WillScot Holdings Corp 10-Q

ITEM 1. Financial Statements WillScot Mobile Mini Holdings Corp. Condensed Consolidated Balance Sheets (in thousands, except share data) September 30, 2023 (unaudited) December 31, 2022 Assets Cash and cash equivalents $ 5,789 $ 7,390 Trade receivables, net of allowances for credit losses at September 30, 2023 and December 31, 2022 of $ 78,738 and $ 57,048 , respectively 469,344 409,766 Inventories 44,729 41,030 Prepaid expenses and other current assets 48,392 31,635 Assets held for sale - current 951 31,220 Total current assets 569,205 521,041 Rental equipment, net 3,347,017 3,077,287 Property, plant and equipment, net 328,054 304,659 Operating lease assets 256,272 219,405 Goodwill 1,158,076 1,011,429 Intangible assets, net 401,313 419,125 Other non-current assets 15,541 6,683 Assets held for sale - non-current — 268,022 Total long-term assets 5,506,273 5,306,610 Total assets $ 6,075,478 $ 5,827,651 Liabilities and equity Accounts payable $ 92,319 $ 109,349 Accrued expenses 123,238 109,542 Accrued employee benefits 31,550 56,340 Deferred revenue and customer deposits 227,257 203,793 Operating lease liabilities - current 56,588 50,499 Current portion of long-term debt 15,981 13,324 Liabilities held for sale - current — 19,095 Total current liabilities 546,933 561,942 Long-term debt 3,460,066 3,063,042 Deferred tax liabilities 535,434 401,453 Operating lease liabilities - non-current 193,364 169,618 Other non-current liabilities 27,045 18,537 Liabilities held for sale - non-current — 47,759 Long-term liabilities 4,215,909 3,700,409 Total liabilities 4,762,842 4,262,351 Preferred Stock: $ 0.0001 par, 1,000,000 shares authorized and zero shares issued and outstanding at September 30, 2023 and December 31, 2022 — — Common Stock: $ 0.0001 par, 500,000,000 shares authorized and 193,460,704 and 207,951,682 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively 20 21 Additional paid-in-capital 2,218,110 2,886,951 Accumulated other comprehensive loss ( 44,073 ) ( 70,122 ) Accumulated deficit ( 861,421 ) ( 1,251,550 ) Total shareholders' equity 1,312,636 1,565,300 Total liabilities and shareholders' equity $ 6,075,478 $ 5,827,651 See the accompanying notes which are an integral part of these condensed consolidated financial statements. 3 WillScot Mobile Mini Holdings Corp. Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except share and per share data) 2023 2022 2023 2022 Revenues: Leasing and services revenue: Leasing $ 466,769 $ 427,842 $ 1,356,040 $ 1,165,787 Delivery and installation 115,598 127,016 334,982 323,396 Sales revenue: New units 10,155 9,608 29,816 25,322 Rental units 12,312 13,542 31,553 37,564 Total revenues 604,834 578,008 1,752,391 1,552,069 Costs: Costs of leasing and services: Leasing 104,331 107,720 300,402 276,165 Delivery and installation 82,081 91,744 238,437 244,861 Costs of sales: New units 5,096 5,798 16,099 14,875 Rental units 6,682 6,846 16,203 20,216 Depreciation of rental equipment 66,950 68,015 190,556 188,793 Gross profit 339,694 297,885 990,694 807,159 Expenses: Selling, general and administrative 151,983 140,116 449,685 428,389 Other depreciation and amortization 17,852 15,656 52,371 45,969 Currency losses, net 96 160 6,885 124 Other income, net ( 8,336 ) ( 2,520 ) ( 14,533 ) ( 7,597 ) Operating income 178,099 144,473 496,286 340,274 Interest expense 53,803 38,009 145,915 101,732 Income from continuing operations before income tax 124,296 106,464 350,371 238,542 Income tax expense from continuing operations 32,780 28,288 94,855 61,219 Income from continuing operations 91,516 78,176 255,516 177,323 Discontinued operations: Income from discontinued operations before income tax — 20,285 4,003 53,212 Gain on sale of discontinued operations — 34,049 176,078 34,049 Income tax expense from discontinued operations — 3,917 45,468 11,444 Income from discontinued operations — 50,417 134,613 75,817 Net income $ 91,516 $ 128,593 $ 390,129 $ 253,140 Earnings per share from continuing operations attributable to WillScot Mobile Mini common shareholders: Basic $ 0.47 $ 0.36 $ 1.27 $ 0.80 Diluted $ 0.46 $ 0.36 $ 1.25 $ 0.79 Earnings per share from discontinued operations attributable to WillScot Mobile Mini common shareholders: Basic $ — $ 0.24 $ 0.67 $ 0.35 Diluted $ — $ 0.23 $ 0.66 $ 0.34 Earnings per share attributable to WillScot Mobile Mini common shareholders: Basic $ 0.47 $ 0.60 $ 1.94 $ 1.15 Diluted $ 0.46 $ 0.59 $ 1.91 $ 1.13 Weighted average shares: Basic 196,198,638 213,636,876 201,042,902 219,312,260 Diluted 199,258,304 217,927,725 204,461,042 223,933,319 See the accompanying notes which are an integral part of these condensed consolidated financial statements. 4 WillScot Mobile Mini Holdings Corp. Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Net income $ 91,516 $ 128,593 $ 390,129 $ 253,140 Other comprehensive income (loss): Foreign currency translation adjustment, net of income tax expense of $ 0 for both the three and nine months ended September 30, 2023 and 2022, respectively. ( 6,732 ) ( 37,733 ) 7,117 ( 67,435 ) Net gain on derivatives, net of income tax expense of $ 2,247 for the three months ended September 30, 2023, and $ 6,293 and $ 1,171 for the nine months ended September 30, 2023 and 2022, respectively. 6,768 — 18,932 3,497 Total other comprehensive income (loss) 36 ( 37,733 ) 26,049 ( 63,938 ) Total comprehensive income $ 91,552 $ 90,860 $ 416,178 $ 189,202 See the accompanying notes which are an integral part of these condensed consolidated financial statements. 5 WillScot Mobile Mini Holdings Corp. Condensed Consolidated Statements of Changes in Equity (Unaudited) Nine Months Ended September 30, 2023 Common Stock Additional Paid-in-Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Shareholders' Equity (in thousands) Shares Amount Balance at December 31, 2022 207,952 $ 21 $ 2,886,951 $ ( 70,122 ) $ ( 1,251,550 ) $ 1,565,300 Net income — — — — 210,884 210,884 Other comprehensive income — — — 7,267 — 7,267 Withholding taxes on net share settlement of stock-based compensation — — ( 10,058 ) — — ( 10,058 ) Stock-based compensation and issuance of Common Stock from vesting 355 — 8,150 — — 8,150 Repurchase and cancellation of Common Stock ( 4,589 ) — ( 217,687 ) — — ( 217,687 ) Issuance of Common Stock from the exercise of options 6 — 68 — — 68 Balance at March 31, 2023 203,723 21 2,667,424 ( 62,855 ) ( 1,040,666 ) 1,563,924 Net income — — — — 87,729 87,729 Other comprehensive income — — — 18,746 — 18,746 Stock-based compensation and issuance of Common Stock from vesting 35 — 9,348 — — 9,348 Repurchase and cancellation of Common Stock ( 5,406 ) ( 1 ) ( 241,545 ) — — ( 241,546 ) Issuance of Common Stock from the exercise of options 24 — 344 — — 344 Balance at June 30, 2023 198,376 20 2,435,571 ( 44,109 ) ( 952,937 ) 1,438,545 Net income — — — — 91,516 91,516 Other comprehensive income — — — 36 — 36 Withholding taxes on net share settlement of stock-based compensation — — ( 4,113 ) — — ( 4,113 ) Stock-based compensation and issuance of Common Stock from vesting 124 — 8,636 — — 8,636 Repurchase and cancellation of Common Stock ( 5,042 ) — ( 222,024 ) — — ( 222,024 ) Issuance of Common Stock from the exercise of options 3 — 40 — — 40 Balance at September 30, 2023 193,461 $ 20 $ 2,218,110 $ ( 44,073 ) $ ( 861,421 ) $ 1,312,636 6 Nine Months Ended September 30, 2022 Common Stock Additional Paid-in-Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Shareholders' Equity (in thousands) Shares Amount Balance at December 31, 2021 223,940 $ 22 $ 3,616,902 $ ( 29,071 ) $ ( 1,591,090 ) $ 1,996,763 Net income — — — — 51,171 51,171 Other comprehensive loss — — — ( 1,753 ) — ( 1,753 ) Withholding taxes on net share settlement of stock-based compensation — — ( 12,295 ) — — ( 12,295 ) Stock-based compensation and issuance of Common Stock from vesting 498 — 6,395 — — 6,395 Repurchase and cancellation of Common Stock and warrants ( 2,064 ) — ( 77,409 ) — — ( 77,409 ) Issuance of Common Stock from the exercise of options and warrants 800 — 3,313 — — 3,313 Balance at March 31, 2022 223,174 22 3,536,906 ( 30,824 ) ( 1,539,919 ) 1,966,185 Net income — — — — 73,376 73,376 Other comprehensive loss — — — ( 24,452 ) — ( 24,452 ) Withholding taxes on net share settlement of stock-based compensation — — ( 1,075 ) — — ( 1,075 ) Stock-based compensation and issuance of Common Stock from vesting 70 — 9,292 — — 9,292 Repurchase and cancellation of Common Stock and warrants ( 7,222 ) — ( 249,515 ) — — ( 249,515 ) Issuance of Common Stock from the exercise of options and warrants 69 — 139 — — 139 Balance at June 30, 2022 216,091 22 3,295,747 ( 55,276 ) ( 1,466,543 ) 1,773,950 Net income — — — — 128,593 128,593 Other comprehensive loss — — — ( 37,733 ) — ( 37,733 ) Withholding taxes on net share settlement of stock-based compensation — — ( 518 ) — — ( 518 ) Stock-based compensation and issuance of Common Stock from vesting 26 — 6,941 — — 6,941 Repurchase and cancellation of Common Stock and warrants ( 5,271 ) — ( 197,457 ) — — ( 197,457 ) Issuance of Common Stock from the exercise of options and warrants 398 — 7,363 — — 7,363 Balance at September 30, 2022 211,244 $ 22 $ 3,112,076 $ ( 93,009 ) $ ( 1,337,950 ) $ 1,681,139 See the accompanying notes which are an integral part of these condensed consolidated financial statements. 7 WillScot Mobile Mini Holdings Corp. Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, (in thousands) 2023 2022 Operating activities: Net income $ 390,129 $ 253,140 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 242,927 257,371 Provision for credit losses 38,079 26,018 Gain on sale of discontinued operations ( 176,078 ) ( 34,049 ) Gain on sale of rental equipment and other property, plant and equipment ( 26,256 ) ( 21,698 ) Amortization of debt discounts and debt issuance costs 8,281 9,795 Stock-based compensation expense 26,134 22,628 Deferred income tax expense 118,455 56,812 Loss on settlement of foreign currency forward contract 7,715 — Unrealized currency losses, net ( 943 ) 171 Other 3,312 2,976 Changes in operating assets and liabilities: Trade receivables ( 85,261 ) ( 101,895 ) Inventories ( 600 ) ( 13,623 ) Prepaid expenses and other assets ( 3,772 ) ( 9,446 ) Operating lease assets and liabilities 707 851 Accounts payable and other accrued expenses ( 26,518 ) 43,565 Deferred revenue and customer deposits 25,607 51,622 Net cash provided by operating activities 541,918 544,238 Investing activities: Proceeds from sale of discontinued operations 403,992 319,543 Acquisitions, net of cash acquired ( 482,190 ) ( 208,663 ) Proceeds from sale of rental equipment 37,974 52,263 Purchase of rental equipment and refurbishments ( 166,097 ) ( 360,465 ) Payment for settlement of foreign currency forward contract ( 7,715 ) — Proceeds from the sale of property, plant and equipment 13,266 1,645 Purchase of property, plant and equipment ( 16,752 ) ( 30,253 ) Net cash used in investing activities ( 217,522 ) ( 225,930 ) Financing activities: Receipts from issuance of Common Stock from the exercise of options 453 10,815 Repurchase and cancellation of Common Stock and warrants ( 678,166 ) ( 515,684 ) Receipts from borrowings 1,651,600 763,177 Payment of financing costs ( 6,377 ) ( 8,130 ) Repayment of borrowings ( 1,277,872 ) ( 510,677 ) Principal payments on finance lease obligations ( 12,549 ) ( 39,336 ) Taxes paid on employee stock awards ( 14,171 ) ( 13,888 ) Net cash used in financing activities ( 337,082 ) ( 313,723 ) Effect of exchange rate changes on cash and cash equivalents 701 ( 1,842 ) Net change in cash and cash equivalents ( 11,985 ) 2,743 Cash and cash equivalents at the beginning of the period (a) 17,774 12,699 Cash and cash equivalents at the end of the period $ 5,789 $ 15,442 Supplemental cash flow information: Interest paid, net $ 135,301 $ 88,231 Income taxes paid, net $ 22,764 $ 17,598 Capital expenditures accrued or payable $ 15,615 $ 40,385 (a) Cash and cash equivalents at the beginning of 2023 of $ 17,774 includes cash and cash equivalents of $ 7,390 and cash and cash equivalents included in assets held for sale of $ 10,384 . See the accompanying notes which are an integral part of these condensed consolidated financial statements. 8 WillScot Mobile Mini Holdings Corp. Notes to the Condensed Consolidated Financial Statements (Unaudited) NOTE 1 - Summary of Significant Accounting Policies Organization and Nature of Operations WillScot Mobile Mini Holdings Corp. (“WillScot Mobile Mini” and, together with its subsidiaries, the “Company”) is a leading business services provider specializing in innovative flexible work space and portable storage solutions in the United States (“US”), Canada, and Mexico. The Company leases, sells, delivers and installs modular space solutions and portable storage products through an integrated network of branch locations that spans North America. Basis of Presentation and Principles of Consolidation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by US Generally Accepted Accounting Principles ("GAAP") for complete financial statements. The accompanying unaudited condensed consolidated financial statements comprise the financial statements of WillScot Mobile Mini and its subsidiaries that it controls due to ownership of a majority voting interest and contain all adjustments, which are of a normal and recurring nature, considered necessary by management to present fairly the financial position, results of operations and cash flows for the interim periods presented. Subsidiaries are fully consolidated from the dat e of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Company. All intercompany balances and transactions are eliminated. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. Reclassifications Certain reclassifications have been made to prior year financial statements to conform to the current year presentation. Recently Issued and Adopted Accounting Standards In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"). ASU 2021-08 requires that an acquirer recognize and measure contract assets and liabilities acquired in a business combination in accordance with FASB Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606"). The Company adopted ASU 2021-08 on January 1, 2023 on a prospective basis. The adoption of this ASU did not have a material impact on the Company's financial statements or related disclosures. NOTE 2 - Acquisitions WillScot Mobile Mini is the holding company for the Williams Scotsman and Mobile Mini family of companies, which resulted from the combination of WillScot Corporation (“WillScot”) and Mobile Mini, Inc. (“Mobile Mini”) through a merger that occurred on July 1, 2020 (the "Merger"). Business Combinations During the three months ended September 30, 2023, the Company acquired a national provider of cold storage solutions and a regional modular space manufacturing and leasing business, which consisted primarily of approximately 2,200 climate-controlled containers and refrigerated storage trailers and 1,300 modular leasing units, respectively. 9 The aggregate purchase price paid for these acquisitions and the preliminary allocations of the aggregate purchase price were as follows: (in thousands) Purchase Price: Cash used in acquisitions, net of cash acquired of $ 2,177 $ 332,769 Allocated as follows: Trade receivables 7,226 Inventories 2,017 Rental equipment 171,055 Property, plant, and equipment 2,884 Operating lease assets 2,749 Other assets 11,550 Accounts payable ( 186 ) Deferred revenue ( 6,837 ) Operating lease liabilities ( 2,749 ) Other liabilities ( 1,638 ) Total identifiable net assets 186,071 Goodwill 146,698 Total net assets acquired $ 332,769 The purchase price allocations are preliminary and subject to revision as additional information is obtained. The preliminary allocation of purchase price, including the measurement of acquired net working capital and the valuation of acquired rental equipment and intangible assets, is based on the best estimates of management and is subject to revision based on the final valuations. Goodwill recognized is attributable to expected operating synergies, assembled workforces, and the going concern value of the acquired businesses. Goodwill recorded for these acquisitions is deductible for tax purposes. Asset Acquisitions During the nine months ended September 30, 2023, the Company also acquired certain assets and liabilities of five regional and local storage and modular companies, which consisted primarily of approximately 1,800 storage units and 700 modular units, for $ 149.4 million in cash, net of cash acquired. The accompanying consolidated financial statements include $ 147.9 million of rental equipment as a result of these acquisitions. Integration Costs The Company also recorded $ 0.8 million and $ 3.9 million in integration costs related to acquisitions and the Merger within selling, general and administrative expense ("SG&A") during the three months ended September 30, 2023 and 2022, respectively, and $ 6.9 million and $ 13.2 million in integration costs related to acquisitions and the Merger during the nine months ended September 30, 2023 and 2022, respectively. NOTE 3 - Discontinued Operations Tank and Pump Divestiture On September 30, 2022, the Company sold its former Tank and Pump segment for $ 321.9 million. Exiting the former Tank and Pump segment represented the Company’s strategic shift to concentrate its operations on its core modular and storage businesses. The criteria for discontinued operations presentation were met during the third quarter of 2022 and results for the former Tank and Pump segment are reported in income from discontinued operations within the consolidated statements of operations for periods presented prior to September 30, 2022. UK Storage Solutions Divestiture On December 12, 2022, the Company entered into a stock purchase agreement to sell its former UK Storage Solutions segment. The sale transaction was completed on January 31, 2023. Total cash consideration for the transaction was $ 418.1 million. Exiting the former UK Storage Solutions segment represented the Company’s strategic shift to concentrate its operations on its core modular and storage businesses in North America. The criteria for discontinued operations presentation were met during the fourth quarter of 2022 and results for the former UK Storage Solutions segment are reported in income from discontinued operations within the consolidated statements of operations for all periods presented. The carrying value of the former UK Storage Solutions segment's assets and liabilities are presented within assets and liabilities held for sale on the consolidated balance sheet as of December 31, 2022. 10 The following tables present the results of the former Tank and Pump segment and the former UK Storage Solutions segment as reported in income from discontinued operations within the consolidated statements of operations, and the carrying value of the former UK Storage Solutions segment's assets and liabilities as presented within assets and liabilities held for sale on the consolidated balance sheet. Nine Months Ended September 30, 2023 (in thousands) UK Storage Solutions Revenues: Leasing and services revenue: Leasing $ 6,389 Delivery and installation 1,802 Sales revenue: New units 54 Rental units 449 Total revenues 8,694 Costs: Costs of leasing and services: Leasing 1,407 Delivery and installation 1,213 Costs of sales: New units 38 Rental units 492 Gross profit 5,544 Expenses: Selling, general and administrative 1,486 Other income, net ( 1 ) Operating income 4,059 Interest expense 56 Income from discontinued operations before income tax 4,003 Gain on sale of discontinued operations 175,708 Income tax expense from discontinued operations 45,468 Income from discontinued operations $ 134,243 Other selected data: Adjusted EBITDA from discontinued operations $ 4,124 In January 2023, a $ 0.4 million adjustment was made to the gain on sale of the former Tank and Pump segment due to the final contractual working capital adjustment. Including this adjustment, the total gain on sale of discontinued operations was $ 176.1 million for the nine months ended September 30, 2023 . 11 Three Months Ended September 30, 2022 (in thousands) Tank and Pump UK Storage Solutions Total Revenues: Leasing and services revenue: Leasing $ 22,432 $ 19,693 $ 42,125 Delivery and installation 10,121 5,822 15,943 Sales revenue: New units 842 293 1,135 Rental units 593 357 950 Total revenues 33,988 26,165 60,153 Costs: Costs of leasing and services: Leasing 4,913 4,179 9,092 Delivery and installation 8,634 3,935 12,569 Costs of sales: New units 633 209 842 Rental units 238 251 489 Depreciation of rental equipment 1,822 1,144 2,966 Gross profit 17,748 16,447 34,195 Expenses: Selling, general and administrative 5,544 5,328 10,872 Other depreciation and amortization 1,274 1,410 2,684 Currency losses, net — 76 76 Other expense, net ( 16 ) ( 5 ) ( 21 ) Operating income 10,946 9,638 20,584 Interest expense 144 155 299 Income from discontinued operations before income tax 10,802 9,483 20,285 Income tax expense from discontinued operations 1,986 1,931 3,917 Gain on sale of discontinued operations 34,049 — 34,049 Income from discontinued operations $ 42,865 $ 7,552 $ 50,417 Other selected data: Adjusted EBITDA from discontinued operations $ 13,048 $ 11,971 $ 25,019 12 Nine Months Ended September 30, 2022 (in thousands) Tank and Pump UK Storage Solutions Total Revenues: Leasing and services revenue: Leasing $ 65,572 $ 60,420 $ 125,992 Delivery and installation 27,665 17,631 45,296 Sales revenue: — New units 2,202 910 3,112 Rental units 917 1,310 2,227 Total revenues 96,356 80,271 176,627 Costs: Costs of leasing and services: Leasing 13,828 12,609 26,437 Delivery and installation 23,285 11,269 34,554 Costs of sales: New units 1,636 594 2,230 Rental units 310 908 1,218 Depreciation of rental equipment 8,145 3,436 11,581 Gross profit 49,152 51,455 100,607 Expenses: Selling, general and administrative 18,045 17,097 35,142 Other depreciation and amortization 6,103 4,925 11,028 Currency losses, net — 123 123 Other expense (income), net 4 ( 45 ) ( 41 ) Operating income 25,000 29,355 54,355 Interest expense 512 631 1,143 Income from discontinued operations before income tax 24,488 28,724 53,212 Income tax expense from discontinued operations 5,496 5,948 11,444 Gain on sale of discontinued operations 34,049 — 34,049 Income from discontinued operations $ 53,041 $ 22,776 $ 75,817 Other selected data: Adjusted EBITDA from discontinued operations $ 37,016 $ 36,745 $ 73,761 13 December 31, 2022 (in thousands) UK Storage Solutions Assets Cash and cash equivalents $ 10,384 Trade receivables, net of allowances for doubtful accounts of $ 300 15,991 Inventories 3,058 Prepaid expenses and other current assets 1,787 Rental equipment, net 165,853 Property, plant and equipment, net 20,645 Operating lease assets 15,134 Goodwill 58,144 Intangible assets, net 6,414 Other non-current assets 1,832 Total assets held for sale $ 299,242 Liabilities Accounts payable $ 4,515 Accrued expenses 3,273 Accrued employee benefits 1,009 Deferred revenue and customer deposits 6,850 Deferred tax liabilities 29,737 Operating lease liabilities 15,192 Other non-current liabilities 6,278 Total liabilities held for sale $ 66,854 For the nine months ended September 30, 2022 , significant operating and investing items related to the former Tank and Pump segment were as follows: (in thousands) Nine Months Ended September 30, 2022 Operating activities of discontinued operations: Depreciation and amortization $ 14,248 Investing activities of discontinued operations: Proceeds from sale of rental equipment $ 918 Purchases of rental equipment and refurbishments $ ( 21,831 ) Purchases of property, plant and equipment $ ( 525 ) The following table presents a reconciliation of Income from discontinued operations before income tax to Adjusted EBITDA from discontinued operations for the former Tank and Pump segment for the three and nine months ended September 30, 2022. See Note 16 for further information regarding Adjusted EBITDA. (in thousands) Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022 Income from discontinued operations $ 42,865 $ 53,041 Gain on sale of discontinued operations 34,049 34,049 Income tax expense from discontinued operations 1,986 5,496 Income from discontinued operations before income tax and gain on sale 10,802 24,488 Interest expense 144 512 Depreciation and amortization 3,096 14,248 Stock compensation expense ( 221 ) 18 Other ( 773 ) ( 2,250 ) Adjusted EBITDA from discontinued operations $ 13,048 $ 37,016 14 For the nine months ended September 30, 2023 and 2022 , significant operating and investing items related to the former UK Storage Solutions segment were as follows: Nine Months Ended September 30, (in thousands) 2023 2022 Operating activities of discontinued operations: Depreciation and amortization $ — $ 8,361 Investing activities of discontinued operations: Proceeds from sale of rental equipment $ 514 $ 1,310 Purchases of rental equipment and refurbishments $ ( 371 ) $ ( 21,824 ) Proceeds from sale of property, plant and equipment $ 8 $ 502 Purchases of property, plant and equipment $ ( 64 ) $ ( 2,843 ) The following table presents reconciliations of Income from discontinued operations before income tax to Adjusted EBITDA from discontinued operations for the former UK Storage Solutions segment for the three and nine months ended September 30, 2023 and 2022, respectively. See Note 16 for further information regarding Adjusted EBITDA. Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Income from discontinued operations $ — $ 7,552 $ 134,243 $ 22,776 Gain on sale of discontinued operations — — 175,708 — Income tax expense from discontinued operations — 1,931 45,468 5,948 Income from discontinued operations before income tax and gain on sale — 9,483 4,003 28,724 Interest expense — 155 56 631 Depreciation and amortization — 2,554 — 8,361 Currency losses, net — 76 — 123 Stock compensation expense — 70 ( 196 ) 117 Other — ( 367 ) 261 ( 1,211 ) Adjusted EBITDA from discontinued operations $ — $ 11,971 $ 4,124 $ 36,745 NOTE 4 - Revenue Revenue Disaggregation Geographic Areas The Company had total revenue in the following geographic areas for the three and nine months ended September 30, 2023 and 2022 as follows: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 US $ 567,221 $ 538,740 $ 1,645,727 $ 1,445,710 Canada 30,921 34,815 88,702 92,989 Mexico 6,692 4,453 17,962 13,370 Total revenues $ 604,834 $ 578,008 $ 1,752,391 $ 1,552,069 Major Product and Service Lines Equipment leasing is the Company's core business and the primary driver of the Company's revenue and cash flows. This includes modular space and portable storage units along with value-added products and services ("VAPS"), which include furniture, steps, ramps, basic appliances, internet connectivity devices, integral tool racking, heavy duty capacity shelving, workstations, electrical and lighting products and other items used by customers in connection with the Company's products. The Company also offers its lease customers a damage waiver program that protects them in case the leased unit is damaged. Leasing is complemented by new unit sales and sales of rental units. In connection with its leasing and sales activities, the Company provides services including delivery and installation, maintenance and ad hoc services and removal services at the end of lease transactions. 15 The Company’s revenue by major product and service line for the three and nine months ended September 30, 2023 and 2022 was as follows: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Modular space leasing revenue $ 243,947 $ 218,328 $ 705,041 $ 613,386 Portable storage leasing revenue 98,155 96,555 288,932 248,444 VAPS and third party leasing revenues (a) 99,872 91,724 291,697 248,883 Other leasing-related revenue (b) 24,795 21,235 70,370 55,074 Leasing revenue 466,769 427,842 1,356,040 1,165,787 Delivery and installation revenue 115,598 127,016 334,982 323,396 Total leasing and services revenue 582,367 554,858 1,691,022 1,489,183 New unit sales revenue 10,155 9,608 29,816 25,322 Rental unit sales revenue 12,312 13,542 31,553 37,564 Total revenues $ 604,834 $ 578,008 $ 1,752,391 $ 1,552,069 (a) Includes $ 6.4 million and $ 7.3 million of service revenue for the three months ended September 30, 2023 and 2022, respectively, and $ 18.1 million and $ 18.8 million of service revenue for the nine months ended September 30, 2023 and 2022, respectively. (b) Includes primarily damage billings, delinquent payment charges, and other processing fees. Leasing and Services Revenue The majority of revenue ( 76 % for both the three and nine months ended September 30, 2023, and 73 % and 74 % for the three and nine months ended September 30, 2022, respectively) was generated by rental income subject to the guidance of ASU 2018-11, Leases (Topic 842 ) ("ASC 842"). The remaining revenue was generated by performance obligations in contracts with customers for services or sale of units subject to the guidance in ASC 606. Receivables and Credit Losses The Company is exposed to credit losses from trade receivables and manages credit risk at the customer level. Because the same customers generate the revenues that are accounted for under both ASC 606 and ASC 842, the discussions below on credit risk and the Company's allowance for credit losses address the Company's total revenues. Concentration of credit risk with respect to the Company's receivables is limited because of a large number of geographically diverse customers who operate in a variety of end user markets. The Company assesses each customer’s ability to pay for the products it leases or sells by conducting a credit review that considers expected billing exposure, timing for payment and the customer’s established credit rating. The Company performs its credit review of new customers at inception of the customer relationship and for existing customers when the customer transacts after a defined period of dormancy. The Company also considers contract terms and conditions, country risk and business strategy in the evaluation. The Company monitors ongoing credit exposure through an active review of customer balances against contract terms and due dates and may employ collection agencies and legal counsel to pursue recovery of defaulted receivables. The allowance for credit losses reflects the estimate of the amount of receivables that the Company will be unable to collect based on historical collection experience and, as applicable, current conditions and reasonable and supportable forecasts that affect collectability. The Company's estimate reflects changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, the Company may be required to increase or decrease its allowance. Activity in the allowance for credit losses was as follows: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Balance at beginning of period $ 68,096 $ 51,284 $ 57,048 $ 45,773 Provision for credit losses, net of recoveries 15,871 9,036 38,079 27,455 Write-offs ( 5,252 ) ( 4,474 ) ( 16,758 ) ( 17,384 ) Foreign currency translation and other 23 ( 67 ) 369 ( 65 ) Balance at end of period $ 78,738 $ 55,779 $ 78,738 $ 55,779 16 Contract Assets and Liabilities When customers are billed in advance for services, the Company defers recognition of revenue until the related services are performed, which generally occurs at the end of the contract. The balance sheet classification of deferred revenue is determined based on the contractual lease term. For contracts that continue beyond their initial contractual lease term, revenue continues to be deferred until the services are performed. As of September 30, 2023 and December 31, 2022, the Company had approximately $ 122.1 million and $ 102.2 million , respectively, of deferred revenue related to services billed in advance. During the three and nine months ended September 30, 2023, $ 15.4 million and $ 60.5 million , respectively, of deferred revenue billed in advance as of December 31, 2022 was recognized as revenue. The Company does not have material contract assets, and the Company's uncompleted contracts with customers have unsatisfied (or partially satisfied) performance obligations. For the future services revenues that are expected to be recognized within twelve months, the Compa ny has elected to utilize the optional disclosure exemption made available regarding transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations. The transaction price for performance obligations that will be completed in greater than twelve months is variable based on the market rate in place at the time those services are provided, and therefore, the Company is applying the optional expedient to omit disclosure of such amounts. The primary costs to obtain contracts fo r new and rental unit sales with the Company's customers are commissions. The Company pays its sales force commissions on the sale of new and rental units. For new and rental unit sales, the period benefited by each commission is less than one year; therefore, the commissions are expensed as incurred. NOTE 5 - Leases As of September 30, 2023, the undiscounted future lease payments for operating and finance lease liabilities were as follows: (in thousands) Operating Finance 2023 (remaining) $ 17,198 $ 4,904 2024 66,027 20,431 2025 56,511 20,104 2026 44,279 19,790 2027 33,766 16,544 Thereafter 77,910 33,692 Total lease payments 295,691 115,465 Less: interest ( 45,739 ) ( 14,529 ) Present value of lease liabilities $ 249,952 $ 100,936 Finance lease liabilities are included within long-term debt and current portion of long-term debt on the condensed consolidated balance sheets. 17 The Company’s lease activity during the nine months ended September 30, 2023 and 2022 was as follows: (in thousands) Nine Months Ended September 30, Financial Statement Line 2023 2022 Finance Lease Expense Amortization of finance lease assets $ 11,976 $ 10,326 Interest on obligations under finance leases 2,571 1,344 Total finance lease expense $ 14,547 $ 11,670 Operating Lease Expense Fixed lease expense Cost of leasing and services $ 1,013 $ 2,242 Selling, general and administrative 49,327 44,621 Short-term lease expense Cost of leasing and services 18,631 24,122 Selling, general and administrative 1,375 1,416 Variable lease expense Cost of leasing and services 1,865 3,989 Selling, general and administrative 7,028 5,123 Total operating lease expense $ 79,239 $ 81,513 Supplemental cash flow information related to leases for the nine months ended September 30, 2023 and 2022 was as follows: (in thousands) Nine Months Ended September 30, Supplemental Cash Flow Information 2023 2022 Cash paid for the amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 50,495 $ 46,731 Operating cash outflows from finance leases $ 2,515 $ 1,343 Financing cash outflows from finance leases $ 12,425 $ 12,096 Right of use assets obtained in exchange for lease obligations $ 78,969 $ 37,309 Assets obtained in exchange for finance leases $ 38,534 $ 20,196 Weighted average remaining operating lease terms and the weighted average discount rates as of September 30, 2023 and December 31, 2022 were as follows: Lease Terms and Discount Rates September 30, 2023 December 31, 2022 Weighted average remaining lease term - operating leases 5.8 years 5.8 years Weighted average discount rate - operating leases 5.7 % 5.4 % Weighted average remaining lease term - finance leases 5.1 years 5.1 years Weighted average discount rate - finance leases 4.5 % 3.4 % The Company presents information related to leasing revenues in Note 4. NOTE 6 - Inventories Inventories at the respective balance sheet dates consisted of the following: (in thousands) September 30, 2023 December 31, 2022 Raw materials $ 42,116 $ 38,611 Finished units 2,613 2,419 Inventories $ 44,729 $ 41,030 18 NOTE 7 - Rental Equipment, net Rental equipment, net at the respective balance sheet dates consisted of the following: (in thousands) September 30, 2023 December 31, 2022 Modular space units $ 3,507,399 $ 3,197,779 Portable storage units 948,829 849,193 Value added products 200,424 203,444 Total rental equipment 4,656,652 4,250,416 Less: accumulated depreciation ( 1,309,635 ) ( 1,173,129 ) Rental equipment, net $ 3,347,017 $ 3,077,287 NOTE 8 - Goodwill and Intangibles Goodwill Changes in the carrying amount of goodwill were as follows: (in thousands) Modular Storage Total Balance at December 31, 2021 $ 521,049 $ 492,552 $ 1,013,601 Effects of movements in foreign exchange rates ( 2,172 ) — ( 2,172 ) Balance at December 31, 2022 518,877 492,552 1,011,429 Additions from acquisitions 4,482 142,216 146,698 Effects of movements in foreign exchange rates ( 51 ) — ( 51 ) Balance at September 30, 2023 $ 523,308 $ 634,768 $ 1,158,076 As discussed in further detail in Note 2, purchase price allocations for the acquisitions completed during the three months ended September 30, 2023 are preliminary and subject to revision. The Company will finalize the valuation of the acquired net assets, including the final assignment of goodwill, within the one-year measurement period. The Company had no goodwill impairment during the nine months ended September 30, 2023 or the year ended December 31, 2022. Intangible Assets Intangible assets other than goodwill at the respective balance sheet dates consisted of the following: September 30, 2023 (in thousands) Weighted average remaining life (in years) Gross carrying amount Accumulated amortization Net book value Intangible assets subject to amortization: Mobile Mini customer relationships 4.8 $ 188,000 $ ( 76,374 ) $ 111,626 Technology 2.8 1,500 ( 813 ) 687 Indefinite-lived intangible assets: Trade name - Mobile Mini 164,000 — 164,000 Trade name - WillScot 125,000 — 125,000 Total intangible assets other than goodwill $ 478,500 $ ( 77,187 ) $ 401,313 19 December 31, 2022 (in thousands) Weighted average remaining life (in years) Gross carrying amount Accumulated amortization Net book value Intangible assets subject to amortization: Mobile Mini customer relationships 5.5 $ 188,000 $ ( 58,750 ) $ 129,250 Technology 3.5 1,500 ( 625 ) 875 Indefinite-lived intangible assets: Trade name - Mobile Mini 164,000 — 164,000 Trade name - WillScot 125,000 — 125,000 Total intangible assets other than goodwill $ 478,500 $ ( 59,375 ) $ 419,125 Amortization expense related to intangible assets was $ 5.9 million and $ 5.6 million for the three months ended September 30, 2023 and 2022, respectively, and $ 17.8 million and $ 17.4 million for the nine months ended September 30, 2023 and 2022, respectively. Based on the carrying value at September 30, 2023, future amortization of intangible assets is expected to be as follows for the years ended December 31: (in thousands) 2023 (remaining) $ 5,938 2024 23,750 2025 23,750 2026 23,625 2027 23,500 Thereafter 11,750 Total $ 112,313 NOTE 9 - Debt The carrying value of debt outstanding at the respective balance sheet dates consisted of the following: (in thousands, except rates) Interest rate Year of maturity September 30, 2023 December 31, 2022 2025 Secured Notes 6.125 % 2025 $ 522,124 $ 520,350 ABL Facility Varies 2027 1,865,116 1,988,176 2028 Secured Notes 4.625 % 2028 494,238 493,470 2031 Secured Notes 7.375 % 2031 493,633 — Finance Leases Varies Varies 100,936 74,370 Total debt 3,476,047 3,076,366 Less: current portion of long-term debt 15,981 13,324 Total long-term debt $ 3,460,066 $ 3,063,042 Asset Backed Lending Facility On July 1, 2020, certain subsidiaries of the Company entered into an asset-based credit agreement (the "ABL Facility") that initially provided for revolving credit facilities in the aggregate principal amount of up to $ 2.4 billion, consisting of: (i) a senior secured asset-based US dollar revolving credit facility in the aggregate principal amount of $ 2.0 billion and (ii) a $ 400.0 million senior secured asset-based multicurrency revolving credit facility available to be drawn in US Dollars, Canadian Dollars, British Pounds Sterling or Euros. The ABL Facility was initially scheduled to mature on July 1, 2025. On June 30, 2022, certain subsidiaries of the Company entered into an amendment to the ABL Facility to, among other things, extend the expiration date until June 30, 2027 and increase the aggregate principal amount of the revolving credit facilities 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”), (ii) a $ 400.0 million senior secured asset-based multicurrency revolving credit facility (the "Multicurrency Facility"), available to be drawn in US Dollars, Canadian Dollars, British Pounds Sterling or Euros, and (iii) an accordion feature that permits the Company to increase the lenders' commitments in an aggregate amount not to exceed the greater of $ 750.0 million and the amount of suppressed availability as defined in the ABL Facility, subject to 20 the satisfaction of customary conditions including lender approval, plus any voluntary prepayments that are accompanied by permanent commitment reductions under the ABL facility. 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 is 1.50 %. The facility includes a credit spread adjustment of 0.10 % in addition to the applicable margin. The applicable margin for base rate and Canadian Prime Rate loans is 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. The ABL Facility requires the payment of a commitment fee on the unused available borrowings of 0.20 % annually. The weighted average interest rate on the balance outstanding as of September 30, 2023, as adjusted for the effects of the interest rate swap agreements, was 6.20 %. Refer to Note 12 for a more detailed discussion on interest rate management. Borrowing availability under the US Facility and the Multicurrency Facility is equal to the lesser of (i) the aggregate revolver commitments and (ii) the borrowing base ("Line Cap"). At September 30, 2023, the Line Cap was $ 3.2 billion and the Company had $ 1.3 billion of available borrowing capacity under the ABL Facility, including $ 1.1 billion under the US Facility and $ 183.7 million under the Multicurrency Facility. Borrowing capacity under the ABL Facility is made available for up to $ 220.0 million letters of credit and $ 220.0 million of swingline loans. At September 30, 2023, the available capacity was $ 197.2 million of letters of credit and $ 217.0 million of swingline loans. At September 30, 2023, letters of credit and bank guarantees carried fees of 1.625 %. The Company had issued $ 22.8 million of standby letters of credit under the ABL Facility at September 30, 2023. The Company had approximately $ 1.9 billion outstanding principal under the ABL Facility at September 30, 2023. Debt issuance costs of $ 28.6 million and $ 31.8 million were included in the carrying value of the ABL Facility at September 30, 2023 and December 31, 2022, respectively. As of December 31, 2022, the Company had no outstanding principal borrowings on the Multicurrency Facility and $ 2.5 million of related debt issuance costs were recorded in other non-current assets on the condensed consolidated balance sheets. The ABL Facility and related guarantees are secured by a first priority security interest in substantially all of the assets of a subsidiary, Williams Scotsman, Inc. (“WSI”), and the Company’s other subsidiaries that are borrowers or guarantors under the ABL Facility (collectively the “ABL Loan Parties”), subject to customary exclusions. 2031 Senior Secured Notes On September 25, 2023, WSI completed a private offering of $ 500.0 million in aggregate principal amount of 7.375 % senior secured notes due 2031 (the "2031 Secur ed Notes") to qualified institutional buyers pursuant to Rule 144A . P roceeds were used to repay approximately $ 494.0 million of outstanding indebtedness under the ABL Facility and certain fees and expenses. T he 2031 Secured N otes mature on October 1, 2031 and bear interest at a rate of 7.375 % per annum. Interest is payable semi-annually on April 1 and October 1 of each year, beginning April 1, 2024. Unamortized deferred financing costs pertaining to the 2031 Secured Notes were $ 6.4 million as of September 30, 2023. The 2031 Secured Notes are unconditionally guaranteed by certain subsidiaries of the Company (collectively, "the Note Guarantors"). WillScot Mobile Mini is not a guarantor of the 2031 Secured Notes. The Note Guarantors are guarantors or borrowers under the ABL Facility. To the extent lenders under the ABL Facility release the guarantee of any Note Guarantor, such Note Guarantor will also be released from obligations under the 2031 Secured Notes. The 2031 Secured Notes and related guarantees are secured by a second priority security interest in substantially the same assets of WSI and the Note Guarantors securing the ABL Facility. Upon the repayment of the 2025 Secured Notes and the 2028 Secured Notes, if the lien associated with the ABL Facility represents the only lien outstanding on the collateral under the 2031 Secured Notes (other than certain permitted), the collateral securing the 2031 Secured Notes will be released and the 2031 Secured Notes will become unsecured subject to satisfaction of customary conditions. Finance Leases The Company maintains finance leases primarily related to transportation equipment. At September 30, 2023 and December 31, 2022, obligations under finance leases for transportation related equipment were $ 100.9 million and $ 74.4 million, respectively. Refer to Note 5 for further information. The Company was in compliance with all debt covenants and restrictions associated with its debt instruments as of September 30, 2023. NOTE 10 – Equity Common Stock In connection with the stock compensation vesting events and stock option exercises described in Note 14, the Company issued 546,865 shares of Common Stock during the nine months ended September 30, 2023 . Stock Repurchase Program In May 2023, the Board of Directors approved a reset of the share repurchase program authorizing the Company to repurchase up to $ 1.0 billion of its outstanding shares of Common Stock and equivalents. The stock repurchase program does 21 not obligate the Company to purchase any particular number of shares, and the timing and exact amount of any repurchases will depend on various factors, including market pricing, business, legal, accounting, and other considerations. In August 2022, the Inflation Reduction Act of 2022 was enacted into law and imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. The Company reflected the applicable excise tax in equity as part of the cost basis of the stock repurchased and recorded a corresponding liability for the excise taxes payable in accrued expenses on the consolidated balance sheet. During the nine months ended September 30, 2023 , the Company repurchased 15,037,843 shares of Common Stock for $ 674.8 million, excluding excise tax. As of September 30, 2023, $ 634.2 million of the approved share repurchase pool remained available. Accumulated Other Comprehensive Loss The changes in accumulated other comprehensive income (loss) ("AOCI"), net of tax, for the nine months ended September 30, 2023 and 2022 were as follows: Nine Months Ended September 30, 2023 (in thousands) Foreign currency translation Unrealized gains on hedging activities Total Balance at December 31, 2022 $ ( 70,122 ) $ — $ ( 70,122 ) Other comprehensive income before reclassifications 7,934 859 8,793 Reclassifications from AOCI to income — ( 1,526 ) ( 1,526 ) Balance at March 31, 2023 ( 62,188 ) ( 667 ) ( 62,855 ) Other comprehensive income before reclassifications 5,915 15,761 21,676 Reclassifications from AOCI to income — ( 2,930 ) ( 2,930 ) Balance at June 30, 2023 ( 56,273 ) 12,164 ( 44,109 ) Other comprehensive (loss) income before reclassifications ( 6,732 ) 10,240 3,508 Reclassifications from AOCI to income — ( 3,472 ) ( 3,472 ) Balance at September 30, 2023 $ ( 63,005 ) $ 18,932 $ ( 44,073 ) Nine Months Ended September 30, 2022 (in thousands) Foreign currency translation Unrealized losses on hedging activities Total Balance at December 31, 2021 $ ( 25,574 ) $ ( 3,497 ) $ ( 29,071 ) Other comprehensive loss before reclassifications ( 4,074 ) ( 569 ) ( 4,643 ) Reclassifications from AOCI to income — 2,890 2,890 Balance at March 31, 2022 ( 29,648 ) ( 1,176 ) ( 30,824 ) Other comprehensive loss before reclassifications ( 25,628 ) ( 464 ) ( 26,092 ) Reclassifications from AOCI to income — 1,640 1,640 Balance at June 30, 2022 ( 55,276 ) — ( 55,276 ) Other comprehensive loss ( 37,733 ) — ( 37,733 ) Balance at September 30, 2022 $ ( 93,009 ) $ — $ ( 93,009 ) For the three months ended September 30, 2023 , a gain of $ 3.5 million was reclassified from AOCI into the condensed consolidated statements of operations within interest expense related to the interest rate swaps. For the nine months ended September 30, 2023 and 2022 , a gain of $ 7.9 million an d a loss of $ 4.5 million , respectively, were reclassified from AOCI into the condensed consolidated statements of operations within interest expense related to the interest rate swaps. The interest rate swaps are discussed in Note 12. Associated with these reclassifications, t he Company recorded tax expense of $ 0.9 million for the three months ended September 30, 2023 and tax expense of $ 2.1 million and a tax benefit of $ 1.1 million for the nine months ended September 30, 2023 and 2022, respectively. 22 NOTE 11 – Income Taxes The Company recorded $ 32.8 million and $ 94.9 million of income tax expense from continuing operations for the three and nine months ended September 30, 2023, respectively, and $ 28.3 million and $ 61.2 million of income tax expense from continuing operations for the three and nine months ended September 30, 2022, respectively. The Company’s effective tax rate for the three and nine months ended September 30, 2023 was 26.4 % and 27.1 %, respectively. The Company's effective tax rate for the three and nine months ended September 30, 2022 was 26.6 % and 25.7 %, respectively. The effective tax rate for the three and nine months ended September 30, 2023 differed from the US federal statutory rate of 21% primarily due to state and provincial taxes and non-deductible executive compensation. The effective tax rate for the three and nine months ended September 30, 2022 differed from the US federal statutory rate of 21% primarily due to state and provincial taxes partially offset by a discrete tax benefit related to employee stock vesting. NOTE 12 - Derivatives In 2018, the Company entered into an interest rate swap agreement with a financial counterparty that effectively converted $ 400.0 million in aggregate notional amount of variable-rate debt under the Company’s former asset backed lending facility into fixed-rate debt. Under the terms of the agreement, the Company received a floating rate equal to one-month LIBOR and made payments based on a fixed rate of 3.06 % on the notional amount. The swap agreement was designated and qualified as a hedge of the Company’s exposure to changes in interest payment cash flows created by fluctuations in variable interest rates on the former asset backed lending facility and terminated on May 29, 2022. In January 2023, the Company entered into two interest rate swap agreements with financial counterparties relating to $ 750.0 million in aggregate notional amount of variable-rate debt under the Company’s ABL Facility. Under the terms of the agreements, the Company receives a floating rate equal to one-month term SOFR and makes payments based on a weighted average fixed interest rate of 3.44 % on the notional amount. The swap agreements were designated and qualified as hedges of the Company’s exposure to changes in interest payment cash flows created by fluctuations in variable interest rates on the ABL Facility. The swap agreements terminate on June 30, 2027. The floating rate that the Company receives under the terms of these swap agreements was 5.32 % at September 30, 2023. The location and the fair value of derivative instruments designated as hedges were as follows: (in thousands) Balance Sheet Location September 30, 2023 Cash Flow Hedges: Interest rate swap Prepaid expenses and other current assets $ 13,770 Interest rate swap Other non-current assets $ 11,613 The fair value of the interest rate swaps are based on dealer quotes of market forward rates, Level 2 inputs on the fair value hierarchy, and reflect the amounts that the Company would receive or pay as of September 30, 2023 for contracts involving the same attributes and maturity dates. The following table discloses the impact of the interest rate swaps, excluding the impact of income taxes, on other comprehensive income (“OCI”), AOCI and the Company’s statements of operations for the nine months ended September 30, 2023 and 2022 : (in thousands) 2023 2022 Gain recognized in OCI $ 33,153 $ 4,669 Location of gain (loss) recognized in income Interest expense, net Interest expense, net (Gain) loss reclassified from AOCI into income $ ( 7,928 ) $ 4,530 Foreign Currency Contract In December 2022, the Company executed a contingent forward contract to sell £ 330.0 million upon the closing of the sale of the former UK Storage Solutions segment at a price ranging from 1.20550 to 1.20440 US Dollars (USD) to British Pounds Sterling. The price was dependent upon the date of the closing of the sale. This contract, which was to expire on September 11, 2023, mitigated the foreign currency risk of the USD relative to the British Pound Sterling prior to the closing of the sale of the former UK Storage Solutions segment. This contract did not qualify for hedge accounting and was revalued at fair value at December 31, 2022 with unrealized gains and losses reflected in the Company's results of operations. Upon the closing of the sale of the former UK Storage Solutions segment on January 31, 2023, the Company settled the contingent foreign currency forward contract and received cash at an exchange rate of 1.205 USD to British Pounds Sterling. 23 The location and the fair value of the foreign currency contract was as follows: (in thousands) Balance Sheet Location December 31, 2022 Foreign currency contract Accrued liabilities $ 930 The fair value of the foreign currency contract was based on dealer quotes of market forward rates, a Level 2 input on the fair value hierarchy, and reflected the amount that the Company would receive or pay for contracts involving the same attributes and maturity dates. The location and the impact of the foreign currency contract, excluding the impact of income taxes, on the Company’s statement of operations for the nine months ended September 30, 2023 was as follows : (in thousands) Income Statement Location Nine Months Ended September 30, 2023 Loss recognized in income Currency losses, net $ 7,715 NOTE 13 - Fair Value Measures The fair value of financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Company utilizes the suggested accounting guidance for the three levels of inputs that may be used to measure fair value: Level 1 - Observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2 - Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and Level 3 - Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions The Company has assessed that the fair value of cash and cash equivalents, trade receivables, trade payables, and other current liabilities approximate their carrying amounts. Based on the borrowing rates currently available for bank loans with similar terms and average maturities, the fair value of finance leases at September 30, 2023 approximate their respective book values. The following table shows the carrying amounts and fair values of financial liabilities which are disclosed, but not measured, at fair value, including their levels in the fair value hierarchy: September 30, 2023 December 31, 2022 Carrying Amount Fair Value Carrying Amount Fair Value (in thousands) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 ABL Facility $ 1,865,116 $ — $ 1,893,728 $ — $ 1,988,176 $ — $ 2,020,000 $ — 2025 Secured Notes 522,124 — 521,725 — 520,350 — 526,800 — 2028 Secured Notes 494,238 — 448,625 — 493,470 — 450,135 — 2031 Secured Notes 493,633 — 497,800 — — — — — Total $ 3,375,111 $ — $ 3,361,878 $ — $ 3,001,996 $ — $ 2,996,935 $ — As of September 30, 2023, the carrying values of the ABL Facility, the 2025 Secured Notes, the 2028 Secured Notes, and the 2031 Secured Notes included $ 28.6 million, $ 4.4 million, $ 5.8 million , and $ 6.4 million , respectively, of unamortized debt issuance costs, which were presented as a direct reduction of the corresponding liability. As of December 31, 2022, the carrying value of the ABL Facility, the 2025 Secured Notes, and the 2028 Secured Notes included $ 31.8 million, $ 6.2 million, and $ 6.5 million, respectively, of unamortized debt issuance costs, which were presented as a direct reduction of the corresponding liability. The carrying value of the ABL Facility, excluding debt issuance costs, approximates fair value as the interest rates are variable and reflective of current market rates. The fair value of the 2025 Secured Notes, the 2028 Secured Notes, and the 2031 Secured Notes is based on their last trading price at the end of each period obtained from a third party. The classification and the fair value of derivative assets and liabilities are disclosed in Note 12. 24 NOTE 14 - Stock-Based Compensation Stock-based compensation expense includes grants of stock options, time-based restricted stock units ("Time-Based RSUs") and performance-based restricted stock units ("Performance-Based RSUs," together with Time-Based RSUs, the "RSUs"). In addition, stock-based payments to non-executive directors includes grants of restricted stock awards ("RSAs"). Time-Based RSUs and RSAs are valued based on the intrinsic value of the difference between the exercise price, if any, of the award and the fair market value of WillScot Mobile Mini's Common Stock on the grant date. Performance-Based RSUs are valued based on a Monte Carlo simulation model to reflect the impact of the Performance-Based RSU's market condition. The probability of satisfying a market condition is considered in the estimation of the grant-date fair value for Performance-Based RSUs and the compensation cost is not reversed if the market condition is not achieved, provided the requisite service has been provided. Restricted Stock Awards The following table summarizes the Company's RSA activity for the nine months ended September 30, 2023 and 2022 : 2023 2022 Number of Shares Weighted-Average Grant Date Fair Value Number of Shares Weighted-Average Grant Date Fair Value Outstanding at beginning of period 35,244 $ 37.17 36,176 $ 29.30 Granted 28,946 $ 44.44 35,244 $ 37.17 Vested ( 35,244 ) $ 37.17 ( 36,176 ) $ 29.30 Outstanding at end of period 28,946 $ 44.44 35,244 $ 37.17 Compensation expense for RSAs recognized in SG&A on the condensed consolidated statements of operations was $ 0.3 million for both the three months ended September 30, 2023 and 2022. Compensation expense for RSAs recognized in SG&A on the condensed consolidated statements of operations was $ 1.0 million and $ 0.9 million for the nine months ended September 30, 2023 and 2022, respectively. At September 30, 2023, there was $ 0.9 million of unrecognized compensation cost related to RSAs that is expected to be recognized over the remaining weighted average vesting period of 0.7 years. Time-Based RSUs The following table summarizes the Company's Time-Based RSU activity for the nine months ended September 30, 2023 and 2022 : 2023 2022 Number of Shares Weighted-Average Grant Date Fair Value Number of Shares Weighted-Average Grant Date Fair Value Outstanding at beginning of period 789,779 $ 26.16 997,451 $ 18.54 Granted 213,388 $ 50.74 377,804 $ 35.40 Forfeited ( 52,435 ) $ 36.29 ( 94,841 ) $ 31.08 Vested ( 322,482 ) $ 21.38 ( 478,906 ) $ 16.42 Outstanding at end of period 628,250 $ 36.12 801,508 $ 26.27 Compensation expense for Time-Based RSUs recognized in SG&A on the condensed consolidated statements of operations was $ 2.2 million and $ 1.7 million for the three months ended September 30, 2023 and 2022, respectively. Compensation expense for RSUs recognized in SG&A on the condensed consolidated statements of operations was $ 6.1 million and $ 6.4 million for the nine months ended September 30, 2023 and 2022, respectively. At September 30, 2023, unrecognized compensation cost related to Time-Based RSUs totaled $ 16.4 million and is expected to be recognized over the remaining weighted average vesting period of 2.3 years. 25 Performance-Based RSUs The following table summarizes the Company's Performance-Based RSU award activity for the nine months ended September 30, 2023 and 2022 : 2023 2022 Number of Shares Weighted-Average Grant Date Fair Value Number of Shares Weighted-Average Grant Date Fair Value Outstanding at beginning of period 1,894,250 $ 33.67 1,536,394 $ 26.34 Granted 376,826 $ 69.52 745,079 $ 42.34 Forfeited ( 27,500 ) $ 48.38 ( 61,678 ) $ 41.62 Vested ( 293,934 ) $ 16.34 ( 313,152 ) $ 16.45 Outstanding at end of period 1,949,642 $ 42.96 1,906,643 $ 33.72 Compensation expense for Performance-Based RSUs recognized in SG&A on the condensed consolidated statements of operations was $ 6.2 million and $ 4.9 million for the three months ended September 30, 2023 and 2022, respectively. Compensation expense for Performance-Based RSUs recognized in SG&A on the condensed consolidated statements of o perations was $ 18.8 million and $ 15.2 million for the nine months ended September 30, 2023 and 2022, respectively. At September 30, 2023, unrecognized compensation cost related to Performance-Based RSUs totaled $ 41.8 million and is expected to be recognized over the remaining weighted average vesting period of 1.8 years. Certain Performance-Based RSUs cliff vest based on achievement of the relative total stockholder return ("TSR") of the Company's Common Stock as compared to the TSR of the constituents in an index at the grant date over the performance period of three years . For 2023 grants, the TSR of the Company's Common Stock is compared to the TSR of the constituents in the S&P 400 Index. The target number of RSUs may be adjusted from 0 % to 200 % based on the TSR attainment levels defined by the Company's Compensation Committee. The 100 % target payout is tied to performance at the 50 % percentile, with a payout curve ranging from 0 % (for performance less than the 25 % percentile) to 200 % (for performance above the 85 % percentile). Stock Options The following table summarizes the Company's stock option activity for the nine months ended September 30, 2023 : WillScot Options Weighted-Average Exercise Price per Share Converted Mobile Mini Options Weighted-Average Exercise Price per Share Outstanding at beginning of period 534,188 $ 13.60 864,276 $ 12.91 Exercised — $ — ( 32,623 ) $ 13.87 Outstanding at end of period 534,188 $ 13.60 831,653 $ 12.87 Fully vested and exercisable options, September 30, 2023 534,188 $ 13.60 831,653 $ 12.87 The following table summarizes the Company's stock option activity for the nine months ended September 30, 2022: WillScot Options Weighted-Average Exercise Price per Share Converted Mobile Mini Options Weighted-Average Exercise Price per Share Outstanding at beginning of period 534,188 $ 13.60 1,527,643 $ 14.66 Exercised — $ — ( 635,318 ) $ 17.02 Outstanding at end of period 534,188 $ 13.60 892,325 $ 12.97 Fully vested and exercisable options, September 30, 2022 534,188 $ 13.60 892,325 $ 12.97 WillScot Options Compensation expense for stock option awards, recognized in SG&A on the condensed consolidated statements of operations, was $ 0.2 million for the nine months ended September 30, 2022. 26 NOTE 15 - Commitments and Contingencies The Company is involved in various lawsuits, claims and legal proceedings that arise in the ordinary course of business. The Company assesses these matters on a case-by-case basis as they arise and establishes reserves as required. As of September 30, 2023, with respect to these outstanding matters, the Company believes that the amount or range of reasonably possible loss will not, either individually or in the aggregate, have a material adverse effect on the consolidated financial position, results of operations, or cash flows. However, the outcome of such matters is inherently unpredictable and subject to significant uncertainties. NOTE 16 - Segment Reporting The Company operates in two reportable segments as follows: Modular Solutions ("Modular") and Storage Solutions ("Storage"). Total assets for each reportable segment are not available because the Company utilizes a centralized approach to working capital management. Transactions between reportable segments are not significant. During the first quarter of 2023, the ground level office business within the Modular segment was transferred to the Storage segment, and associated revenues, expenses, and operating metrics were transferred to the Storage segment. All periods presented have been retrospectively revised to reflect this change within the Modular and Storage segments. For the three months ended September 30, 2022, this resulted in approximately $ 13.3 million of revenue and $ 7.3 million of gross profit being transferred from the Modular segment to the Storage segment. For the nine months ended September 30, 2022, $ 36.8 million of revenue and $ 20.9 million of gross profit were transferred from the Modular segment to the Storage segment. The Company defines EBITDA as net income (loss) plus interest (income) expense, income tax (benefit) expense, depreciation and amortization. The Company reflects further adjustments to EBITDA (“Adjusted EBITDA”) to exclude certain non-cash items and the effect of what the Company considers transactions or events not related to its core and ongoing business operations. The Chief Operating Decision Maker ("CODM") evaluates business segment performance utilizing Adjusted EBITDA as shown in the reconciliation of the Company’s consolidated income from continuing operations 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. The Company considers Adjusted EBITDA to be an important metric because it reflects the business performance of the segments, inclusive of indirect costs. The Company also regularly evaluates gross profit by segment to assist in the assessment of its operational performance. 27 Reportable Segments The following tables set forth certain information regarding each of the Company’s reportable segments fo r the three and nine months ended September 30, 2023 and 2022, respectively. Three Months Ended September 30, 2023 (in thousands) Modular Storage Unallocated Costs Total Revenues: Leasing and services revenue: Leasing $ 293,694 $ 173,075 $ 466,769 Delivery and installation 77,126 38,472 115,598 Sales revenue: New units 8,664 1,491 10,155 Rental units 8,322 3,990 12,312 Total revenues 387,806 217,028 604,834 Costs: Cost of leasing and services: Leasing 83,626 20,705 104,331 Delivery and installation 58,968 23,113 82,081 Cost of sales: New units 4,490 606 5,096 Rental units 4,365 2,317 6,682 Depreciation of rental equipment 55,178 11,772 66,950 Gross profit $ 181,179 $ 158,515 $ 339,694 Other selected data: Adjusted EBITDA from continuing operations $ 148,386 $ 117,094 $ — $ 265,480 Selling, general and administrative expense $ 87,836 $ 53,192 $ 10,955 $ 151,983 Purchases of rental equipment and refurbishments $ 51,400 $ 11,988 $ — $ 63,388 28 Three Months Ended September 30, 2022 (in thousands) Modular Storage Unallocated Costs Total Revenues: Leasing and services revenue: Leasing $ 260,239 $ 167,603 $ 427,842 Delivery and installation 82,227 44,789 127,016 Sales revenue: New units 7,892 1,716 9,608 Rental units 11,714 1,828 13,542 Total revenues 362,072 215,936 578,008 Costs: Cost of leasing and services: Leasing 78,075 29,645 107,720 Delivery and installation 64,773 26,971 91,744 Cost of sales: New units 4,795 1,003 5,798 Rental units 5,585 1,261 6,846 Depreciation of rental equipment 59,322 8,693 68,015 Gross profit $ 149,522 $ 148,363 $ 297,885 Other selected data: Adjusted EBITDA from continuing operations $ 135,246 $ 104,122 $ — $ 239,368 Selling, general and administrative expense $ 76,535 $ 52,903 $ 10,678 $ 140,116 Purchases of rental equipment and refurbishments $ 81,052 $ 41,246 $ — $ 122,298 29 Nine Months Ended September 30, 2023 (in thousands) Modular Storage Unallocated Costs Total Revenues: Leasing and services revenue: Leasing $ 844,060 $ 511,980 $ 1,356,040 Delivery and installation 217,115 117,867 334,982 Sales revenue: New units 24,756 5,060 29,816 Rental units 22,220 9,333 31,553 Total revenues 1,108,151 644,240 1,752,391 Costs: Cost of leasing and services: Leasing 234,550 65,852 300,402 Delivery and installation 169,014 69,423 238,437 Cost of sales: New units 14,010 2,089 16,099 Rental units 10,926 5,277 16,203 Depreciation of rental equipment 160,397 30,159 190,556 Gross profit $ 519,254 $ 471,440 $ 990,694 Other selected data: Adjusted EBITDA from continuing operations $ 436,793 $ 336,870 $ — $ 773,663 Selling, general and administrative expense $ 249,049 $ 165,577 $ 35,059 $ 449,685 Purchases of rental equipment and refurbishments $ 141,183 $ 24,543 $ — $ 165,726 30 Nine Months Ended September 30, 2022 (in thousands) Modular Storage Unallocated Costs Total Revenues: Leasing and services revenue: Leasing $ 725,062 $ 440,725 $ 1,165,787 Delivery and installation 208,547 114,849 323,396 Sales revenue: New units 21,186 4,136 25,322 Rental units 31,078 6,486 37,564 Total revenues 985,873 566,196 1,552,069 Costs: Cost of leasing and services: Leasing 204,852 71,313 276,165 Delivery and installation 170,294 74,567 244,861 Cost of sales: New units 12,261 2,614 14,875 Rental units 15,912 4,304 20,216 Depreciation of rental equipment 163,825 24,968 188,793 Gross profit $ 418,729 $ 388,430 $ 807,159 Other selected data: Adjusted EBITDA from continuing operations $ 357,656 $ 258,128 $ — $ 615,784 Selling, general and administrative expense $ 233,539 $ 157,257 $ 37,593 $ 428,389 Purchases of rental equipment and refurbishments $ 221,111 $ 95,699 $ — $ 316,810 The following table presents reconciliations of the Company’s income from continuing operations to Adjusted EBITDA for the three and nine months ended September 30, 2023 and 2022, respectively: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Income from continuing operations $ 91,516 $ 78,176 $ 255,516 $ 177,323 Income tax expense from continuing operations 32,780 28,288 94,855 61,219 Interest expense 53,803 38,009 145,915 101,732 Depreciation and amortization 84,802 83,671 242,927 234,762 Currency losses, net 96 160 6,885 124 Restructuring costs, lease impairment expense and other related charges — — 22 168 Transaction costs 787 — 787 35 Integration costs 780 3,902 6,900 13,182 Stock compensation expense 8,636 7,111 26,134 22,512 Other ( 7,720 ) 51 ( 6,278 ) 4,727 Adjusted EBITDA from continuing operations $ 265,480 $ 239,368 $ 773,663 $ 615,784 31 NOTE 17 - Earnings Per Share The following table reconciles the weighted average shares outstanding for the basic calculation to the weighted average shares outstanding for the diluted calculation: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Numerator: Income from continuing operations $ 91,516 $ 78,176 $ 255,516 $ 177,323 Income from discontinued operations — 50,417 134,613 75,817 Net income $ 91,516 $ 128,593 $ 390,129 $ 253,140 Denominator: Weighted average Common Shares outstanding – basic 196,199 213,637 201,043 219,312 Dilutive effect of shares outstanding Warrants — 1,812 — 1,816 RSAs 5 8 16 17 Time-based RSUs 232 355 283 382 Performance-based RSUs 1,864 1,067 2,138 1,279 Stock Options 958 1,049 981 1,127 Weighted average Common Shares outstanding – dilutive 199,258 217,928 204,461 223,933 The following amounts of common shares that the Company may be obligated to issue were excluded from the computation of dilutive EPS because their effect would have been anti-dilutive: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Time-based RSUs — — 141 — Performance-based RSUs 368 556 247 788 Total anti-dilutive shares 368 556 388 788 32