June 30, 2022 from $8.8 million for the three months ended June 30, 2021. Net CAPEX decreased $1.8 million, or 6.5%, to $25.7 million. The increase in purchases of rental equipment and refurbishments was driven primarily by increased purchases of portable storage containers during the period to support organic growth. UK Storage Revenue: Total revenue decreased $1.7 million, or 6.0%, to $26.7 million for the three months ended June 30, 2022 from $28.4 million for the three months ended June 30, 2021. In local currency total revenues increased 4.4%. Leasing revenues decreased $0.8 million in the current quarter compared to the prior-year quarter. Modular space average units on 36 rent decreased 10.3%, while portable storage units on rent increased 7.9%. Average monthly rental rates for modular space units decreased 6.6% and average monthly rental rates for portable storage units increased 5.7% year-over-year, including the impacts of currency fluctuations. In local currency, average monthly rental rates for modular space units increased 3.8% and average monthly rental rates for portable storage increased 17.5% year-over-year. Delivery and installation revenues decreased $0.5 million year-over-year. Sales revenues decreased $0.4 million compared to the prior-year quarter. Gross Profit: Gross profit decreased $0.8 million, or 4.5%, for the three months ended June 30, 2022 to $17.1 million from $17.9 million for the three months ended June 30, 2021. In local currency, gross profit increased $0.8 million, or 6.0%. Adjusted EBITDA: Adjusted EBITDA decreased $0.1 million, or 0.8%, to $12.2 million for three months ended June 30, 2022 from $12.3 million for the three months ended June 30, 2021 and the Adjusted EBITDA margin percentage expanded to 45.7% from 41.0%. The decrease results primarily from the unfavorable gross profit discussed above, partially offset by decreased SG&A of $0.9 million. In local currency, Adjusted EBITDA increased $0.9 million, or 10.4%. Capital Expenditures for Rental Equipment: Purchases of rental equipment and refurbishments increased $3.4 million, or 81.0%, to $7.6 million for the three months ended June 30, 2022 from $4.2 million for the three months ended June 30, 2021. Net CAPEX decreased $1.7 million, or 27.9%, to $4.4 million. The increase in purchases of rental equipment and refurbishments was driven primarily by increased purchases of portable storage containers during the period to support organic growth. Tank & Pump Revenue: Total revenue increased $4.6 million, or 16.7%, to $32.1 million for the three months ended June 30, 2022 from $27.5 million for the three months ended June 30, 2021. This increase was driven by increased average original equipment cost ("OEC") rental fleet utilization, which increased 450 bps to 75.7% for the three months ended June 30, 2022 from 71.2% for the three months ended June 30, 2021. Gross Profit: Gross profit increased $3.6 million, or 27.7%, for the three months ended June 30, 2022 to $16.6 million from $13.0 million for the three months ended June 30, 2021. This increase was driven by increased gross profit for leasing activity, which increased $3.3 million driven by the increased revenue as discussed above. Adjusted EBITDA: Adjusted EBITDA increased $2.4 million, or 23.8%, to $12.5 million for the three months ended June 30, 2022 from $10.1 million for the three months ended June 30, 2021 and the Adjusted EBITDA margin percentage expanded to 38.8% from 36.7%. The increase in Adjusted EBITDA was driven by the increased gross profit discussed above, partially offset by a $0.7 million increase in SG&A driven primarily by increased personnel costs, including commissions and other variable compensation. Capital Expenditures for Rental Equipment: Purchases of rental equipment and refurbishments increased $2.9 million, or 100.0%, to $5.8 million for the three months ended June 30, 2022 from $2.9 million for the three months ended June 30, 2021. Net CAPEX increased $2.6 million, or 86.7%, to $5.6 million. These increases were driven primarily by increased purchases of rental fleet during the period to support organic growth given high utilization, as well as by reduced proceeds from sales of units from the rental fleet units given high utilization. Comparison of Six Months Ended June 30, 2022 and 2021 Six Months Ended June 30, 2022 (in thousands, except for units on rent and rates) NA Modular NA Storage UK Storage Tank and Pump Total Revenue $ 647,356 $ 326,704 $ 54,106 $ 62,370 $ 1,090,536 Gross profit $ 282,739 $ 226,534 $ 35,010 $ 31,405 $ 575,688 Adjusted EBITDA $ 231,829 $ 144,587 $ 24,774 $ 23,968 $ 425,158 Capital expenditures for rental equipment $ 140,059 $ 54,453 $ 17,219 $ 13,658 $ 225,389 Average modular space units on rent 85,783 18,308 8,420 — — 112,511 Average modular space utilization rate 67.3 % 75.3 % 72.3 % — % 68.9 % Average modular space monthly rental rate $ 908 $ 638 $ 418 $ — $ 836 Average portable storage units on rent 469 154,023 27,522 — 182,014 Average portable storage utilization rate 53.1 % 84.4 % 89.8 % — % 85.0 % Average portable storage monthly rental rate $ 186 $ 176 $ 93 $ — $ 164 Average tank and pump solutions rental fleet utilization based on original equipment cost N/A N/A N/A 75.8 % 75.8 % 37 Six Months Ended June 30, 2021 (in thousands, except for units on rent and rates) NA Modular NA Storage UK Storage Tank and Pump Total Revenue $ 555,606 $ 223,542 $ 55,439 $ 51,838 $ 886,425 Gross profit $ 229,138 $ 148,340 $ 34,430 $ 24,282 $ 436,190 Adjusted EBITDA $ 200,916 $ 95,848 $ 23,392 $ 18,924 $ 339,080 Capital expenditures for rental equipment $ 88,499 $ 12,245 $ 10,996 $ 6,077 $ 117,817 Average modular space units on rent 84,737 16,399 9,235 — 110,371 Average modular space utilization rate 67.6 % 78.9 % 84.1 % — % 70.3 % Average modular space monthly rental rate $ 769 $ 554 $ 420 $ — $ 703 Average portable storage units on rent 14,186 109,355 25,112 — 148,653 Average portable storage utilization rate 64.8 % 75.0 % 90.5 % — % 76.1 % Average portable storage monthly rental rate $ 128 $ 150 $ 85 $ — $ 137 Average tank and pump solutions rental fleet utilization based on original equipment cost N/A N/A N/A 69.3 % 69.3 % NA Modular Revenue: Total revenue increased $91.8 million, or 16.5%, to $647.4 million for the six months ended June 30, 2022 from $555.6 million for the six months ended June 30, 2021. The increase was primarily the result of a $67.8 million, or 16.3%, increase in leasing revenue, a $25.8 million, or 24.9% increase in delivery and installation revenues, offset by a $0.8 million, or 3.9%, decrease in rental unit sales revenue. The increases to leasing revenue and delivery and installation revenues were partially offset by declines in revenues for portable storage units as a result of transitioning the majority of the portable storage product business within the NA Modular segment to the NA Storage segment during the third quarter of 2021. Approximately 12,000 units were transferred during the third quarter to the NA Storage segment, reallocating approximately $5.0 million of revenue from NA Modular segment to the NA Storage segment relative to the first six months of 2021. Average modular space monthly rental rates increased 18.1% for the six months ended June 30, 2022 to $908 driven by the continuation of our long-term price optimization initiative and VAPS penetration opportunities across our portfolio. In addition to improved pricing, average modular space units on rent increased by 1,046 units, or 1.2%, year over year. Gross Profit: Gross profit increased $53.6 million, or 23.4%, to $282.7 million for the six months ended June 30, 2022 from $229.1 million for the six months ended June 30, 2021. The increase in gross profit was driven by higher leasing gross profit, which increased $48.3 million, or 15.9%, driven by improved pricing including VAPS and increased modular unit on rent volumes, partially offset by the transfer of portable storage units to the NA Storage segment discussed above, and a $13.7 million increase in delivery and installation gross profit driven by volumes and improved pricing. These increases were further complemented by a $0.9 million increase in new sales gross profit. These increases were partially offset by a $0.3 million decrease in rental unit sales gross profit and an $8.8 million increase in depreciation of rental equipment related to capital investments made in our existing rental equipment. Adjusted EBITDA: Adjusted EBITDA increased $30.9 million, or 15.4%, to $231.8 million for the six months ended June 30, 2022 from $200.9 million for the six months ended June 30, 2021. The increase was driven by higher leasing gross profit discussed above. SG&A, excluding discrete items, increased $37.1 million, or 29.5%, for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021 primarily driven by employee and occupancy costs. Capital Expenditures for Rental Equipment: Purchases of rental equipment and refurbishments increased $51.6 million, or 58.3%, to $140.1 million for the six months ended June 30, 2022 from $88.5 million for the six months ended June 30, 2021 NA Storage Revenue: Total revenue increased $103.2 million, or 46.2%, to $326.7 million for the six months ended June 30, 2022 from $223.5 million for the six months ended June 30, 2021. The increase was primarily the result of a $86.6 million, or 52.1%, increase in leasing revenue, a $22.2 million, or 49.4% increase in delivery and installation revenues, and a $3.9 million, or 47.0%, decrease in rental unit sales revenue. Average portable storage monthly rental rates increased 17.3% for the six months ended June 30, 2022 to $176. Average portable storage units on rent increased by 44,668 units, or 40.8%, year over year, driven by increased organic economic activity (approximately average 15,600 units on rent increase) and acquisitions (approximately average 17,100 units on rent increase), and due to the transfer of approximately 12,000 portable storage units on rent from the NA Modular segment, which occurred in the third quarter of 2021. Average modular space monthly rental rates increased 15.2% for the six months ended June 30, 2022 to $638 driven by the continuation of our long-term price 38 optimization initiative and VAPS penetration opportunities across our portfolio. Average modular space units on rent increased by 1,909 units, or 11.6%, year over year. Gross Profit: Gross profit increased $78.2 million, or 52.7%, to $226.5 million for the six months ended June 30, 2022 from $148.3 million for the six months ended June 30, 2021. Gross profit on leasing activity increased by $73.4 million year-over-year driven both by increased volume and pricing as described above. For delivery and installation, gross profit increased $9.6 million. Sales gross profit decreased by $2.5 million to $2.3 million. Adjusted EBITDA: Adjusted EBITDA increased $48.8 million, or 50.9%, to $144.6 million for the six months ended June 30, 2022 from $95.8 million for the six months ended June 30, 2021. The increase was driven by higher leasing gross profit discussed above. SG&A, excluding discrete items, increased $31.6 million, or 48.8%, for the six months ended June 30, 2022, as compared to the June 30, 2021 primarily driven by employee and occupancy costs. Capital Expenditures for Rental Equipment: Purchases of rental equipment and refurbishments increased $42.3 million, or 346.7%, to $54.5 million for the six months ended June 30, 2022 from $12.2 million for the six months ended June 30, 2021. The increase in purchases of rental equipment and refurbishments was driven primarily by increased purchases of portable storage containers during the period to support organic growth. UK Storage Revenue: Total revenue decreased $1.3 million, or 2.3%, to $54.1 million for the six months ended June 30, 2022 from $55.4 million for the six months ended June 30, 2021. The decrease was primarily the result of a $0.8 million, or 6.3%, decrease in delivery and installation revenues and a $1.6 million, or 72.7%, decrease in new unit sales revenue, partially offset by a $1.0 million, or 2.5%, increase in leasing revenue. Average portable storage monthly rental rates increased 9.4% for the six months ended June 30, 2022 to $93. Average portable storage units on rent increased by 2,410 units, or 9.6%, year over year. Average modular space monthly rental rates decreased 0.5% for the six months ended June 30, 2022 to $418. Average modular space units on rent decreased by 815 units, or 8.8%, year over year. In local currency, average portable storage monthly rental rates increased 17.5% for the six months ended June 30, 2022 to £74, and average modular space monthly rental rates increased 3.8% for the six months ended June 30, 2022 to £325. Gross Profit: Gross profit increased $0.6 million, or 1.7%, to $35.0 million for the six months ended June 30, 2022 from $34.4 million for the six months ended June 30, 2021. Gross profit on leasing activity increased by $1.6 million year-over-year driven both by increased volume and pricing as described above. For delivery and installation, gross profit decreased $0.7 million. Sales gross profit decreased by $0.3 million to $0.5 million. Adjusted EBITDA: Adjusted EBITDA increased $1.4 million, or 6.0%, to $24.8 million for the six months ended June 30, 2022 from $23.4 million for the six months ended June 30, 2021. The increase was driven by higher leasing gross profit discussed above. SG&A, excluding discrete items, decreased $0.8 million, or 6.0%, for the six months ended June 30, 2022, as compared to the June 30, 2021 primarily driven by employee and occupancy costs. Capital Expenditures for Rental Equipment: Purchases of rental equipment and refurbishments increased $6.2 million, or 56.4%, to $17.2 million for the six months ended June 30, 2022 from $11.0 million for the six months ended June 30, 2021. Tank & Pump Revenue: Total revenue increased $10.6 million, or 20.5%, to $62.4 million for the six months ended June 30, 2022 from $51.8 million for the six months ended June 30, 2021. This increase was driven by increased average original equipment cost ("OEC") rental fleet utilization, which increased 650 bps to 75.8% for the six months ended June 30, 2022 from 69.3% for the six months ended June 30, 2021. Gross Profit: Gross profit increased $7.1 million, or 29.2%, to $31.4 million for the six months ended June 30, 2022 from $24.3 million for the six months ended June 30, 2021. Gross profit on leasing activity increased by $6.8 million year-over-year driven by both increased volume and pricing. For delivery and installation, gross profit increased $0.3 million. Sales gross profit decreased by $0.2 million to $0.6 million. Adjusted EBITDA: Adjusted EBITDA increased $5.0 million, or 26.2%, to $24.0 million for the six months ended June 30, 2022 from $19.0 million for the six months ended June 30, 2021. The increase in Adjusted EBITDA was driven by the increased gross profit discussed above, partially offset by a $1.9 million increase in SG&A expense driven primarily by increased personnel costs, including commissions and other variable compensation. Capital Expenditures for Rental Equipment: Purchases of rental equipment and refurbishments increased $7.6 million, or 124.6%, to $13.7 million for the six months ended June 30, 2022 from $6.1 million for the six months ended June 30, 2021. 39 Reconciliation of Non-GAAP Financial Measures In addition to using GAAP financial measurements, we use certain non-GAAP financial measures to evaluate our operating results. As such, we include in this Quarterly Report on Form 10-Q reconciliations of non-GAAP financial measures to their most directly comparable GAAP financial measures. Set forth below are definitions and reconciliations to the nearest comparable GAAP measure of certain non-GAAP financial measures used in this Quarterly Report on Form 10-Q along with descriptions of why we believe these measures provide useful information to investors as well as a description of the limitations of these measures. Each of these non-GAAP financial measures has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for analysis of, results reported under GAAP. Our measurements of these metrics may not be comparable to similarly titled measures of other companies. Adjusted EBITDA We define EBITDA as net income (loss) plus interest (income) expense, income tax expense (benefit), depreciation and amortization. Our adjusted EBITDA ("Adjusted EBITDA") reflects the following further adjustments to EBITDA to exclude certain non-cash items and the effect of what we consider transactions or events not related to our core business operations: • Currency (gains) losses, net: on monetary assets and liabilities denominated in foreign currencies other than the subsidiaries’ functional currency. Substantially all such currency gains (losses) are unrealized and attributable to financings due to and from affiliated companies. • Goodwill and other impairment charges related to non-cash costs associated with impairment charges to goodwill, other intangibles, rental fleet and property, plant and equipment. • Restructuring costs, lease impairment expense, and other related charges associated with restructuring plans designed to streamline operations and reduce costs including employee and lease termination costs. • Transaction costs including legal and professional fees and other transaction specific related costs. • Costs to integrate acquired companies, including outside professional fees, non-capitalized costs associated with system integrations, non-lease branch and fleet relocation expenses, employee training costs and other costs required to realize cost or revenue synergies. • Non-cash charges for stock compensation plans. • Gains and losses resulting from changes in fair value and extinguishment of common stock warrant liabilities. • Other expense, including consulting expenses related to certain one-time projects, financing costs not classified as interest expense and gains and losses on disposals of property, plant and equipment. Our Chief Operating Decision Maker ("CODM") evaluates business segment performance utilizing Adjusted EBITDA as shown in the reconciliation of the Company’s consolidated net income to Adjusted EBITDA below. Management believes that evaluating segment performance excluding such items is meaningful because it provides insight with respect to the intrinsic and ongoing operating results of the Company and captures the business performance of the segments, inclusive of indirect costs. Adjusted EBITDA has limitations as an analytical tool, and you should not consider the measure in isolation or as a substitute for net income (loss), cash flow from operations or other methods of analyzing WillScot Mobile Mini’s results as reported under GAAP. Some of these limitations are: • Adjusted EBITDA does not reflect changes in, or cash requirements for our working capital needs; • Adjusted EBITDA does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness; • Adjusted EBITDA does not reflect our tax expense or the cash requirements to pay our taxes; • Adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; • Adjusted EBITDA does not reflect the impact on earnings or changes resulting from matters that we consider not to be indicative of our future operations; • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements; and • other companies in our industry may calculate Adjusted EBITDA differently, limiting its usefulness as a comparative measure. Because of these limitations, Adjusted EBITDA should not be considered as discretionary cash available to reinvest in the growth of our business or as measures of cash that will be available to meet our obligations. 40 The following table provides unaudited reconciliations of Net income to Adjusted EBITDA: Three Months Ended Six Months Ended June 30, June 30, (in thousands) 2022 2021 2022 2021 Net income $ 73,376 $ 20,371 $ 124,547 $ 24,818 Income tax expense 24,711 18,828 40,459 29,309 Loss on extinguishment of debt — 2,814 — 5,999 Fair value (gain) loss on common stock warrant liabilities — (610) — 26,597 Interest expense 33,574 29,212 64,564 59,176 Depreciation and amortization 86,230 84,515 168,050 158,537 Currency (gains) losses, net (127) 33 11 69 Restructuring costs, lease impairment expense and other related charges (95) 7,434 168 11,829 Transaction costs 22 — 41 844 Integration costs 5,203 7,622 9,291 14,964 Stock compensation expense 9,292 4,707 15,687 8,221 Other 1,149 569 2,340 (1,283) Adjusted EBITDA $ 233,335 $ 175,495 $ 425,158 $ 339,080 Net Income Excluding Gain/Loss from Warrants We define Net Income Excluding Gain/Loss from Warrants as net income plus or minus the impact of the change in the fair value of the common stock warrant liability. Management believes that the presentation of our financial statements excluding the impact of the mark-to-market adjustment provides useful information regarding our results of operations and assists in the review of our actual operating performance. The following table provides unaudited reconciliations of Net income to Net Income Excluding Gain/Loss from Warrants: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Net income $ 73,376 $ 20,371 $ 124,547 $ 24,818 Fair value (gain) loss on common stock warrant liabilities — (610) — 26,597 Net Income Excluding Gain/Loss from Warrants $ 73,376 $ 19,761 $ 124,547 $ 51,415 Adjusted EBITDA Margin We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue. Management believes that the presentation of Adjusted EBITDA Margin provides useful information to investors regarding the performance of our business. The following table provides an unaudited reconciliation of Adjusted EBITDA Margin: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Adjusted EBITDA (A) $ 233,335 $ 175,495 $ 425,158 $ 339,080 Revenue (B) 581,642 461,102 1,090,536 886,425 Adjusted EBITDA Margin (A/B) 40.1 % 38.1 % 39.0 % 38.3 % Net Income (C) $ 73,376 $ 20,371 $ 124,547 $ 24,818 Net Income Margin % (C/B) 12.6 % 4.4 % 11.4 % 2.8 % 41 Adjusted Gross Profit and Adjusted Gross Profit Percentage We define Adjusted Gross Profit as gross profit plus depreciation on rental equipment. Adjusted Gross Profit Percentage is defined as Adjusted Gross Profit divided by revenue. Adjusted Gross Profit and Adjusted Gross Profit Percentage are not measurements of our financial performance under GAAP and should not be considered as an alternative to gross profit, gross profit percentage, or other performance measures derived in accordance with GAAP. In addition, our measurement of Adjusted Gross Profit and Adjusted Gross Profit Percentage may not be comparable to similarly titled measures of other companies. Management believes that the presentation of Adjusted Gross Profit and Adjusted Gross Profit Percentage provides useful information to investors regarding our results of operations and assists in analyzing the performance of our business. The following table provides unaudited reconciliations of gross profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage: Three Months Ended Six Months Ended June 30, June 30, (in thousands) 2022 2021 2022 2021 Revenue (A) $ 581,642 $ 461,102 $ 1,090,536 $ 886,425 Gross profit (B) $ 308,873 $ 222,810 $ 575,688 $ 436,190 Depreciation of rental equipment 67,176 62,893 129,392 118,591 Adjusted Gross Profit (C) $ 376,049 $ 285,703 $ 705,080 $ 554,781 Gross Profit Percentage (B/A) 53.1 % 48.3 % 52.8 % 49.2 % Adjusted Gross Profit Percentage (C/A) 64.7 % 62.0 % 64.7 % 62.6 % Net CAPEX We define Net CAPEX as purchases of rental equipment and refurbishments and purchases of property, plant and equipment (collectively, "Total Capital Expenditures"), less proceeds from the sale of rental equipment and proceeds from the sale of property, plant and equipment (collectively, "Total Proceeds"), which are all included in cash flows from investing activities. Management believes that the presentation of Net CAPEX provides useful information to investors regarding the net capital invested into our rental fleet and plant, property and equipment each year to assist in analyzing the performance of our business. The following table provides unaudited reconciliations of Net CAPEX: Three Months Ended Six Months Ended June 30, June 30, (in thousands) 2022 2021 2022 2021 Total purchases of rental equipment and refurbishments $ (130,153) $ (65,282) $ (225,389) $ (117,817) Total proceeds from sale of rental equipment 20,526 15,235 35,080 30,437 Net CAPEX for Rental Equipment (109,627) (50,047) (190,309) (87,380) Purchase of property, plant and equipment (9,772) (10,143) (20,253) (17,450) Proceeds from sale of property, plant and equipment 491 2,709 751 16,438 Net CAPEX $ (118,908) $ (57,481) $ (209,811) $ (88,392) Liquidity and Capital Resources Overview WillScot Mobile Mini is a holding company that derives its operating cash flow from its operating subsidiaries. Our principal sources of liquidity include cash generated by operating activities from our subsidiaries, borrowings under the ABL Facility (as defined below), and sales of equity and debt securities. We believe that our liquidity sources and operating cash flows are sufficient to address our operating, debt service and capital requirements over the next twelve months. We have consistently accessed the debt and equity capital markets both opportunistically and as necessary to support the growth of our business, desired leverage levels, and other capital allocation priorities. We believe we have ample 42 liquidity in the ABL Facility and are generating substantial free cash flow, which together support both organic operations and other capital allocation priorities as they arise. We continue to review available acquisition opportunities with the awareness that any such acquisition may require us to incur additional debt to finance the acquisition and/or to issue shares of our Common Stock or other equity securities as acquisition consideration or as part of an overall financing plan. In addition, we will continue to evaluate alternatives to optimize our capital structure, which could include the issuance or repurchase of additional unsecured and secured debt, equity securities and/or equity-linked securities. There can be no assurance as to the timing of any such issuance or repurchase. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. Availability of financing and the associated terms are inherently dependent on the debt and equity capital markets and subject to change. From time to time, we may also seek to streamline our capital structure and improve our financial position through refinancing or restructuring our existing debt or retiring certain of our securities for cash or other consideration. Our revolving credit facility provides an aggregate principal amount of up to $3.7 billion, consisting of: (i) a senior secured asset-based US dollar revolving credit facility in the aggregate principal amount of $3.3 billion (the “US Facility”), and (ii) a $400.0 million senior secured asset-based multicurrency revolving credit facility (the "Multicurrency Facility") together with the US Facility (collectively, the “ABL Facility”), available to be drawn in US Dollars, Canadian Dollars, British Pounds Sterling or Euros. Borrowing availability under the ABL Facility is equal to the lesser of $3.7 billion and the applicable borrowing bases. The borrowing bases are a function of, among other things, the value of the assets in the relevant collateral pool. At June 30, 2022, we had $2.0 billion outstanding principal and $1.0 billion of available borrowing capacity under the ABL Facility. Cash Flow Comparison for the Six Months Ended June 30, 2022 and 2021 Significant factors driving our liquidity include cash flows generated from operating activities and capital expenditures. Our ability to fund our capital needs will be affected by our ongoing ability to generate cash from operations and access to capital markets. The following summarizes our change in cash and cash equivalents for the periods presented: Six Months Ended June 30, (in thousands) 2022 2021 Net cash from operating activities $ 333,853 $ 261,608 Net cash from investing activities (313,738) (88,392) Net cash from financing activities (20,802) (182,913) Effect of exchange rate changes on cash and cash equivalents (306) 162 Net change in cash and cash equivalents $ (993) $ (9,535) Cash Flows from Operating Activities Cash provided by operating activities for the six months ended June 30, 2022 was $333.9 million as compared to $261.6 million for the six months ended June 30, 2021, an increase of $72.3 million, or 27.6%. The increase was due to an increase of $87.6 million of net income, adjusted for non-cash items, partially offset by a decrease of $15.3 million in the net changes in operating assets and liabilities. Cash Flows from Investing Activities Cash used in investing activities for the six months ended June 30, 2022 was $313.7 million as compared to $88.4 million for the six months ended June 30, 2021, an increase of $225.3 million. The increase in cash used in investing activities was driven by a $107.6 million increase in cash used for the purchase of rental equipment and refurbishments, a $103.9 million increase in cash used in acquisitions, net of cash acquired, a $15.7 million decrease in proceeds from sale of property, plant and equipment, and a $2.8 million increase in cash used for the purchase of property, plant and equipment, partially offset by a $4.7 million increase in proceeds from the sale of rental equipment. Cash Flows from Financing Activities Cash used in financing activities for the six months ended June 30, 2022 was $20.8 million as compared to $182.9 million for the six months ended June 30, 2021, a decrease of $162.1 million. The decrease was primarily due to a $219.6 million decrease in repayment of borrowings and a $66.7 million increase in receipts from borrowings, partially offset by a $104.9 million increase in the repurchase and cancellation of common stock and warrants. Free Cash Flow Free Cash Flow is a non-GAAP measure. We define Free Cash Flow as net cash provided by operating activities, less purchases of, and proceeds from, rental equipment and property, plant and equipment, which are all included in cash flows from investing activities. Management believes that the presentation of Free Cash Flow provides useful additional information concerning cash flow available to fund our capital allocation alternatives. 43 The following table provides a reconciliation of net cash provided by operating activities to Free Cash Flow. Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Net cash provided by operating activities $ 188,326 $ 139,537 $ 333,853 $ 261,608 Purchase of rental equipment and refurbishments (130,153) (65,282) (225,389) (117,817) Proceeds from sale of rental equipment 20,526 15,235 35,080 30,437 Purchase of property, plant and equipment (9,772) (10,143) (20,253) (17,450) Proceeds from the sale of property, plant and equipment 491 2,709 751 16,438 Free Cash Flow $ 69,418 $ 82,056 $ 124,042 $ 173,216 Cash flow from operations increased by $72.3 million or 27.6% for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. Cash used in investing activities excluding acquisitions increased by $121.4 million to support unit on rent and VAPS growth with leasing revenues up 24.7% year-over-year. Free cash flow of $124.0 million for the six months ended June 30, 2022 was down $49.2 million as compared to the six months ended June 30, 2021 which is consistent with the countercyclicality of free cash flow in our business. Material cash requirements The Company’s material cash requirements include the following contractual and other obligations: Debt The Company has outstanding debt related to its ABL Facility, 2025 Secured Notes, 2028 Secured Notes, and finance leases, totaling $3.1 billion as of June 30, 2022, $20.7 million of which is obligated to be repaid within the next twelve months. Refer to Note 9 for further information regarding outstanding debt. Operating leases The Company has commitments for future minimum rental payments relating to operating leases, which are primarily for equipment and office space. As of June 30, 2022, the Company had lease obligations of $275.9 million, with $60.4 million payable within the next twelve months. In addition to the aforementioned cash requirements, the Company has a Share Repurchase Program authorized by the Board of Directors which allows the Company to repurchase up to $1.0 billion of outstanding shares of Common Stock and equivalents. This program does not obligate the Company to repurchase any specific amount of shares. The Company believes its cash, cash flows generated from ongoing operations, continued access to its revolving credit facility, as well as access to debt markets, are sufficient to satisfy its currently anticipated cash requirements for the foreseeable future. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition, results of operations, liquidity and capital resources is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. GAAP requires that we make estimates and judgments that affect the reported amount of assets, liabilities, revenue, expenses and the related disclosure of contingent assets and liabilities. We base these estimates on historical experience and on various other assumptions that we consider reasonable under the circumstances, and reevaluate our estimates and judgments as appropriate. The actual results experienced by us may differ materially and adversely from our estimates. The US Securities and Exchange Commission (the “SEC”) suggests companies provide additional disclosure on those accounting policies considered most critical. The SEC considers an accounting policy to be critical if it is important to our financial condition and results of operations and requires significant judgments and estimates on the part of management in its applicatio n. For a complete discussion of our significant critical accounting policies, see the “Critical Accounting Policies and Estimates” section in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Annual Report on Form 10-K"). There were no significant changes to our critical accounting policies during the six months ended June 30, 2022. Recently Issued Accounting Standards Refer to Part I, Item 1, Note 1 of the notes to our financial statements included in this Quarterly Report on Form 10-Q for our assessment of recently issued accounting standards. 44 Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Act of 1934, as amended. The words “estimates,” “expects,” “anticipates,” “believes,” “forecasts,” “plans,” “intends,” “may,” “will,” “should,” “shall,” “outlook,” “guidance” and variations of these words and similar expressions identify forward-looking statements, which are generally not historical in nature and relate to expectations for future financial performance or business strategies or objectives. Forward-looking statements are subject to a number of risks, uncertainties, assumptions and other important factors, many of which are outside our control, which could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. Although we believe that these forward-looking statements are based on reasonable assumptions, we can give no assurance that any such forward-looking statement will materialize. Important factors that may affect actual results or outcomes include, among others: • our ability to successfully acquire and integrate new operations; • the effect of global or local economic conditions in the industries and markets in which the Company operates and any changes therein, including financial market conditions and levels of end market demand; • operational, economic, political and regulatory risks; • the impact of public health crises, such as the global pandemic related to COVID-19, including the financial condition of the Company’s customers and suppliers and employee health and safety; • risks associated with cybersecurity and IT systems disruptions, including our ability to manage the business in the event a disaster shuts down our management information systems; • effective management of our rental equipment; • trade policies and changes in trade policies, including the imposition of tariffs, their enforcement and downstream consequences; • our ability to effectively compete in the modular space, portable storage and tank and pump industries; • our ability to effectively manage our credit risk, collect on our accounts receivable, or recover our rental equipment; • the effect of changes in state building codes on our ability to remarket our buildings; • foreign currency exchange rate exposure; • fluctuations in interest rates and commodity prices; • significant increases in the costs and restrictions on the availability of raw materials and labor; • fluctuations in fuel costs or oil prices, a reduction in fuel supplies, or a sustained decline in oil prices; • our reliance on third party manufacturers and suppliers; • risks associated with labor relations, labor costs and labor disruptions; • impairment of our goodwill, intangible assets and indefinite-life intangible assets; • various laws and regulations, including those governing government contracts, corruption and the environment; • changes in the competitive environment of our customer base as a result of the global, national or local economic climate in which they operate and/or economic or financial disruptions to their industry; • our ability to adequately protect our intellectual property and other proprietary rights that are material to our business; • natural disasters and other business disruptions such as pandemics, fires, floods, hurricanes, earthquakes and terrorism; • our ability to establish and maintain the appropriate physical presence in our markets; • property, casualty or other losses not covered by our insurance; • our ability to close our unit sales transactions; • our ability to maintain an effective system of internal controls and accurately report our financial results; • evolving public disclosure, financial reporting and corporate governance expectations; • our ability to achieve our environmental, social and governance goals; • our ability to use our net operating loss carryforwards and other tax attributes; • our ability to recognize deferred tax assets such as those related to our tax loss carryforwards and, as a result, utilize future tax savings; • unanticipated changes in tax obligations, adoption of a new tax legislation, or exposure to additional income tax liabilities; • our ability to access the capital and credit markets or the ability of key counterparties to perform their obligations to us: 45 • our ability to service our debt and operate our business; • our ability to incur significant additional amounts of debt, which could further exacerbate the risks associated with our substantial indebtedness; • covenants that limit our operating and financial flexibility; • uncertainty regarding the phase-out of LIBOR; • our stock price volatility; and • such other risks and uncertainties described in the periodic reports we file with the SEC from time to time (including our 2021 Annual Report on Form 10-K), which are available through the SEC’s EDGAR system at www.sec.gov and on our website. Any forward-looking statement speaks only at the date which it is made, and we undertake no obligation, and disclaims any obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.