UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31 2017, 2023
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☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-13292000-13292
McGRATH RENTCORP
(Exact name of registrant as specified in its Charter)
California | 94-2579843 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
5700 Las Positas Road, Livermore, CA94551-7800
(Address of principal executive offices)
Registrant’s telephone number: (925) (925) 606-9200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | MGRC | NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒Yes☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. ☒Yes☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒Yes☐ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one).
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 20172023 (based upon the closing sale price of the registrant’s common stock as reported on the NASDAQ Global Select Market on June 30, 2017)2023): $821,065,768.$2,264,372,153.
As of February 26, 2018, 24,051,93920, 2024, 24,496,233 shares of Registrant’s Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
McGrath RentCorp’s definitive proxy statement with respect to its 2018 Annual Meeting of Shareholders to be held on June 6, 2018 which will be filed with the Securities and Exchange Commission within 120 days after the end of its fiscal year ended December 31, 2017, is incorporatedThe information required by reference into Part III (Items 10, 11, 12, 13 and 13).14) of this Annual Report on Form 10-K will either be incorporated herein by reference to the Company’s Definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for its 2024 Annual or Special Meeting of Shareholders or included in an amendment to this Annual Report on Form 10-K, which, in either case, will be filed no later than 120 days after December 31, 2023.
Exhibit index appears on page 8795.
FORWARD-LOOKING STATEMENTS
Statements contained in this Annual Report on Form 10-K (“this Form 10-K”) which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, regarding McGrath RentCorp’s (the “Company’s”) expectations, strategies, prospects or targets are forward looking statements.statements, including statements about (1) our expectations around the effect of the proposed acquisition of us by WillScot Mobile Mini, and (2) our belief that we will continue to be able to negotiate general bank lines of credit and issue senior notes adequate to meet capital requirements not otherwise met by operational cash flows and proceeds from sales of rental equipment. These forward-looking statements also can be identified by the use of forward-looking terminology such as “believes,” “expects,” “will,”“anticipates”, “believes”, “continues”, “could”, “estimates”, “expects”, “intends”, “may”, “plan”, “predict”, “project”, or “anticipates”“will”, or the negative of these terms or other comparable terminology.
Management cautions that forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements. Further, our future business, financial condition and results of operations could differ materially from those anticipated by such forward-looking statements and are subject to risks and uncertainties as set forth under “Risk Factors” in this Form 10-K. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements.
Forward-looking statements are made only as of the date of this Form 10-K and are based on management’s reasonable assumptions, however these assumptions can be wrong or affected by known or unknown risks and uncertainties. No forward-looking statement can be guaranteed and subsequent facts or circumstances may contradict, obviate, undermine or otherwise fail to support or substantiate such statements. Readers should not place undue reliance on these forward-looking statements and are cautioned that any such forward-looking statements are not guarantees of future performance. Except as otherwise required by law, we are under no duty to update any of the forward-looking statements after the date of this Form 10-K to conform such statements to actual results or to changes in our expectations.
PART I
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ITEM 1. BUSINESS.
General Overview
McGrath RentCorp (the “Company”) is a California corporation organized in 1979 with corporate offices located in Livermore, California. The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol “MGRC”. References in this report to the “Company”, “we”, “us”, and “ours” refer to McGrath RentCorp and its subsidiaries, unless the context requires otherwise.
The Company is a diversified business to businessbusiness-to-business rental company with fourthree rental divisions: relocatable modular buildings, portable storage containers and electronic test equipment, and liquid and solid containment tanks and boxes.equipment. Although the Company’s primary emphasis is on equipment rentals, sales of equipment occur in the normal course of business. TheAt December 31, 2023, the Company iswas comprised of four reportable business segments: (1) its modular building and portable storage segment (“Mobile Modular”); (2) its portable storage container segment (“Portable Storage”); (3) its electronic test equipment segment (“TRS-RenTelco”); (3) its containment solutions for the storage of hazardous and non-hazardous liquids and solids segment (“Adler Tanks”); and (4) its classroom manufacturing business selling modular buildings used primarily as classrooms in California (“Enviroplex”).
On February 1, 2023, the Company completed the sale of its former liquid and solid containment segment (“Adler Tanks”), to Ironclad Environmental Solutions, Inc., a portfolio company of Kinderhook Industries, for a cash sale price of $268.0 million. The Mobileconsolidated financial statements present the historical financial results of the former Adler Tanks segment as discontinued operations for all periods presented. On the same date, the Company acquired Vesta Housing Solutions Holdings, Inc. (“Vesta Modular”), a portfolio company of Kinderhook Industries, that was a leading provider of temporary and permanent modular space solutions, for a cash purchase price of $437.2 million, subject to certain adjustments. The financial results of Vesta Modular business segment includeswere a part of the Mobile Modular Portable Storage division, which represented approximately 8%segment since February 1, 2023.
Proposed Acquisition by WillScot Mobile Mini
On January 28, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with WillScot Mobile Mini Holdings Corp., a Delaware corporation (“WillScot Mobile Mini”), Brunello Merger Sub I, Inc., a California corporation and a direct wholly owned subsidiary of WillScot Mobile Mini (“Merger Sub I”), and Brunello Merger Sub II, LLC, a Delaware limited liability company and direct wholly owned subsidiary of WillScot Mobile Mini (“Merger Sub II”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub I will merge with and into the Company (the “First-Step Merger”), with the Company surviving the First-Step Merger and, immediately thereafter, the Company will merge with and into Merger Sub II (the “Second-Step Merger” and together with the First-Step Merger, the “Transaction”), with Merger Sub II surviving the
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Second-Step Merger as a wholly owned subsidiary of WillScot Mobile Mini. Each of the parties to the Merger Agreement intends that the Transaction will be treated as a single integrated transaction that qualifies as a “reorganization” within the meaning of Section 368(a) of the U.S. Internal Revenue Code of 1986, as amended. Consummation of the Transaction is subject to the approval of the Company’s 2017 total revenues.shareholders, the receipt of required regulatory approvals, and satisfaction or waiver of other customary closing conditions. The First-Step Merger and the Second-Step Merger will be consummated on the same day.
No single customer accounted for more
On the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the First-Step Merger (the “Effective Time”), each share of common stock, no par value, of the Company (the “Company Common Stock”) issued and outstanding immediately prior to the Effective Time, other than 10%shares of total revenues during 2017, 2016Company Common Stock owned by WillScot Mobile Mini or any subsidiary of WillScot Mobile Mini or the Company, and 2015. Revenue from foreign country customers accounted for 4%shares held by shareholders who did not vote in favor of the Transaction (or consent thereto in writing) and who are entitled to demand and properly demands appraisal of such shares, will be automatically converted into the right to receive either (1) $123 in cash (the “Per Share Cash Consideration”) or (2) 2.8211 (the “Exchange Ratio”) shares of validly issued, fully paid and nonassessable shares of common stock, par value $0.0001, of WillScot Mobile Mini (the “WillScot Mobile Mini Common Stock”) (the “Per Share Stock Consideration” together with the Per Share Cash Consideration, the “Merger Consideration”), 5%as determined pursuant to the election and 5%allocation procedures set forth in the Merger Agreement. The Company’s shareholders will have the opportunity to elect to receive either the Per Share Cash Consideration or the Per Share Stock Consideration in respect of their Company Common Stock, provided that 60% of the Company Common Stock will be converted into the cash consideration and 40% of the Company Common Stock will be converted into the stock consideration.
The consummation of the Transaction is subject to certain closing conditions, including (i) the approval of the Company’s revenues forshareholders, (ii) the sameexpiration or termination of all waiting periods respectively.applicable to the transactions contemplated by the Merger Agreement under the Hart-Scott Rodino Antitrust Improvements Act of 1976 (the “HSR Act,” and such expiration or termination, the “Antitrust Approval”), (iii) the absence of any order by any governmental authorities or other legal restraint or prohibition preventing the consummation of the transactions contemplated by the Merger Agreement, (iv) the effectiveness of the registration statement to be filed by WillScot Mobile Mini with SEC relating to the registration of shares of WillScot Mobile Mini Common Stock to be issued to the Company’s shareholders pursuant to the Merger Agreement and (v) other customary conditions specified in the Merger Agreement. The parties have submitted their respective filings under the HSR Act with the U.S. Department of Justice and the Federal Trade Commission as contemplated by the Merger Agreement. The closing of the Transaction is not subject to any financing condition.
For additional information regarding the Transaction, please refer to our current report on Form 8-K and Amendment No. 1 on Form 8-K/A, each filed with the U.S. Securities and Exchange Commission on January 29, 2024.
Because the Transaction is not yet complete, and except as otherwise specifically stated, the descriptions and disclosures presented elsewhere in this Form 10-K assume the continuation of the Company as a public company.
Business Model
The Company invests capital in rental products and generally has recovered its original investment through rents less cash operating expenses in a relatively short period of time compared to the product’s rental life. When the Company’s rental products are sold, the proceeds generally have covered a high percentage of the original investment. With these characteristics, a significant base of rental assets on rent generates a considerable amount of operating cash flows to support continued rental asset growth. The Company’s rental products have the following characteristics:
The product required by the customer tends to be expensive compared to the Company’s monthly rental charge, with the interim rental solution typically evaluated as a less costly alternative.
Generally, we believe the Company’s customers have a short-term need for our rental products. The customer’s rental requirement may be driven by a number of factors including time, budget or capital constraints, future uncertainty impacting their ongoing requirements, equipment availability, specific project requirements, peak periods of demand or the customer may want to eliminate the burdens and risks of ownership.
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We believe short-term rental rates typically recover the Company’s original investment quickly based on the respective product’s annual yield, or annual rental revenues divided by the average cost of rental equipment. For modulars the original investment is recovered in approximately fivefour years, in approximately three years for containers and approximately three years for electronic test equipment and in approximately five years for liquid and solid containment tanks and boxes.
When a product is sold from our rental inventory, a significant portion of the original investment is usually recovered. Effective asset management is a critical element to each of the rental businesses and the residuals realized when product is sold from inventory. Modular asset management requires designing and building the product for a long life, coupled with ongoing repair and maintenance investments, to ensure its long useful rental life and generally higher residuals upon sale. Container asset management requires selecting and purchasing quality products and making ongoing repair and maintenance investments. Steel containers have no technical obsolescence. Electronic test equipment asset management requires understanding, selecting and investing in equipment technologies that support market demand and, once invested, proactively managing the equipment at the model level for optimum utilization through its technology life cycle to maximize the rental revenues and residuals realized. Liquid and solid containment tanks and boxes asset management requires selecting and purchasing quality product and making ongoing repair and maintenance investments to ensure its long rental life.
The Company believes that rental revenue growth from an increasing base of rental assets and improved gross profits on rents are the best measures of the health of each of our rental businesses. Additionally, we believe our business model and results are enhanced by operational leverage that is created from large regional sales and inventory centers for modulars, a single U.S. based sales, inventory and operations facility for electronic test equipment, as well as shared senior management and back officeback-office functions for financing, human resources, insurance, marketing, information technology and operating and accounting systems.
EmployeesHuman Capital Management
As of December 31, 2017,2023, the Company had 1,0731,204 employees, of whom 85133 were primarily administrative and executive personnel, with 589, 191, 139677, 180, 128 and 6986 in the operations of Mobile Modular, Adler Tanks,Portable Storage, TRS-RenTelco and Enviroplex, respectively. None of our employees are covered by a collective bargaining agreement, and management believes its relationship with our employees is good.
The Company believes its employees are key to its success and it is committed to all of its employees’ engagement, training and career development, and personal and professional growth. The Board of Directors also receives regular updates from senior management on matters relating to the Company’s strategy for the recruitment, retention and development of the Company’s employees. The Company provides training in technical, operational and leadership skills, and places special emphasis on safety, effective communications, customer service, and employee development. Additionally, the Company offers employees a tuition reimbursement program whereby the employee may receive reimbursement for tuition and fees for undergraduate or graduate level academic courses at an accredited two or four year college or university that may help employees improve performance in their current job or prepare them for advancement.
Government Regulations
We are subject to certain environmental, transportation, anti-corruption, import controls, health and safety, privacy and other laws and regulations in locations in which we operate. Our activity in jurisdictions in which we operate is additionally subject to anti-bribery laws and regulations, such as the US Foreign Corrupt Practices Act of 1977, which prevent companies and their officers, employees and agents from making payments to officials and public entities of foreign countries to facilitate obtaining new contracts. We are also subject to laws and regulations that govern and impose liability for activities that may have adverse environmental effects, including discharges into air and water, and handling and disposal of hazardous substances and waste. Our motor vehicles and related units are subject to regulation in certain states under motor vehicle and similar registrations. While we incur costs in our business to comply with these laws and regulations, management does not believe that the costs of compliance with these various governmental regulations is material to our business and financial condition.
Available Information
We make the Company’s Securities and Exchange Commission (“SEC”) filings available free of charge, at our website www.mgrc.com. These filings include our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Act of 1934, which are available as soon as reasonably practicable after the Company electronically files such material with, or furnishes such material to, the SEC. Information included on our website is not incorporated by reference to this Form 10-K. Furthermore, all reports the Company files with the SEC are available free of charge, through the SEC’s website at www.sec.gov. In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We also have a Code of Business Conduct and Ethics which applies to all directors, officers and employees. Copies of this code can be obtained free of charge at our website www.mgrc.com. Any waivers to the Code of Business Conduct and Ethics and any amendments to such
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code applicable to our Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer Controller or persons performing similar functions, will be posted on our web sitesite.
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Description
Modulars are designed for use as classrooms, temporary offices adjacent to existing facilities, sales offices, construction field offices, restroom buildings, health care clinics, child care facilities, office space and for a variety of other purposes and may be moved from one location to another. Modulars vary from simple single-unit construction site offices to multi-floor modular complexes. The Company’s modular rental fleet includes a full range of styles and sizes. The Company considers its modulars to be among the most attractive and well-designed available. The units are constructed with wood or metal siding, sturdily built and physically capable of a long useful life. Modulars are generally provided with installed heat, air conditioning, lighting, electrical outlets and floor covering, and may have customized interiors including partitioning, cabinetry and plumbing facilities.
Mobile Modular purchases new modulars from various manufacturers who build to Mobile Modular’s design specifications. During 2017,2023, Mobile Modular purchased 36%30% of its modular units from one manufacturer. The Company believes that the loss of any of its primary modular manufacturers could have an adverse effect on its operations since Mobile Modular could experience higher prices and longer lead times for delivery of modular units until other manufacturers were able to increase their production capacity.
The Company’s modulars are manufactured to comply with state building codes, have a low risk of obsolescence, and can be modified or reconfigured to accommodate a wide variety of customer needs. Historically, as state building codes have changed over the years, Mobile Modular has been able to continue to use existing modulars, with minimal, if any, required upgrades. The Company has no assurance that it will continue to be able to use existing modular equipment with minimal upgrades as building codes change in the future.
Mobile Modular currently operates from regional sales and inventory centers in California, Texas, and Florida, serving large geographic areas in these states, and sales offices serving North Carolina, Georgia, Maryland, Virginia and Washington, D.C. The California, Texas and Florida regionalareas. These sales and inventory centers have in-house infrastructure and operational capabilities to support quick and efficient repair, modification, and refurbishment of equipment for the next rental opportunity. The Company believes operating from large regional sales and inventory centers results in better operating margins as operating costs can be spread over a large installed customer base. Mobile Modular actively maintains and repairs its rental equipment, and management believes this ensures the continued use of the modular product over its long life and, when sold, has resulted in higher sale proceeds relative to its capitalized cost. When rental equipment returns from a customer, the necessary repairs and preventative maintenance are performed prior to its next rental. By making these expenditures for repair and maintenance throughout the equipment’s life we believe that older equipment can generally rent for rates similar to those of newer equipment. Management believes the condition of the equipment is a more significant factor in determining the rental rate and sale price than its age. Over the last three years, used equipment sold each year represented less thanapproximately 2% of rental equipment, and has been, on average, 1314 years old with sale proceeds above its net book value.
Competitive Strengths
Market LeadershipStrong Industry Position – TheMobile Modular has a leading modular building fleet in the United States. Rental units for temporary classroom and other educational space needs are an important industry segment and the Company believes Mobile Modular is the largesta leading supplier in California and Florida, and a significant supplier in Florida and Texas, of modular educational facilities for rental to both public and private schools. Management is knowledgeable about the needs of its educational customers and the related regulatory requirements in the states where Mobile Modular operates, which enables Mobile Modular to meet its customers’ specific project requirements.
Expertise – The Company believes that over the more than 3540 plus years during which Mobile Modular has competed in the modular rental industry, it has developed expertise that differentiates it from its competitors.delivers value to customers. Mobile Modular has dedicated its attention to continuously developing and improving the quality of its modular units. Mobile Modular has expertise in the licensing and regulatory requirements that govern modulars in the states where it operates, and its management, sales and operational staffs are knowledgeable and committed to providing exemplary customer service. Mobile Modular has expertise in project management and complex applications.
Operating Structure –Part of the Company’s strategy for Mobile Modular is to create facilities and infrastructure capabilities that its competitors cannot easily duplicate.allow it to drive greater efficiency and pass the benefits to customers. Mobile Modular achieves this by building regional sales and inventory centers designed to serve a broad geographic area and a large installed customer base under a single overhead structure, thereby reducing its cost per transaction. The Company’s regional facilities and related infrastructure enable Mobile Modular to maximize its modular inventory utilization through efficient and cost effective in-house repair, maintenance and refurbishment for quick redeployment of equipment to meet its customers’ needs.
Asset Management – The Company believes Mobile Modular markets high quality, well-constructed and attractive modulars. Mobile Modular requires manufacturers to build to its specifications, which enables Mobile Modular to maintain a standardized
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quality fleet. In addition, through its ongoing repair, refurbishment and maintenance programs, the Company believes Mobile Modular’s buildings are the best maintained in the industry. The Company depreciates its modular buildings over an 18 year estimated useful life
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to a 50% residual value. Older buildings continue to be productive primarily because of Mobile Modular’s focus on ongoing fleet maintenance. Also, as a result of Mobile Modular’s maintenance programs, when a modular unit is sold, a high percentage of the equipment’s capitalized cost is recovered. In addition, the fleet’s utilization is regionally optimized by managing inventory through estimates of market demand, fulfillment of current rental and sale order activity, modular returns and capital purchases.
Customer Service - The Company believes the modular rental industry to be service intensive and locally based. The Company strives to provide excellent service by meeting its commitments to its customers, being proactive in resolving project issues and seeking to continuously improve the customers’ experience. Mobile Modular is committed to offering quick response to requests for information, providing experienced assistance, on time delivery and preventative maintenance of its units. Mobile Modular’s goal is to continuously improve its procedures, processes and computer systems to enhance internal operational efficiency. The Company believes this dedication to customer service results in high levels of customer loyalty and repeat business.
Market
Management estimates relocatable modular building rental is an industry that today has equipment on rent or available for rent in the U.S. with an aggregate original cost of over $5.0 billion. Mobile Modular’s largest marketbusiness segment is for temporary classroom and other educational space needs of public and private schools, colleges and universities in California, and Florida, and to a lesser extent in Texas,Georgia, Louisiana, Maryland, North Carolina, Georgia, Maryland,South Carolina, Texas, Virginia and Washington, D.C. Management believes the demand for rental classrooms is caused by shifting and fluctuating school populations, the limited state funds for new construction, the need for temporary classroom space during reconstruction of older schools, class size reduction and the phasing out of portable classrooms compliant with older building codes (see “Classroom Rentals and Sales to Public Schools (K-12)” below). Other customer applications include sales offices, construction field offices, health care facilities, church sanctuaries and child care facilities. Industrial, manufacturing, entertainment and utility companies, as well as governmental agencies commonly use large multi-modular complexes to serve their interim administrative and operational space needs. Modulars offer customers quick, cost-effective space solutions while conserving their capital. The Company’s corporate offices and California, Texas and Florida regional sales and inventory center offices are housed in various sizes of modular units.
Since most of Mobile Modular’s customer requirements are to fill temporary space needs, Mobile Modular’s marketing emphasis is primarily on rentals rather than sales. Mobile Modular attracts customers through its website at www.mobilemodular.com, internet advertising and direct marketing. Customers are encouraged to visit a regional sales and inventory center to view different models on display and to see a regional office, which is a working example of a modular application.
Because service is a major competitive factor in the rental of modulars, Mobile Modular offers quick response to requests for information, assistance in the choice of a suitable size and floor plan, in-house customization services, rapid delivery, timely installation and field service of its units. On Mobile Modular’s website, customers are able to view and select inventory for quotation and request in-field service.
Rentals
Rental periods range from one month to several years with a typical initial contract term between twelve and twenty-fourtwenty four months. In general, monthly rental rates are determined by a number of factors including length of term, market demand, product availability and product type. Upon expiration of the initial term, or any extensions, rental rates are reviewed, and when appropriate, are adjusted based on current market conditions. Most rental agreements are operating leases that provide no purchase options, and when a rental agreement does provide the customer with a purchase option, it is generally on terms management believes to be attractive to Mobile Modular.
The customer is responsible for obtaining the necessary use permits and for the costs of insuring the unit, and is financially responsible for transporting the unit to the site, preparation of the site, installation of the unit, dismantle and return delivery of the unit to Mobile Modular, and certain costs for customization. Mobile Modular maintains the units in good working condition while on rent. Upon return, the units are inspected for damage and customers are billed for items considered beyond normal wear and tear. Generally, the units are then repaired for subsequent use. Repair and maintenance costs are expensed as incurred and can include floor repairs, roof maintenance, cleaning, painting and other cosmetic repairs. The costs of major refurbishment of equipment are capitalized to the extent the refurbishment significantly improves the quality and adds value or life to the equipment.
At December 31, 2017,2023, Mobile Modular owned 52,18840,382 new or previously rented modulars, and portable storage containers with an aggregate cost of $775.4$1,291.1 million including accessories, or an average cost per unit of $14,858.$31,972. Utilization is calculated at the end
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of each month by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding new equipment inventory and accessory equipment. At December 31, 2017,2023, fleet utilization was 77.8%79.4% and average fleet utilization during 20172023 was 76.8%79.7%. The Mobile Modular segment includes the results of operations of Mobile Modular Portable Storage, which represented approximately 8% of the Company’s 2017 total revenues.
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Sales
Sales
In addition to operating its rental fleet, Mobile Modular sells modulars to customers. These sales typicallymay arise out of its marketing efforts for the rental fleet and from existing equipment already on rent.rent or from specific requests for new buildings for a permanent need.The Company has a dedicated team that focuses on these custom sale opportunities. Such sales can be of either new or used units from the rental fleet, which permits some turnover of older units. During 20172023 Mobile Modular’s largest sale represented approximately 6%4% of Mobile Modular’s sales, 3% of the Company’s consolidated sales and less than 1% of the Company’s consolidated revenues.
Mobile Modular typically provides limited 90-day warranties on used modulars and passes through the manufacturers’ one-year warranty on new units to its customers. Warranty costs have not been significant to Mobile Modular’s operations to date, and the Company attributes this to its commitment to high quality standards and regular maintenance programs. However, there can be no assurance that warranty costs will continue to be insignificant to Mobile Modular’s operations in the future.
Enviroplex manufactures portable classrooms built to the requirements of the California Division of the State Architect (“DSA”) and sells directly to California public school districts and other educational institutions.
Seasonality
Typically, during each calendar year, our highest numbers of classrooms are shipped for rental and sale orders during the second and third quarters for delivery and installation prior to the start of the upcoming school year. The majority of classrooms shipped in the second and third quarters have rental start dates during the third quarter, thereby making the fourth quarter the first full quarter of rental revenues recognized for these transactions.
Competition
Competition in the rental and sale of relocatable modular buildings is intense. Two major national firms, WillScot Corporation. and Modspace, Inc., are engagedSome of our competitors in the rentalmodular building leasing industry, have a greater range of modulars, have many offices throughout the countryproducts and we believe may haveservices, greater financial and othermarketing resources, larger customer bases, and greater name recognition than Mobile Modular.we have. In addition, a number of other smaller companies operate regionally throughout the country.country and have a stronger local presence in those places. Mobile Modular operates primarily in California, Texas,Colorado, Florida, Georgia, Louisiana, Maryland, North Carolina, Georgia,the Pacific Northwest, South Carolina, Texas, Virginia Maryland and Washington, D.C. Significant competitive factors in the rental business include availability, price, service, reliability, appearance and functionality of the product. Mobile Modular markets high quality, well-constructed and attractive modulars. Part of the Company’s strategy for modulars is to create facilities and infrastructure capabilities that its competitors cannot easily duplicate. The Company's facilities and related infrastructure enable it to modify modulars efficiently and cost effectively to meet its customers’ needs. Management's goal is to be more responsive at less expense. Management believes this strategy, together with its emphasis on prompt and efficient customer service, gives Mobile Modular a competitive advantage. Mobile Modular is determined to respond quickly to requests for information, and provide experienced assistance for the first-time user, rapid delivery and timely repair of its modular units. Mobile Modular’s already high level of efficiency and responsiveness continues to improve as the Company upgrades procedures, processes and computer systems that control its internal operations. The Company anticipates intense competition to continue and believes it must continue to improve its products and services to remain competitive in the market for modulars.
Classroom Rentals and Sales to Public Schools (K-12)
Mobile Modular and Enviroplex provide classroom and specialty space needs serving public and private schools, colleges and universities. Within the educational market, the rental (by Mobile Modular) and sale (by Enviroplex and Mobile Modular) of modulars to public school districts for use as portable classrooms, restroom buildings and administrative offices for kindergarten through grade twelve (K-12) are a significant portion of the Company’s revenues. Mobile Modular rents and sells classrooms in California, Florida, Texas,Georgia, Louisiana, Maryland, North Carolina, Georgia, Maryland,the Pacific Northwest, South Carolina, Texas, Virginia and Washington, D.C. Enviroplex sells classrooms in the California market. California is Mobile Modular’s largest educational market. Historically, demand in this market has been fueled by shifting and fluctuating student populations, insufficient funding for new school construction, class size reduction programs, modernization of aging school facilities and the phasing out of portable classrooms no longer compliant with current building codes. The following table shows the approximate percentages of the Company’s modular rental and sales revenues, and of its consolidated rental and sales revenues for the past fivethree years, that rentals and sales to these schools constitute:
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Rentals and Sales to Public Schools (K-12) as a Percentage of Total Rental and Sales Revenues
Percentage of: |
| 2023 |
| 2022 |
| 2021 |
Modular Rental Revenues (Mobile Modular) |
| 26% |
| 30% |
| 34% |
Modular Sales Revenues (Mobile Modular & Enviroplex) |
| 30% |
| 43% |
| 50% |
Modular Rental and Sales Revenues (Mobile Modular & Enviroplex) |
| 27% |
| 35% |
| 40% |
Consolidated Rental and Sales Revenues 1 |
| 18% |
| 21% |
| 24% |
Percentage of: |
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
|
Modular Rental Revenues (Mobile Modular) |
| 33% |
|
| 34% |
|
| 33% |
|
| 32% |
|
| 37% |
|
Modular Sales Revenues (Mobile Modular & Enviroplex) |
| 76% |
|
| 67% |
|
| 43% |
|
| 49% |
|
| 36% |
|
Modular Rental and Sales Revenues (Mobile Modular & Enviroplex) |
| 47% |
|
| 43% |
|
| 35% |
|
| 37% |
|
| 36% |
|
Consolidated Rental and Sales Revenues 1 |
| 26% |
|
| 23% |
|
| 16% |
|
| 16% |
|
| 14% |
|
|
|
School Facility Funding
Funding for public school facilities is derived from a variety of sources including the passage of both statewide and local facility bond measures, operating budgets, developer fees, various taxes including parcel and sales taxes levied to support school operating budgets, and lottery funds. In November 2016, California voters approved a $9 billion statewide education facility bond and $22.9 billion in local facility bond measures. There is no certainty on the timing of the sale of the state bondsbond sales and it could take additional years before projects funded by these projectsbonds generate meaningful demand for relocatable classrooms. California’s
-9-
PORTABLE STORAGE CONTAINERS
Description
Portable Storage’s rental inventory is comprised of steel containers used to provide a temporary storage solution that is delivered to the customer’s location and addresses the need for secure, temporary storage with immediate access to the unit. The containers are comprised of the following products:
Competitive Strengths
Strong Industry Position - The Company believes that Portable Storage is one of the largest participants in the temporary portable storage rental industry in North America. Portable Storage has a national reach from branches serving the West, Pacific Northwest, Northeast, Mid-Atlantic, Southeast and Midwest.
Expertise and Customer Service – The Company believes that Portable Storage has highly experienced operating budgets are also in much better conditionmanagement and branch employees. The Company believes that Portable Storage provides a superior level of customer service due to 2012 tax increasesits strong relationship building skills, quality of fleet, driver development program and the quality of its responsiveness.
Asset Management – The Company believes that Portable Storage markets high quality, well-constructed and well-maintained rental products. The Company depreciates its containers over a 25-year estimated useful life to 62.5% residual value. We believe that if maintained, older containers will continue to produce similar rental rates as newer equipment. The fleet’s utilization is regionally optimized by understanding key vertical market customer demand, seasonality factors, competitors’ product availability and expected equipment returns.
Market
The portable storage container rental market in the U.S. has a large and diverse number of market segments including construction, retail, commercial and industrial, energy and petrochemical, manufacturing, education and healthcare.
The container rental products may be utilized throughout the U.S. and are not subject to any local or regional construction code or approval standards.
Rentals
Portable Storage rents its storage and office containers typically for rental periods of one to twelve months, although in some instances, rental terms can be over a year or longer. Monthly rental rates typically are between 2% and 4% of the equipment’s original acquisition cost. At December 31, 2023, Portable Storage owned 42,210 containers with an aggregate cost of $236.1 million or an average cost per unit of $5,594. Utilization is calculated each month by dividing the cost of the rental equipment on higher income earnersrent by the total cost of rental equipment, excluding new and accessory equipment. Utilization was 71.5% at December 31, 2023 and averaged 77.3% during the year.
Seasonality
Rental activity may vary depending upon the extent of retail activity that were allocatedtypically occurs during the fourth quarter and the impact inclement weather may have on construction activity.
Competition
The portable storage container rental industry is highly competitive. Some of our competitors may be larger than we are, have greater financial and other resources than we have, are more geographically diverse than we are and have greater name recognition among customers than we do. Portable Storage also competes against local companies that may have longer operating histories and a strong local presence. As a result, our competitors that have these advantages may be better able to education funding. In November 2016, California voters approved an extension of this tax increase forattract and retain customers and provide their products and services at lower rental rates. Portable Storage competes with these companies based upon product
-10-
availability, product quality, price and service. Portable Storage may encounter increased competition from existing competitors or from new entrants in the next 12 years.future.
-11-
-7-
Description
TRS-RenTelco rents and sells electronic test equipment nationally and internationally from two facilities located on the grounds of the Dallas Fort Worth International Airport in Grapevine, Texas (the “Dallas facility”) and Dollard-des-Ormeaux, Canada (the “Montreal facility”). TRS-RenTelco’s revenues are derived from the rental and sale of general purpose and communications test equipment to a broad range of companies, from Fortune 500 to middle and smaller market companies, in the aerospace, defense, communications, manufacturing and semiconductor industries. Electronic test equipment revenues are primarily affected by the business activity within these industries related to research and development, manufacturing, and communication infrastructure installation and maintenance. The Dallas facility, TRS-RenTelco’s primary operating location, houses the electronic test equipment inventory, sales engineers, calibration laboratories, and operations staff for U.S. and international business. The Montreal facility houses sales engineers and operations staff to serve the Canadian market. As of December 31, 2017,2023, the original cost of electronic test equipment inventory was comprised of 74%80% general purpose electronic test equipment and 26%20% communications electronic test equipment.
Engineers, technicians and scientists utilize general purpose electronic test equipment in developing products, controlling manufacturing processes, completing field service applications and evaluating the performance of their own electrical and electronic equipment. These instruments are rented primarily to aerospace, defense, electronics, industrial, research and semiconductor industries. To date, Keysight Technologies, (formerly Agilent Technologies)Rhode & Schwarz and Tektronix, a division of Fortive Corporation, have manufactured the majority of TRS-RenTelco’s general purpose electronic test equipment with the remainder acquired from over 60 other manufacturers.
Communications test equipment, including fiber optic test equipment, is utilized by technicians, engineers and installation contractors to evaluate voice, data and multimedia communications networks, to install fiber optic cabling, and in the development and manufacturing of transmission, network and wireless products. These instruments are rented primarily to manufacturers of communications equipment and products, electrical and communications installation contractors, field technicians, and service providers. To date, Anritsu, and Viavi Solutions (formerly JDS Uniphase Corporation)and Fluke Networks, a division of Fortive Corporation, have manufactured a significant portion of TRS-RenTelco’s communications test equipment, with the remainder acquired from over 40 other manufacturers.
TRS-RenTelco’s general purpose test equipment rental inventory includes oscilloscopes, amplifiers, analyzers (spectrum, network and logic), signal source and power source test equipment. The communications test equipment rental inventory includes network and transmission test equipment for various fiber, copper and wireless networks. TRS-RenTelco occasionally rents electronic test equipment from other rental companies and re-rents the equipment to customers.
Competitive Strengths
Market LeadershipStrong Industry Position - The Company believes that TRS-RenTelco is one of the largest electronic test equipment rental and leasing companies offering a broad and deep selection of general purpose and communications test equipment for rent in North America.
Expertise - The Company believes that its knowledge of products, technology and applications expertise provides it with a competitive advantage over others in the industry. Customer requirements are supported by application engineers and technicians that are knowledgeable about the equipment’s uses to ensure the right equipment is selected to meet the customer’s needs. This knowledge can be attributed to the experience of TRS-RenTelco’s management, sales and operational teams.
Operating Structure - TRS-RenTelco is supported by a centralized distribution and inventory center on the grounds of the Dallas-Fort Worth International Airport in Texas. The Company believes that the centralization of servicing all customers in North America and internationally by TRS-RenTelco’s experienced logistics teams provides a competitive advantage by minimizing transaction costs and enabling TRS-RenTelco to ensure customer requirements are met.
Asset Management - TRS-RenTelco’s rental equipment inventory is serviced by an ISO 9001-2015 registered and compliant calibration laboratory that repairs and calibrates equipment ensuring that off rent equipment is ready to ship immediately to meet customers’ needs. TRS-RenTelco’s team of technicians, product managers and sales personnel are continuously monitoring and analyzing the utilization of existing products, new technologies, general economic conditions and estimates of customer demand to ensure the right equipment is purchased and sold, at the right point in the equipment’s technology life cycle. The Company believes this enables it to maximize utilization of equipment and the cash flow generated by the rental and sales revenue of each model of equipment. TRS-RenTelco strives to maintain strong relationships with equipment manufacturers, which enables it to leverage those relationships to gain rental opportunities.
-8-
Customer Service - The Company believes that its focus on providing excellent service to its customers provides a competitive advantage. TRS-RenTelco strives to provide exemplary service to fulfill its commitments to its customers. TRS-RenTelco prides itself
-12-
in providing solutions to meet customers’ needs by having equipment available and responding quickly and thoroughly to their requests. TRS-RenTelco’s sophisticated in-house laboratory ensures the equipment is fully functional and meets its customers’ delivery requirements. Service needs of TRS-RenTelco’s customers are supported 24 hours a day, 7 days a week by its customer care specialists. TRS-RenTelco’s goal is to provide service beyond its customers’ expectations, which, the Company believes, results in customer loyalty and repeat business.
Market
Electronic test equipment rental is a market which we estimate has equipment on rent worldwide or available for rent with an aggregate original cost in excess of $1 billion. There is a broad customer base for the rental of such instruments, including aerospace, communications, defense, electrical contractor, electronics, industrial, installer contractor, network systems and research companies.
TRS-RenTelco markets its electronic test equipment throughout the United States, Canada, and, to a limited extent, other countries. TRS-RenTelco attracts customers through its outside sales force, website at www.TRSRenTelco.com, telemarketing program, trade show participation, paid internet search and electronic mail campaigns. A key part of the sales process is TRS-RenTelco’s knowledgeable inside sales engineering team that effectively matches test equipment solutions to meet specific customer’s requirements.
The Company believes that customers rent electronic test equipment for many reasons. Customers frequently need equipment for short-term projects, to evaluate new products, and for backup to avoid costly downtime. Delivery times for the purchase of such equipment can be lengthy; thus, renting allows the customer to obtain the equipment expeditiously. The Company also believes that the relative certainty of rental costs can facilitate cost control and be useful in the bidding of and pass-through of contract costs. Finally, renting rather than purchasing may better satisfy the customer’s budgetary constraints.
Rentals
TRS-RenTelco rents electronic test equipment typically for rental periods of one to six months, although in some instances, rental terms can be up to a year or longer. Monthly rental rates typically are between 2% and 10% of the current manufacturers’ list price. TRS-RenTelco depreciates its equipment over 1 to 8 years with no residual value.
At December 31, 2017,2023, TRS-RenTelco had an electronic test equipment rental inventory including accessories with an aggregate cost of $262.3$377.6 million. Utilization is calculated each month by dividing the cost of the rental equipment on rent by the total cost of rental equipment, excluding accessory equipment. Utilization was 61.7%55.9% as of December 31, 20172023 and averaged 62.9%58.9% during the year.
Sales
Profit from equipment sales is a material component of TRS-RenTelco’s overall annual earnings. Gross profit from sales of both used and new equipment over the last five years generally has ranged from approximately 19%20% to 24%22% of total annual gross profit for our electronics division. For 2017,2023, gross profit on equipment sales was approximately 23%21% of total division gross profit. Equipment sales are driven by the turnover of older technology rental equipment, to maintain target utilization at a model number level, and new equipment sales opportunities. In 2017,2023, approximately 19%18% of the electronic test equipment revenues were derived from sales. The largest electronic test equipment sale during 20172023 represented approximately 5%7% of electronic test equipment sales, 1% of the Company’s consolidated sales and less than 1% of consolidated revenues. There is intense competition in the sales of electronic test equipment from a world-wide network of test equipment brokers and resellers, legacy rental companies, and equipment manufacturers. We believe the annual world-wide salesales of electronic test equipment is in excess of $8.0 billion per year.
Seasonality
Rental activity may decline in the fourth quarter month of December and the first quarter months of January and February. These months may have lower rental activity due to holiday closures, particularly by larger companies, inclement weather and its impact on various field related communications equipment rentals, and companies’ operational recovery from holiday closures which may impact the start-up of new projects coming online in the first quarter. These factors may impact the quarterly results of each year’s first and fourth quarter.
-9-
Competition
The electronic test equipment rental business is characterized by intense competition from several competitors, including Electro Rent Corporation, Continental Resources, and TestEquity, some of which may have access to greater financial and other resources than we do. TRS-RenTelco competes with these and other test equipment rental companies on the basis of product availability, price, service and reliability. Although no single competitor holds a dominant market share, we face intense competition from these established entities and new entrants in the market. Some of our competitors may offer similar equipment for lease, rental or sales at lower prices and may offer more extensive servicing, or financing options.
-10-
LIQUID AND SOLID CONTAINMENT TANKS AND BOXES
Description
Adler Tanks’ rental inventory is comprised of tanks and boxes used for various containment solutions to store hazardous and non-hazardous liquids and solids in applications such as: oil and gas exploration and field services, refinery, chemical and industrial plant maintenance, environmental remediation and field services, infrastructure building construction, marine services, pipeline construction and maintenance, tank terminals services, wastewater treatment, and waste management and landfill services. The tanks and boxes are comprised of the following products:
-13-
fixed axle steel tanks (“tanks”) for the storage of groundwater, wastewater, volatile organic liquids, sewage, slurry and bio sludge, oil and water mixtures and chemicals, which are available in a variety of sizes including 21,000 gallon, 16,000 gallon and 8,000 gallon sizes;
vacuum containers (“boxes”), which provide secure containment of sludge and solid materials and may be used for additional on-site storage or for transporting materials off-site enabling vacuum trucks to remain in operation;
dewatering boxes for the separation of water contained in sludge and slurry; and
roll-off and trash boxes for the temporary storage and transport of solid waste.
Adler Tanks purchases tanks and boxes from various manufacturers located throughout the country.
Competitive Strengths
Market Leadership - The Company believes that Adler Tanks is one of the largest participants in the liquid and solid containment tanks and boxes rental business in North America. Adler Tanks has national reach from branches serving the Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West.
Expertise and Customer Service – The Company believes that Adler Tanks has highly experienced operating management and branch employees. Adler Tanks employees are knowledgeable about the operation of its rental equipment and customer applications. The Company believes that Adler Tanks provides a superior level of customer service due to its strong relationship building skills and the quality of its responsiveness.
Asset Management – The Company believes that Adler Tanks markets a high quality, well-constructed and well-maintained rental product. The Company depreciates its tanks and boxes over a 20 year estimated useful life to 0% residual value. We believe that if maintained, older tanks and boxes will continue to produce similar rental rates as newer equipment. The fleet’s utilization is regionally optimized by understanding key vertical market customer demand, seasonality factors, competitor’s product availability, expected equipment returns and manufacturer’s production capacity.
Market
Liquid and solid containment equipment rental is a market in the U.S with a large and diverse number of market segments including oil and gas exploration and field services, refinery, chemical and industrial plant maintenance, environmental remediation and field services, infrastructure building construction, marine services, pipeline construction and maintenance, electrical grid transformer maintenance, tank terminals services, wastewater treatment, and waste management and landfill services.
The tank and box rental products that Adler Tanks builds may be utilized throughout the U.S. and are not subject to any local or regional construction code or approval standards.
Rentals
Adler Tanks rents tanks and boxes typically for rental periods of one to six months, although in some instances, rental terms can be up to a year or longer. Monthly rental rates typically are between 2% and 10% of the equipment’s original acquisition cost. At December 31, 2017, Adler Tanks had rental equipment inventory including accessories with an aggregate cost of $309.8 million. Utilization is calculated each month by dividing the cost of the rental equipment on rent by the total cost of rental equipment, excluding accessory equipment. Utilization was 57.5% at December 31, 2017 and averaged 56.0% during the year.
-11-
Rental activity may decline in the fourth quarter month of December and the first quarter months of January and February. These months may have lower rental activity due to inclement weather in certain regions of the country impacting the industries that we serve.
Competition
The liquid and solid containment rental industry is highly competitive including national, regional and local companies. Some of our national competitors, notably BakerCorp, Rain For Rent and Mobile Mini, may be larger than we are and may have greater financial and other resources than we have. Some of our competitors also have longer operating histories, lower cost basis of rental equipment, lower cost structures and more established relationships with equipment manufacturers than we have. In addition, certain of our competitors are more geographically diverse than we are and have greater name recognition among customers than we do. As a result, our competitors that have these advantages may be better able to attract and retain customers and provide their products and services at lower rental rates. Adler Tanks competes with these companies based upon product availability, product quality, price, service and reliability. We may encounter increased competition in the markets that we serve from existing competitors or from new market entrants in the future.
REPORTABLE SEGMENTS
For segment information regarding the Company’s four reportable business segments: Mobile Modular, Portable Storage, TRS-RenTelco Adler Tanks and Enviroplex, see “Note 10.15. Segment Reporting” to the audited consolidated financial statementsConsolidated Financial Statements of the Company included in “Item 8. Financial Statements and Supplementary Data.”
-12-
The following table shows the revenue components, percentage of rental and total revenues, rental equipment (at cost), rental equipment (net book value), number of relocatable modular units, year-end and average utilization, average rental equipment (at cost), annual yield on average rental equipment (at cost) and gross margin on rental revenues and sales by product line for the past five years.
Product Highlights
(dollar amounts in thousands) |
| Year Ended December 31, |
| |||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
Relocatable Modular Buildings (operating under Mobile Modular and Enviroplex) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
| $ | 142,584 |
|
| $ | 130,496 |
|
| $ | 115,986 |
|
| $ | 96,457 |
|
| $ | 82,503 |
|
Rental related services |
|
| 50,448 |
|
|
| 49,206 |
|
|
| 45,616 |
|
|
| 35,263 |
|
|
| 28,891 |
|
Total Modular rental operations |
|
| 193,032 |
|
|
| 179,702 |
|
|
| 161,602 |
|
|
| 131,720 |
|
|
| 111,394 |
|
Sales — Mobile Modular |
|
| 37,435 |
|
|
| 29,393 |
|
|
| 22,248 |
|
|
| 29,394 |
|
|
| 20,831 |
|
Sales — Enviroplex |
|
| 31,369 |
|
|
| 22,121 |
|
|
| 10,612 |
|
|
| 17,457 |
|
|
| 17,855 |
|
Total Modular sales |
|
| 68,804 |
|
|
| 51,514 |
|
|
| 32,860 |
|
|
| 46,851 |
|
|
| 38,686 |
|
Other |
|
| 799 |
|
|
| 417 |
|
|
| 434 |
|
|
| 461 |
|
|
| 436 |
|
Total Modular revenues |
| $ | 262,635 |
|
| $ | 231,633 |
|
| $ | 194,896 |
|
| $ | 179,032 |
|
| $ | 150,516 |
|
Percentage of rental revenues |
|
| 49.3 | % |
|
| 48.1 | % |
|
| 42.4 | % |
|
| 35.8 | % |
|
| 32.2 | % |
Percentage of total revenues |
|
| 56.8 | % |
|
| 54.6 | % |
|
| 48.2 | % |
|
| 43.9 | % |
|
| 39.7 | % |
Rental equipment, at cost (year-end) |
| $ | 775,400 |
|
| $ | 769,190 |
|
| $ | 736,875 |
|
| $ | 664,340 |
|
| $ | 592,391 |
|
Rental equipment, net book value (year-end) |
| $ | 543,857 |
|
| $ | 544,421 |
|
| $ | 529,483 |
|
| $ | 473,960 |
|
| $ | 415,366 |
|
Number of units (year-end) |
|
| 52,188 |
|
|
| 50,577 |
|
|
| 47,995 |
|
|
| 43,792 |
|
|
| 39,577 |
|
Utilization (year-end) 1 |
|
| 77.8 | % |
|
| 77.3 | % |
|
| 76.9 | % |
|
| 75.0 | % |
|
| 70.7 | % |
Average utilization 1 |
|
| 76.8 | % |
|
| 76.6 | % |
|
| 75.8 | % |
|
| 72.3 | % |
|
| 68.3 | % |
Average rental equipment, at cost 2 |
| $ | 747,478 |
|
| $ | 724,333 |
|
| $ | 667,953 |
|
| $ | 597,904 |
|
| $ | 546,540 |
|
Annual yield on average rental equipment, at cost 4 |
|
| 19.1 | % |
|
| 18.0 | % |
|
| 17.4 | % |
|
| 16.1 | % |
|
| 15.1 | % |
Gross margin on rental revenues |
|
| 56.1 | % |
|
| 56.6 | % |
|
| 53.4 | % |
|
| 49.4 | % |
|
| 47.0 | % |
Gross margin on sales |
|
| 28.0 | % |
|
| 29.0 | % |
|
| 26.5 | % |
|
| 27.1 | % |
|
| 23.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Test Equipment (operating under TRS-RenTelco) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
| $ | 82,812 |
|
| $ | 82,307 |
|
| $ | 89,208 |
|
| $ | 99,020 |
|
| $ | 102,101 |
|
Rental related services |
|
| 2,858 |
|
|
| 2,846 |
|
|
| 3,055 |
|
|
| 3,331 |
|
|
| 3,095 |
|
Total Electronics rental operations |
|
| 85,670 |
|
|
| 85,153 |
|
|
| 92,263 |
|
|
| 102,351 |
|
|
| 105,196 |
|
Sales |
|
| 20,334 |
|
|
| 21,582 |
|
|
| 21,137 |
|
|
| 24,323 |
|
|
| 28,277 |
|
Other |
|
| 2,040 |
|
|
| 1,882 |
|
|
| 1,617 |
|
|
| 1,628 |
|
|
| 1,580 |
|
Total Electronics revenues |
| $ | 108,044 |
|
| $ | 108,617 |
|
| $ | 115,017 |
|
| $ | 128,302 |
|
| $ | 135,053 |
|
Percentage of rental revenues |
|
| 28.6 | % |
|
| 30.3 | % |
|
| 32.6 | % |
|
| 36.7 | % |
|
| 40.0 | % |
Percentage of total revenues |
|
| 23.4 | % |
|
| 25.6 | % |
|
| 28.4 | % |
|
| 31.4 | % |
|
| 35.6 | % |
Rental equipment, at cost (year-end) |
| $ | 262,325 |
|
| $ | 246,325 |
|
| $ | 262,945 |
|
| $ | 261,995 |
|
| $ | 267,772 |
|
Rental equipment, net book value (year-end) |
| $ | 109,482 |
|
| $ | 90,172 |
|
| $ | 102,191 |
|
| $ | 105,729 |
|
| $ | 109,988 |
|
Utilization (year-end) 1 |
|
| 61.7 | % |
|
| 61.0 | % |
|
| 58.7 | % |
|
| 59.8 | % |
|
| 58.2 | % |
Average utilization 1 |
|
| 62.9 | % |
|
| 60.6 | % |
|
| 60.5 | % |
|
| 60.4 | % |
|
| 62.7 | % |
Average rental equipment, at cost 3 |
| $ | 252,332 |
|
| $ | 254,019 |
|
| $ | 265,832 |
|
| $ | 262,968 |
|
| $ | 266,444 |
|
Annual yield on average rental equipment, at cost 4 |
|
| 32.8 | % |
|
| 32.4 | % |
|
| 33.6 | % |
|
| 37.7 | % |
|
| 38.3 | % |
Gross margin on rental revenues |
|
| 44.0 | % |
|
| 39.8 | % |
|
| 39.9 | % |
|
| 46.4 | % |
|
| 48.2 | % |
Gross margin on sales |
|
| 56.9 | % |
|
| 50.9 | % |
|
| 48.6 | % |
|
| 49.7 | % |
|
| 43.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-13-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(dollar amounts in thousands) |
| Year Ended December 31, |
| |||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
Liquid and Solid Containment Tanks and Boxes (operating under Adler Tanks) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
| $ | 64,021 |
|
| $ | 58,585 |
|
| $ | 68,502 |
|
| $ | 74,098 |
|
| $ | 71,162 |
|
Rental related services |
|
| 24,762 |
|
|
| 23,807 |
|
|
| 24,643 |
|
|
| 25,538 |
|
|
| 21,162 |
|
Total Tanks and Boxes rental operations |
|
| 88,783 |
|
|
| 82,392 |
|
|
| 93,145 |
|
|
| 99,636 |
|
|
| 92,324 |
|
Sales |
|
| 2,362 |
|
|
| 1,314 |
|
|
| 1,388 |
|
|
| 1,074 |
|
|
| 1,480 |
|
Other |
|
| 210 |
|
|
| 124 |
|
|
| 98 |
|
|
| 78 |
|
|
| 136 |
|
Total Tanks and Boxes revenues |
| $ | 91,355 |
|
| $ | 83,830 |
|
| $ | 94,631 |
|
| $ | 100,788 |
|
| $ | 93,940 |
|
Percentage of rental revenues |
|
| 22.1 | % |
|
| 21.6 | % |
|
| 25.0 | % |
|
| 27.5 | % |
|
| 27.8 | % |
Percentage of total revenues |
|
| 19.8 | % |
|
| 19.8 | % |
|
| 23.4 | % |
|
| 24.7 | % |
|
| 24.7 | % |
Rental equipment, at cost (year-end) |
| $ | 309,808 |
|
| $ | 308,542 |
|
| $ | 310,263 |
|
| $ | 303,303 |
|
| $ | 284,005 |
|
Rental equipment, net book value (year-end) |
| $ | 208,981 |
|
| $ | 221,778 |
|
| $ | 237,927 |
|
| $ | 246,061 |
|
| $ | 241,656 |
|
Utilization (year-end) 1 |
|
| 57.5 | % |
|
| 50.7 | % |
|
| 49.7 | % |
|
| 63.9 | % |
|
| 57.7 | % |
Average utilization 1 |
|
| 56.0 | % |
|
| 50.1 | % |
|
| 58.3 | % |
|
| 62.9 | % |
|
| 64.2 | % |
Average rental equipment, at cost 2 |
| $ | 307,558 |
|
| $ | 307,416 |
|
| $ | 304,001 |
|
| $ | 289,928 |
|
| $ | 264,189 |
|
Annual yield on average rental equipment, at cost 4 |
|
| 20.8 | % |
|
| 19.1 | % |
|
| 22.5 | % |
|
| 25.6 | % |
|
| 26.9 | % |
Gross margin on rental revenues |
|
| 58.7 | % |
|
| 55.5 | % |
|
| 61.9 | % |
|
| 65.4 | % |
|
| 65.3 | % |
Gross margin on sales |
|
| 15.2 | % |
|
| (2.1 | )% |
|
| (25.1 | )% |
|
| 2.0 | % |
|
| (11.7 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
| $ | 462,034 |
|
| $ | 424,080 |
|
| $ | 404,544 |
|
| $ | 408,122 |
|
| $ | 379,509 |
|
|
|
|
|
|
|
|
|
-14-
ITEM 1A. RISK FACTORS
You should carefully consider the following discussion of various risks and uncertainties. We believe these risk factors are the most relevant to our business and could cause our results to differ materially from the forward-looking statements made by us. Our business, financial condition, and results of operations could be seriously harmed if any of these risks or uncertainties actually occur or materialize. In that event, the market price for our common stock could decline, and you may lose all or part of your investment.
The effects
RISKS RELATED TO THE PROPOSED ACQUISITION BY WILLSCOT MOBILE MINI:
There are material uncertainties and risks associated with the proposed Transaction, including the timing of a recession and tightened credit markets in the U.S. and other countriesconsummation of the Transaction, which may adversely impactaffect our business and ongoing operations, financial condition and may negatively impact our ability to access financing.
Demand for our rental products depends on continued industrialresults of operations, employees, customers, shareholders, other parties and business activityprospects, and state government funding. a failure to complete the Transaction on the terms reflected in the Merger Agreement, if at all, could have a material and adverse effect on our business, financial condition, results of operations, cash flows and stock price.
Additionally, in approving the Merger Agreement, our Board of Directors considered a number of factors and potential benefits, including local school districtsthe fact that arethe Transaction consideration to be received by holders of our common stock represented an approximate 10% premium over the Company’s closing stock price of $111.75 on January 26, 2024, the last full trading day prior to the announcement of the proposed Transaction. If the Transaction is not completed, neither we nor the holders of our common stock may realize this benefit of the Transaction.
There can be no assurance that the proposed Transaction will be consummated. The consummation of the proposed Transaction is subject to budgetary constraints, which resultedcertain regulatory approvals and customary closing conditions. The obligation of each party to consummate the Transaction is also conditioned upon the other party’s representations and warranties being true and correct to the extent specified in decreased demandthe Merger Agreement and the other party having performed in all material respects its obligations under the Merger Agreement. There can be no assurance that these and other conditions to closing will be satisfied in a timely manner or at all. The Merger Agreement also includes customary termination provisions for both the productsCompany and WillScot Mobile Mini, and we rent. The U.S. economy continuesmay be required to experience some weaknesspay WillScot Mobile Mini a termination fee equal to $120 million in certain specified circumstances, including, among other circumstances, if WillScot Mobile Mini terminates the Merger Agreement following a severe credit crisisCompany Adverse Recommendation Change prior to receipt of Company Shareholder Approval (each as defined in the Merger Agreement) or (ii) the Company terminates the Merger Agreement to enter into an alternative acquisition agreement in respect of a Superior Proposal (as defined in the Merger Agreement). If we are required to make this payment, doing so may materially adversely affect our business, financial condition and recession. Whileresults of operations.
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There can be no assurance that a remedy will be available to us in the U.S. economy has emergedevent of a breach of the Merger Agreement by WillScot Mobile Mini or its affiliates or that we will wholly or partially recover for any damages incurred by us in connection with the proposed Transaction. A failed transaction may result in negative publicity and a negative impression of us among our customers or in the investment community or business community generally. Furthermore, any disruptions to our business resulting from the recession,announcement and pendency of the proposed Transaction, including any adverse changes in our relationships with our customers, partners, suppliers and employees, could continue or accelerate in the event of a failed transaction. In addition, if the economy experiences another recession, reduced demandproposed Transaction is not completed, and there are no other parties willing and able to acquire the Company at a price of $123.00 per share or higher, on terms acceptable to us, the share price of our common stock will likely decline to the extent that the current market price of our common stock reflects an assumption that the proposed Transaction will be completed. Also, we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed Transaction, for which we will have received little or no benefit if the proposed Transaction is not completed. Many of these fees and costs will be payable by us even if the proposed Transaction is not completed and may relate to activities that we would not have undertaken other than to complete the proposed Transaction.
After the date of the Merger Agreement and deflationprior to the Effective Time, the Merger Agreement restricts us from taking specified actions without the consent of WillScot Mobile Mini (which consent may not be unreasonably withheld, conditioned or delayed) and requires that our business be conducted in all material respects in the ordinary course of business. These restrictions may prevent us from making appropriate changes to our businesses or organizational structures or from pursuing attractive business opportunities that may arise prior to the completion of the Transaction and could increase price competitionhave the effect of delaying or preventing other strategic transactions. Adverse effects arising from the pendency of the Transaction could be exacerbated by any delays in consummation of the Transaction or termination of the Merger Agreement.
The Transaction will be consummated only if certain conditions are met. Many of the conditions are outside of our control, and both we and WillScot Mobile Mini also have the right to terminate the Merger Agreement in certain circumstances. Accordingly, there may be uncertainty regarding the completion of the Transaction. This uncertainty may cause customers, suppliers, distributors, strategic partners or others that deal with us to delay or defer entering into contracts with us or making other decisions concerning us or seek to change or cancel existing business relationships, which could negatively affect our business. Any delay or deferral of those decisions or changes in existing agreements could have a material adverse effect on our revenuebusiness, regardless of whether the Transaction is ultimately completed.
Our current and prospective employees may experience uncertainty about their future role with the Company until strategies with regard to these employees are announced or executed, which may impair our ability to attract, retain and motivate key management, operational and customer-facing employees and other personnel prior to the Transaction. If we are unable to retain and replace personnel, we could face disruptions in our operations, loss of existing customers, loss of key information, expertise or know-how, and unanticipated additional recruitment and training costs.
InstabilityThe Merger Agreement contains provisions that make it more difficult for us to sell our business to a company other than WillScot Mobile Mini. These provisions include a general prohibition on us soliciting any acquisition proposal or offer for a competing transaction. To date, no party has made an acquisition proposal following the execution of the Merger Agreement. If we terminate the Merger Agreement in connection with our Board of Directors’ authorization for us to enter into a definitive agreement to consummate an alternative transaction contemplated by a Superior Proposal, we will be required to pay a termination fee of $120 million. We may also be required to pay the $120 million termination fee if we or WillScot Mobile Mini terminate the Merger Agreement under certain other circumstances specified in the globalMerger Agreement. These provisions might discourage a third party that has an interest in acquiring all or a significant part of the Company from considering or proposing an acquisition, even if the party were prepared to pay consideration with a higher per share cash or market value than the Merger Consideration, or
-16-
might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.
In connection with the announcement of the Transaction, as is common in the context of mergers and acquisitions of publicly-traded companies, we (along with our directors and officers) may attract lawsuits seeking to enjoin us from proceeding with or consummating the Transaction, or seeking to have the Transaction rescinded after its consummation. Defending against such claims, even those without merit, could result in substantial costs and divert management’s time and resources, which may negatively impact our financial system may also have an impact oncondition and adversely affect our business and results of operations. Such claims could prevent or delay the consummation of the Transaction, including through an injunction, and result in additional costs to us. The ultimate resolution of any such lawsuit cannot be predicted, and an adverse ruling in any such lawsuit may cause the Transaction to be delayed or not to be completed, which could cause us not to realize some or all of the anticipated benefits of the Transaction.
RISKS RELATED TO OUR STRATEGY AND OPERATION:
Our future operating results may fluctuate, fail to match past performance or fail to meet expectations, which may result in a decrease in our financial condition. In recent years, stock price.
Our operating results may fluctuate in the future, may fail to match our past performance or fail to meet the expectations of analysts and investors. Our results and related ratios, such as gross margin, operating income percentage and effective tax rate may fluctuate as a result of a number of factors, some of which are beyond our control including but not limited to:
As a result of these factors, could impact our business, resulting in lower revenues and lower levelshistorical financial results are not necessarily indicative of earnings inour future periods. At the current time we are uncertain as to the magnitude,results or duration, of such changes in our business.stock price.
-17-
Our stock price has fluctuated and may continue to fluctuate in the future, which may result in a decline in the value of your investment in our common stock.
The market price of our common stock fluctuates on the NASDAQ Global Select Market and is likely to be affected by a number of factors including but not limited to:
our operating performance and the performance of our competitors, and in particular any variations in our operating results or dividend rate from our stated guidance or from investors’ expectations;
any changes in general conditions in the global economy, the industries in which we operate or the global financial markets;
investors’ reaction to our press releases, public announcements or filings with the SEC;
the stock price performance of our competitors or other comparable companies;
any changes in research analysts’ coverage, recommendations or earnings estimates for us or for the stocks of other companies in our industry;
any sales of common stock by our directors, executive officers and our other large shareholders, particularly in light of the limited trading volume of our stock;
any merger and acquisition activity that involves us or our competitors; and
other announcements or developments affecting us, our industry, customers, suppliers or competitors.
In addition, in recent years the U.S. stock market has experienced significant price and volume fluctuations. These fluctuations are often unrelated to the operating performance of particular companies. More recently,Additionally, the most recent global credit crisis adversely affected the prices of most publicly traded stocks as many stockholders have becomebecame more willing to divest their stock holdings at lower values to increase their cash flow and reduce exposure to such fluctuations. These broad market fluctuations and any other negative economic trends may cause declines in the market price of our common stock and may be based upon factors that have little or nothing to do with our Company or its performance, and these fluctuations and trends could materially reduce our stock price.
-15-
Our future operating results may fluctuate, fail to match past performance or fail to meet expectations, which may result in a decrease in our stock price.
Our operating results may fluctuate in the future, may fail to match our past performance or fail to meet the expectations of analysts and investors. Our results and related ratios, such as gross margin, operating income percentage and effective tax rate may fluctuate as a result of a number of factors, some of which are beyond our control including but not limited to:
general economic conditions in the geographies and industries where we rent and sell our products;
legislative and educational policies where we rent and sell our products;
the budgetary constraints of our customers;
seasonality of our rental businesses and our end-markets;
success of our strategic growth initiatives;
costs associated with the launching or integration of new or acquired businesses;
the timing and type of equipment purchases, rentals and sales;
the nature and duration of the equipment needs of our customers;
the timing of new product introductions by us, our suppliers and our competitors;
the volume, timing and mix of maintenance and repair work on our rental equipment;
our equipment mix, availability, utilization and pricing;
the mix, by state and country, of our revenues, personnel and assets;
rental equipment impairment from excess, obsolete or damaged equipment;
movements in interest rates or tax rates;
changes in, and application of, accounting rules;
changes in the regulations applicable to us; and
litigation matters.
As a result of these factors, our historical financial results are not necessarily indicative of our future results or stock price.
Our ability to retain our executive management and to recruit, retain and motivate key qualified employees is critical to the success of our business.
If we cannot successfully recruit and retain qualified personnel, our operating results and stock price may suffer. We believe that our success is directly linked to the competent people in our organization, including our executive officers, senior managers and other key personnel, and in particular, Joe Hanna, our Chief Executive Officer. Personnel turnover can be costly and could materially and adversely impact our operating results and can potentially jeopardize the success of our current strategic initiatives. We need to attract and retain highly qualified personnel to replace personnel when turnover occurs, as well as add to our staff levels as growth occurs. Our business and stock price likely will suffer if we are unable to fill, or experience delays in filling open positions, or fail to retain key personnel.
Failure by third parties to manufacture and deliver our products to our specifications or on a timely basis may harm our reputation and financial condition.
We depend on third parties to manufacture our products even though we are able to purchase products from a variety of third-party suppliers. In the future, we may be limited as to the number of third-party suppliers for some of our products. Although in general, we make advance purchases of some products to help ensure an adequate supply, currently we do not have any long-term purchase contracts with any third-party supplier. We may experience supply problems as a result of financial or operating difficulties or failure of our suppliers, or shortages and discontinuations resulting from product obsolescence or other shortages or allocations by our suppliers. Unfavorable economic conditions may also adversely affect our suppliers or the terms on which we purchase products. In the future, we may not be able to negotiate arrangements with third parties to secure products that we require in sufficient quantities or on reasonable terms. If we cannot negotiate arrangements with third parties to produce our products or if the third parties fail to produce our products to our specifications or in a timely manner, our reputation and financial condition could be harmed.
-16-
We are subject to information technology system failures, network disruptions and breaches in data security which could subject us to liability, reputational damage or interrupt the operation of our business.
We rely upon our information technology systems and infrastructure for our business. We sustained an immaterial cybersecurity attack in 2021 involving ransomware that impacted certain of our systems but was unsuccessful in its ability to disrupt our network. Our investigation revealed that an unauthorized third party copied some personal information relating to certain current and former employees, directors, contractor workers and their dependents and certain other persons. Upon detection, we promptly undertook steps
-18-
to address the incident, restored network systems and resumed normal operations. The attack did not result in any material disruption to our operations or ability to service our customers and did not affect our financial performance.
In the future, we could experience additional breaches of our security measures resulting in the theft of confidential information or reputational damage from industrial espionage attacks, malware or other cyber-attacks, which may compromise our system infrastructure or lead to data leakage, either internally or at our third-party providers. Similarly, additional data privacy breaches by those who access our systems may pose a risk that sensitive data, including intellectual property, trade secrets or personal information belonging to us, our employees, customers or other business partners, may be exposed to unauthorized persons or to the public.
The immaterial breach of our information technology system that we suffered in 2021 and any future breaches could subject us to reputational damage. Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. We expend significant resources to minimize the risk of security breaches, including deploying additional personnel and protection technologies, training employees annually, and engaging third-party experts and contractors. Significant and increasing investments of time and resources by management and Board have been, and will continue to be, required to anticipate and address cybersecurity risks and incidents. However, given that the techniques used to obtain unauthorized access or to sabotage systems change frequently, and often are not identified until they are launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures in time to stop a cyber incident. Thus, there can be no assurance that our efforts to protect our data and information technology systems will prevent future breaches in our systems (or that of our third-party providers). Such breaches could adversely affect our business and result in financial and reputational harm to us, theft of trade secrets and other proprietary information, legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties.
Disruptions in our information technology systems or failure to protect these systems against security breaches could adversely affect our business and results of operations. Additionally, if these systems fail, become unavailable for any period of time or are not upgraded, this could limit our ability to effectively monitor and control our operations and adversely affect our operations.
Our information technology systems facilitate our ability to transact business, monitor and control our operations and adjust to changing market conditions. We sustained an immaterial cybersecurity attack in 2021 involving ransomware that impacted certain of our systems, but was unsuccessful in its ability to disrupt our network. Upon detection, we promptly undertook steps to address the incident, restored network systems and resumed normal operations. Any future cybersecurity attack causing disruption in our information technology systems or the failure of these systems to operate as expected could, depending on the magnitude of the problem, adversely affect our operating results by limiting our capacity to effectively transact business, monitor and control our operations and adjust to changing market conditions in a timely manner.
As part of our business, we develop, receive and retain confidential data about our company and our customers. In addition, because of recent advances in technology and well-known efforts on the part of computer hackers and cyber terroristscyber-terrorists to breach data security of companies, we face risks associated with potential failure to adequately protect critical corporate, clientcustomer and employee data, which if released, could adversely impact our clientcustomer relationships, our reputation, and even violate privacy laws. As part of our business, we develop, receive and retain confidential data about our company and our customers.
Further, the delay or failure to implement information system upgrades and new systems effectively could disrupt our business, distract management’s focus and attention from our business operations and growth initiatives, and increase our implementation and operating costs, any of which could negatively impact our operations and operating results.
We have engaged in acquisitions and may engage in future acquisitions that could negatively impact our results of operations, financial condition and business.
In 2004, weDuring 2023, the Company acquired TRS, an electronic test equipment rental businessVesta Modular, a portfolio company of Kinderhook Industries, that was a leading provider of temporary and permanent modular space solutions, the assets of Brekke Storage and Inland Leasing, regional providers of portable storage solutions in 2008 we acquired Adler Tanks,the Colorado market, and the assets of Dixie Storage, a liquid and solid containment rental business.regional provider of portable storage solutions in the South Carolina market. We anticipate that we will continue to consider acquisitions in the future that meet our strategic growth plans. We are unable to predict whether or when any prospective acquisition will be completed. Acquisitions involve numerous risks, including the following:
difficulties in integrating the operations, technologies, products and personnel of the acquired companies;
diversion of management’s attention from normal daily operations of our business;
difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets may have stronger market positions;
difficulties in complying with regulations applicable to any acquired business, such as environmental regulations, and managing risks related to an acquired business;
-19-
an inability to implement uniform standards, controls, procedures and policies;
undiscovered and unknown problems, defects, damaged assets liabilities, or other issues related to any acquisition that become known to us only after the acquisition;
negative reactions from our customers to an acquisition;
disruptions among employees related to any acquisition which may erode employee morale;
loss of key employees, including costly litigation resulting from the termination of those employees;
an inability to realize cost efficiencies or synergies that we may anticipate when selecting acquisition candidates;
recording of goodwill and non-amortizable intangible assets that will be subject to future impairment testing and potential periodic impairment charges;
incurring amortization expenses related to certain intangible assets; and
becoming subject to litigation.
Acquisitions are inherently risky, and no assurance can be given that our recent and future acquisitions will be successful or will not adversely affect our business, operating results, or financial condition. The success of our acquisition strategy depends upon our ability to successfully complete acquisitions and integrate any businesses that we acquire into our existing business. The difficulties of integration could be increased by the necessity of coordinating geographically dispersed organizations; maintaining acceptable standards, controls, procedures and policies; integrating personnel with disparate business backgrounds; combining different corporate cultures; and the impairment of relationships with employees and customers as a result of any integration of new management and
-17-
other personnel. In addition, if we consummate one or more significant future acquisitions in which the consideration consists of stock or other securities, our existing shareholders’ ownership could be diluted significantly. If we were to proceed with one or more significant future acquisitions in which the consideration included cash, we could be required to use, to the extent available, a substantial portion of our Credit Facility. If we increase the amount borrowed against our available credit line, we would increase the risk of breaching the covenants under our credit facilities with our lenders. In addition, it would limit our ability to make other investments, or we may be required to seek additional debt or equity financing. Any of these items could adversely affect our results of operations.
We continually assess the strategic fit of our existing businesses and may divest or otherwise dispose of businesses that are deemed not to fit with our strategic plan or are not achieving the desired return on investment, and we cannot be certain that our business, operating results and financial condition will not be materially and adversely affected.
A successful divestiture depends on various factors, including reaching an agreement with potential buyers on terms we deem attractive, as well as our ability to effectively transfer liabilities, contracts, facilities, and employees to any purchaser, identify and separate the assets to be divested from the assets that we wish to retain, reduce fixed costs previously associated with the divested assets or business, and collect the proceeds from any divestitures. These efforts require varying levels of management resources, which may divert our attention from other business operations. If we do not realize the expected benefits of any divestiture transaction, our consolidated financial position, results of operations and cash flows could be negatively impacted. In addition, divestitures of businesses involve a number of risks, including significant costs and expenses, the loss of customer relationships and a decrease in revenues and earnings associated with the divested business. Furthermore, divestitures potentially involve significant post-closing separation activities, which could involve the expenditure of material financial resources and significant employee resources. Any divestiture may result in a dilutive impact to our future earnings if we are unable to offset the dilutive impact from the loss of revenue associated with the divestiture, as well as significant write-offs, including those related to goodwill and other intangible assets, which could have a material adverse effect on our results of operations and financial condition.
If we determine that our goodwill and intangible assets have become impaired, we may incur impairment charges, which would negatively impact our operating results.
At December 31, 2017,2023, we had $35.5$387.8 million of goodwill and intangible assets, net, on our consolidated balance sheets.Consolidated Balance Sheets. Goodwill represents the excess of cost over the fair value of net assets acquired in business combinations. Under accounting principles generally accepted in the United States of America, we assess potential impairment of our goodwill and intangible assets at least annually, as well as on an interim basis to the extent that factors or indicators become apparent that could reduce the fair value of any of our businesses below book value. Impairment may result from significant changes in the manner of use of the acquired asset, negative industry or economic trends and significant underperformance relative to historic or projected operating results.
-20-
Our rental equipment is subject to residual value risk upon disposition and may not sell at the prices or in the quantities we expect.
The market value of any given piece of rental equipment could be less than its depreciated value at the time it is sold. The market value of used rental equipment depends on several factors, including:
the market price for new equipment of a like kind;
the age of the equipment at the time it is sold, as well as wear and tear on the equipment relative to its age;
the supply of used equipment on the market;
technological advances relating to the equipment;
worldwide and domestic demand for used equipment; and
general economic conditions.
We include in income from operations the difference between the sales price and the depreciated value of an item of equipment sold. Changes in our assumptions regarding depreciation could change our depreciation expense, as well as the gain or loss realized upon disposal of equipment. Sales of our used rental equipment at prices that fall significantly below our projections or in lesser quantities than we anticipate will have a negative impact on our results of operations and cash flows.
If we do not effectively manage our credit risk, collect on our accounts receivable or recover our rental equipment from our customers’ sites, it could have a material adverse effect on our operating results.
We generally rent and sell to customers on 30 day payment terms, individually perform credit evaluation procedures on our customers for each transaction and require security deposits or other forms of security from our customers when a significant credit risk is identified. Historically, accounts receivable write-offs and write-offs related to equipment not returned by customers have not been significant and have averaged less than 1% of total revenues over the last five years. If economic conditions deteriorate, we may see an increase in bad debtcredit losses relative to historical levels, which may materially and adversely affect our operations. Business segments that experience significant market disruptions or declines (such as weakness in upstream oil and gas customer demand at Adler Tanks) may experience increased customer credit risk and higher bad debt expense.credit losses. Failure to manage our credit risk and receive timely payments on our customer accounts receivable may result in write-offs and/or loss of equipment, particularly electronic test equipment. If we are not able to effectively manage credit risk issues, or if a large number of our customers should have financial difficulties at the same time, our receivables and equipment losses could increase above historical levels. If this should occur, our results of operations may be materially and adversely affected.
Effective management of our rental assets is vital to our business. If we are not successful in these efforts, it could have a material adverse impact on our resultresults of operations.
Our modular, electronicscontainers and liquid and solid containmentelectronics rental products have long useful lives and managing those assets is a critical element to each of our rental businesses. Generally, we design units and find manufacturers to build them to our specifications
-18-
for our modularmodulars and liquid and solid containment tanks and boxes.containers. Modular asset management requires designing and building the product for a long life that anticipates the needs of our customers, including anticipating potential changes in legislation, regulations, building codes and local permitting in the various markets in which the Company operates. Electronic test equipment asset management requires understanding, selecting and investing in equipment technologies that support market demand, including anticipating technological advances and changes in manufacturers’ selling prices. Liquid and solid containmentContainer asset management requires designing and building the product for a long life, usingobtaining high quality, componentswell-constructed products and repairing and maintaining the products to prevent leaks.ensure its long life. For each of our modular, container and electronic test equipment and liquid and solid containment assets, we must successfully maintain and repair this equipment cost-effectively to maximize the useful life of the products and the level of proceeds from the sale of such products. To the extent that we are unable to do so, our result of operations could be materially adversely affected.
The nature of our businesses, including the ownership of industrial property, exposes us to the risk of litigation and liability under environmental, health and safety and products liability laws. Violations of environmental or health and safety related laws or associated liability could have a material adverse effect on our business, financial condition and results of operations.
We are subject to national, state, provincial and local environmental laws and regulations concerning, among other things, solid and liquid waste and hazardous substancessubstance handling, storage and disposal and employee health and safety. These laws and regulations are complex and frequently change. We could incur unexpected costs, penalties and other civil and criminal liability if we fail to comply with applicable environmental or health and safety laws. We also could incur costs or liabilities related to waste disposal or remediating soil or groundwater contamination at our properties, at our customers’ properties or at third party landfill and disposal sites. These liabilities
-21-
can be imposed on the parties generating, transporting or disposing of such substances or on the owner or operator of any affected property, often without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous substances.
Several aspects of our businesses involve risks of environmental and health and safety liability. For example, our operations involve the use of petroleum products, solvents and other hazardous substances in the construction and maintaining of modular buildings and for fueling and maintaining our delivery trucks and vehicles. We also own, transport and rent tanks and boxes in which waste materials are placed by our customers. The historical operations at some of our previously or currently owned or leased and newly acquired or leased properties may have resulted in undiscovered soil or groundwater contamination or historical non-compliance by third parties for which we could be held liable. Future events, such as changes in existing laws or policies or their enforcement, or the discovery of currently unknown contamination or non-compliance, may also give rise to liabilities or other claims based on these operations that may be material. In addition, compliance with future environmental or health and safety laws and regulations may require significant capital or operational expenditures or changes to our operations.
Accordingly, in addition to potential penalties for non-compliance, we may become liable, either contractually or by operation of law, for investigation, remediation and monitoring costs even if the contaminated property is not presently owned or operated by us, or if the contamination was caused by third parties during or prior to our ownership or operation of the property. In addition, certain parties may be held liable for more than their “fair” share of environmental investigation and cleanup costs. Contamination and exposure to hazardous substances or other contaminants such as mold can also result in claims for remediation or damages, including personal injury, property damage, and natural resources damage claims. Although expenses related to environmental compliance, health and safety issues, and related matters have not been material to date, we cannot assure that we will not have to make significant expenditures in the future in order to comply with applicable laws and regulations. Violations of environmental or health and safety related laws or associated liability could have a material adverse effect on our business, financial condition and results of operations.
In general, litigation in the industries in which we operate, including class actions that seek substantial damages, arises with increasing frequency. Enforcement of environmental and health and safety requirements is also frequent. Such proceedings are invariably expensive, regardless of the merit of the plaintiffs’ or prosecutors’ claims. We may be named as a defendant in the future, and there can be no assurance, irrespective of the merit of such future actions, that we will not be required to make substantial settlement payments in the future. Further, a significant portion of our business is conducted in California which is one of the most highly regulated and litigious states in the country. Therefore, our potential exposure to losses and expenses due to new laws, regulations or litigation may be greater than companies with a less significant California presence.
The nature of our business also subjects us to property damage and product liability claims, especially in connection with our modular buildings and tank and box rental businesses. Although we maintain liability coverage that we believe is commercially reasonable, an unusually large property damage or product liability claim or a series of claims could exceed our insurance coverage or result in damage to our reputation.
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Our routine business activities expose us to risk of litigation from employees, vendors and other third parties, which could have a material adverse effect on our results of operations.
We may be subject to claims arising from disputes with employees, vendors and other third parties in the normal course of our business; these risks may be difficult to assess or quantify and their existence and magnitude may remain unknown for substantial periods of time. If the plaintiffs in any suits against us were to successfully prosecute their claims, or if we were to settle any such suits by making significant payments to the plaintiffs, our operating results and financial condition would be harmed. Even if the outcome of a claim proves favorable to us, litigation can be time consuming and costly and may divert management resources. In addition, our organizational documents require us to indemnify our senior executives to the maximum extent permitted by California law. We maintain directors’ and officers’ liability insurance that we believe is commercially reasonable in connection with such obligations, but if our senior executives were named in any lawsuit, our indemnification obligations could magnify the costs of these suits and/or exceed the coverage of such policies.
If we suffer loss to our facilities, equipment or distribution system due to catastrophe, our insurance policies could be inadequate or depleted, our operations could be seriously harmed, which could negatively affect our operating results.
Our facilities, rental equipment and distribution systems may be subject to catastrophic loss due to fire, flood, hurricane, earthquake, terrorism or other natural or man-made disasters. In particular, our headquarters, three operating facilities, and certain of our rental equipment are located in areas of California, with above average seismic activity and could be subject to catastrophic loss caused by an earthquake. Our rental equipment and facilities in Texas, Louisiana, Florida, North Carolina and Georgia are located in areas subject to hurricanes and other tropical storms. In addition to customers’ insurance on rented equipment, we carry property insurance on our rental equipment in inventory and operating facilities as well as business interruption insurance. We believe our insurance policies have adequate limits and deductibles to mitigate the potential loss exposure of our business. We do not maintain financial reserves for policy deductibles and our insurance policies contain exclusions that are customary for our industry, including exclusions for earthquakes, flood and terrorism. If any of our facilities or a significant amount of our rental equipment were to experience a catastrophic loss, it could disrupt our operations, delay orders, shipments and revenue recognition and result in expenses to repair or
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replace the damaged rental equipment and facility not covered by insurance, which could have a material adverse effect on our results of operations.
INTEREST RATE AND INDEBTEDNESS RISKS:
Our debt instruments contain covenants that restrict or prohibit our ability to enter into a variety of transactions and may limit our ability to finance future operations or capital needs. If we have an event of default under these instruments, our indebtedness could be accelerated, and we may not be able to refinance such indebtedness or make the required accelerated payments.
The agreements governing our Series A, Series BD, E and Series CF Senior Notes (as defined and more fully described under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”) and our Credit Facility contain various covenants that limit our discretion in operating our business. In particular, we are limited in our ability to merge, consolidate, reorganize or transfer substantially all of our assets, make investments, pay dividends or distributions, redeem or repurchase stock, change the nature of our business, enter into transactions with affiliates, incur indebtedness and create liens on our assets to secure debt. In addition, we are required to meet certain financial covenants under these instruments. These restrictions could limit our ability to obtain future financing, make strategic acquisitions or needed capital expenditures, withstand economic downturns in our business or the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise.
A failure to comply with the restrictions contained in these agreements could lead to an event of default, which could result in an acceleration of our indebtedness. In the event of an acceleration, we may not have or be able to obtain sufficient funds to refinance our indebtedness or make any required accelerated payments. If we default on our indebtedness, our business financial condition and results of operations could be materially and adversely affected.
The majority of our indebtedness is subject to variable interest rates, which makes us vulnerable to increases in interest rates, which could negatively affect our net income.
Our indebtedness exposes us to interest rate increases because the majority of our indebtedness is subject to variable rates. At present, we do not have any derivative financial instruments such as interest rate swaps or hedges to mitigate interest rate variability. The interest rates under our credit facilities are reset at varying periods. These interest rate adjustments could cause periodic fluctuations in our operating results and cash flows. Our annual debt service obligations increase by approximately $1.8$5.9 million per year for each 1% increase in the average interest rate we pay based on the $183.5$588.0 million balance of variable rate debt outstanding at December 31, 2017.2023. If interest rates rise in the future, and, particularly if they rise significantly, interest expense will increase and our net income will be negatively affected.
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Our effective tax rate may change and become less predictable as our business expands, making our future earnings less predictable.
We continue to consider expansion opportunities domestically and internationally for our rental businesses, such as the organic expansion of our modular business in North Carolina, Georgia, Maryland, Virginia and Washington, D.C., expansion into the portable storage business and our expansion in 2008 into the liquid and solid containment business. Since the Company’s effective tax rate depends on business levels, personnel and assets located in various jurisdictions, further expansion into new markets or acquisitions may change the effective tax rate in the future and may make it, and consequently our earnings, less predictable going forward. In addition, the enactment of future tax law changes by federal and state taxing authorities may impact the Company’s current period tax provision and its deferred tax liabilities.
Changes in applicable tax regulations could negatively affect our financial results.
We are subject to taxation in the United States, as well as a number of foreign jurisdictions. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The changes included in the Tax Act are both broad and complex. The final transitional impact of the Tax Act may differ from the estimates provided in this Annual Report, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates we utilized to calculate the transitional impacts, including impacts related to changes to current year earnings estimates and the amount of the repatriation tax. Given the unpredictability of these and other tax laws and related regulations, and their potential interdependency, it is difficult to currently assess the overall effect of such changes. Nonetheless, any material negative effect of such changes to our earnings and cash flow could adversely impact our financial results.
Changes in financial accounting standards may cause lower than expected operating results and affect our reported results of operations.
Changes in accounting standards and their application may have a significant effect on our reported results on a going-forward basis and may also affect the recording and disclosure of previously reported transactions. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred in the past and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business.
Failure to comply with internal control attestation requirements could lead to loss of public confidence in our financial statements and negatively impact our stock price.
As a public reporting company, we are required to comply with the Sarbanes-Oxley Act of 2002, including Section 404, and the related rules and regulations of the SEC, including expanded disclosures and accelerated reporting requirements. Compliance with Section 404 and other related requirements has increased our costs and will continue to require additional management resources. We may need to continue to implement additional finance and accounting systems, procedures and controls to satisfy new reporting requirements. While our management concluded that our internal control over financial reporting as of December 31, 2017 was effective, there is no assurance that future assessments of the adequacy of our internal controls over financial reporting will be favorable. If we are unable to obtain future unqualified reports as to the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our internal control over financial reporting, which could adversely affect our stock price.
SPECIFIC RISKS RELATED TO OUR RELOCATABLE MODULAR BUILDINGS AND PORTABLE STORAGE BUSINESS SEGMENT:SEGMENTS:
Significant reductions of, or delays in, funding to public schools have caused the demand and pricing for our modular classroom units to decline, which has in the past caused, and may cause in the future, a reduction in our revenues and profitability.
Rentals and sales of modular buildings to public school districts for use as classrooms, restroom buildings, and administrative offices for K-12 represent a significant portion of Mobile Modular’s rental and sales revenues. Funding for public school facilities is derived from a variety of sources including the passage of both statewide and local facility bond measures, developer fees and various taxes levied to support school operating budgets. Many of these funding sources are subject to financial and political considerations, which vary from district to district and are not tied to demand. Historically, we have benefited from the passage of statewide and local facility bond measures and believe these are essential to our business.
The state of California is our largest market for classroom rentals. The strength of this market depends heavily on public funding from voter passage of both state and local facility bond measures, and the ability of the state to sell such bonds in the
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public market. A lack of passage of state and local facility bond measures, or the inability to sell bonds in the public markets in the future could reduce our revenues and operating income, and consequently have a material adverse effect on the Company’s financial condition. Furthermore, even if voters have approved facility bond measures and the state has raised bond funds, there is no guarantee that individual school projects will be funded in a timely manner.
As a consequence of economic recession, many states and local governments have experienced large budget deficits resulting in severe budgetary constraints among public school districts. To the extent public school districts’ funding is reduced for the rental and purchase of modular buildings, our business could be harmed and our results of operations negatively impacted. We believe that interruptions or delays in the passage of facility bond measures or completion of state budgets, an insufficient amount of state funding, a significant reduction of funding to public schools, or changes negatively impacting enrollment may reduce the rental and sale demand for our educational products. Any reductions in funding available to the school districts from the states in which we do business may cause school districts to experience budget shortfalls and to reduce their demand for our products despite growing student populations, class size reduction initiatives and modernization and reconstruction project needs, which could reduce our revenues and operating income and consequently have a material adverse effect on the Company’s financial condition.
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Public policies that create demand for our products and services may change, resulting in decreased demand for or the pricing of our products and services, which could negatively affect our revenues and operating income.
In California a law wasVarious states that we operate enacted in 1996laws and constitutional amendments to provide funding for school districts for the reduction of class sizes for kindergarten through third grade. In Florida, a state constitutional amendment was passed in 2002 to limit the number of students that may be grouped in a single classroom for pre-kindergarten through grade twelve.classroom. School districts with class sizes in excess of state limits have been and continue to be a significant source of our demand for modular classrooms. Further, inIn California, efforts to address aging infrastructure and deferred maintenance have resulted in modernization and reconstruction projects by public school districts including seismic retrofitting, asbestos abatement and various building repairs and upgrades, which has been another source of demand for our modular classrooms. The most recent economic recession has caused state and local budget shortfalls, which have reduced school districts’ funding and their ability to comply with state class size reduction requirements in California and Florida.requirements. If educational priorities and policies shift away from class-size reduction or modernization and reconstruction projects, demand and pricing for our products and services may decline, not grow as quickly as, or not reach the levels that we anticipate. Significant equipment returns may result in lower utilization until equipment can be redeployed or sold, which may cause rental rates to decline and negatively affect our revenues and operating income.
Failure to comply with applicable regulations could harm our business and financial condition, resulting in lower operating results and cash flows.
Similar to conventionally constructed buildings, the modular building industry, including the manufacturers and lessors of portable classrooms, are subject to regulations by multiple governmental agencies at the federal, state and local level relating to environmental, zoning, health, safety, energy efficiency, labor and transportation matters, among other matters. Failure to comply with these laws or regulations could impact our business or harm our reputation and result in higher capital or operating expenditures or the imposition of penalties or restrictions on our operations.
As with conventional construction, typically new codes and regulations are not retroactively applied. Nonetheless, new governmental regulations in these or other areas may increase our acquisition cost of new rental equipment, limit the use of or make obsolete some of our existing equipment, or increase our costs of rental operations.
Building codes are generally reviewed every three years. All aspects of a given code are subject to change including, but not limited to, such items as structural specifications for earthquake safety, energy efficiency and environmental standards, fire and life safety, transportation, lighting and noise limits. On occasion, state agencies have undertaken studies of indoor air quality and noise levels with a focus on permanent and modular classrooms. These results could impact our existing modular equipment and affect the future construction of our modular product.
Compliance with building codes and regulations entails a certain amount of risk as state and local government authorities do not necessarily interpret building codes and regulations in a consistent manner, particularly where applicable regulations may be unclear and subject to interpretation. These regulations often provide broad discretion to governmental authorities that oversee these matters, which can result in unanticipated delays or increases in the cost of compliance in particular markets. The construction and modular industries have developed many “best practices” which are constantly evolving. Some of our peers and competitors may adopt practices that are more or less stringent than the Company’s. When, and if, regulatory standards are clarified, the effect of the clarification may be to impose rules on our business and practices retroactively, at which time, we may not be in compliance with such regulations and we may be required to incur costly remediation. If we are unable to pass these increased costs on to our customers, our profitability, operating cash flows and financial condition could be negatively impacted.
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Expansions of our modular and portable storage operations into new markets may negatively affect our operating results.
In the past, we have expanded our modular and portable storage operations in Texas, North Carolina, Georgia, Maryland, Virginiainto new geographies and Washington, D.C.states. There are risks inherent in the undertaking of such expansion, including the risk of revenue from the business in any new markets not meeting our expectations, higher than expected costs in entering these new markets, risk associated with compliance with applicable state and local laws and regulations, response by competitors and unanticipated consequences of expansion. In addition, expansion into new markets may be affected by local economic and market conditions. Expansion of our operations into new markets will require a significant amount of attention from our management, a commitment of financial resources and will require us to add qualified management in these markets, which may negatively impact our operating results.
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We are subject to laws and regulations governing government contracts. These laws and regulations expose us to business volatility and risks, including government budgeting cycles and appropriations, potential early termination of contracts, procurement regulations, governmental policy shifts, audits, investigations, sanctions and penalties. Furthermore, these laws and regulations make these government contracts more favorable to government entities than other third parties and any changes in these laws and regulations, or our failure to comply with these laws and regulations could harm our business.
We have agreementsMobile Modular and Portable Storage derive a portion of its revenues from contracts with U.S. federal government entities, government prime contractors, state entities and local entities, including school districts. Contracts with government entities are subject to budgetary constraints, and our continued performance under our contracts with these agencies and their prime contractors, or award of additional contracts from these agencies or their prime contractors, could be jeopardized by spending reductions or budget cutbacks at these agencies. Such contracts are also subject to unique laws and regulations, and the adoption of new laws or regulations relating to government contracting or changes to existing laws or regulations. New laws, regulations or procurement requirements, or changes to current ones, can significantly increase our costs and risks and reduce our profitability. In addition, any failure on the salepart of our productsthe company to comply with applicable government entitiescontract laws and regulations might result in administrative penalties or even in the termination or suspension of these contracts and as a result, we are subject to various statutes and regulations that apply to companies doing business with the government. Theloss of the related revenues, which would harm our business.
Furthermore, the laws governing government contracts differ from the laws governing private contracts. For example, many government contracts contain pricing terms and conditions that are not applicable to private contracts such as clauses that allow government entities not to perform on contractual obligations in the case of a lack of fiscal funding. Also, in the educational markets we serve, we are able to utilize “piggyback” contracts in marketing our products and services and ultimately to book business. The term “piggyback” contract refers to contracts for portable classrooms or other products entered into by public school districts following a formal bid process that allows for the use of the same contract terms and conditions with the successful vendor by other public school districts. As a result, “piggyback” contracts allow us to more readily book orders from our government customers, primarily public school districts, and to reduce the administrative expense associated with booking these orders. The governmental statutes and regulations that allow for use of “piggyback” contracts are subject to change or elimination in their entirety. A change in the manner of use or the elimination of “piggyback” contracts would likely negatively impact our ability to book new business from these government customers and could cause our administrative expenses related to processing these orders to increase significantly. In addition, any failure to comply with these laws and regulations might result in administrative penalties or even in the suspension of these contracts and as a result, the loss of the related revenues which would harm our business and results from operations.
Seasonality of our educational business may have adverse consequences for our business.
A significant portion of the modular sale and rental revenues is derived from the educational market. Typically, during each calendar year, our highest numbers of classrooms are shipped for rental and sale orders during the second and third quarters for delivery and installation prior to the start of the upcoming school year. The majority of classrooms shipped in the second and third quarters have rental start dates during the third quarter, thereby making the fourth quarter the first full quarter of rental revenues recognized for these transactions. Although this is the historical seasonality of our business, it is subject to change or may not meet our expectations, which may have adverse consequences for our business.
We face strong competition in our modular building and portable storage markets and we may not be able to effectively compete.
The modular building leasing industry is highly competitive in our states of operation and we expect it to remain so. The competitive market in which we operate may prevent us from raising rental fees or sales prices to pass any increased costs on to our customers. We compete on the basis of a number of factors, including equipment availability, quality, price, service, reliability, appearance, functionality and delivery terms. We may experience pricing pressures in our areas of operation in the future as some of our competitors seek to obtain market share by reducing prices.
Some of our larger national competitors in the modular building leasing industry notably WillScot Corporation and Modspace, have a greater range of products and services, greater financial and marketing resources, larger customer bases, and greater name recognition than we have. These larger competitors may be better able to respond to changes in the relocatable modular building market,and portable storage container markets, to finance acquisitions, to fund internal growth and to compete for market share, any of which could harm our business.
We may not be able to quickly redeploy modular and container units returning from leases, which could negatively affect our financial performance and our ability to expand, or utilize, our rental fleet.
As of December 31, 2017, 53%2023, 55% of our modular portfolioand 57% of our container portfolios had equipment on rent for periods exceeding the original committed term. Generally, when a customer continues to rent the modular units beyond the contractual term, the equipment rents on a month-to-month basis. If a significant number of our rented modular units were returned during a short period of time, particularly those units that are rented on a month-to-month basis, a large supply of units would need to be remarketed. Our failure to effectively remarket a
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large influx of units returning from leases could negatively affect our financial performance and our ability to continue expanding our
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rental fleet. In addition, if returned units stay off rent for an extended period of time, we may incur additional costs to securely store and maintain them.
Significant increases in raw material and labor costs could increase our acquisition cost of new modular rental units and repair and maintenance costs of our fleet, which would increase our operating costs and harm our profitability.
We incur labor costs and purchase raw materials, including lumber, siding and roofing and other products to perform periodic repairs, modifications and refurbishments to maintain physical conditions of our modular units. The volume, timing and mix of maintenance and repair work on our rental equipment may vary quarter-to-quarter and year-to-year. Generally, increases in labor and raw material costs will also increase the acquisition cost of new modular units and increase the repair and maintenance costs of our fleet. We also maintain a fleet of service trucks and use subcontractor companies for the delivery, set-up, return delivery and dismantle of modulars for our customers. We rely on our drivers and subcontractor service companies to meet customer demands for timely shipment and return, and the loss or inadequate number of driver and subcontractor service companies may cause prices to increase, while negatively impacting our reputation and operating performance. During periods of rising prices for labor, raw materials or fuel, and in particular, when the prices increase rapidly or to levels significantly higher than normal, we may incur significant increases in our acquisition costs for new modular units and incur higher operating costs that we may not be able to recoup from our customers, which would reduce our profitability.
Failure by third parties to manufacture our products timely or properly may harm our reputation and financial condition.
We are dependent on third parties to manufacture our products even though we are able to purchase products from a variety of third-party suppliers. Mobile Modular purchases new modulars from various manufacturers who build to Mobile Modular’s design specifications. With the exception of Enviroplex, none of the principal suppliers are affiliated with the Company. During 2017,2023, Mobile Modular purchased 36%30% of its modular product from one manufacturer. The Company believes that the loss of any of its primary manufacturers of modulars could have an adverse effect on its operations since Mobile Modular could experience higher prices and longer delivery lead times for modular product until other manufacturers were able to increase their production capacity.
Failure to properly design, manufacture, repair and maintain the modular product may result in impairment charges, potential litigation and reduction of our operating results and cash flows.
We estimate the useful life of the modular product to be 18 years with a residual value of 50% and containers to be 25 years with a residual value of 62.5%. However, proper design, manufacture, repairs and maintenance of the modular productproducts during our ownership is required for the product to reach the estimatedtheir useful life of 18 years with alives and residual value of 50%.values. If we do not appropriately manage the design, manufacture, repair and maintenance of our modular product, or otherwise delay or defer such repair or maintenance, we may be required to incur impairment charges for equipment that is beyond economic repair costs or incur significant capital expenditures to acquire new modular product to serve demand. In addition, such failures may result in personal injury or property damage claims, including claims based on presence of mold, and termination of leases or contracts by customers. Costs of contract performance, potential litigation, and profits lost from termination could accordingly reduce our future operating results and cash flows.
Our warranty costs may increase and warranty claims could damage our reputation and negatively impact our revenues and operating income.
Sales of new relocatable modular buildings not manufactured by us are typically covered by warranties provided by the manufacturer of the products sold. We provide ninety-day warranties on certain modular sales of used rental units and one-year warranties on equipment manufactured by our Enviroplex subsidiary. Historically, our warranty costs have not been significant, and we monitor the quality of our products closely. If a defect were to arise in the installation of our equipment at the customer’s facilities or in the equipment acquired from our suppliers or by our Enviroplex subsidiary, we may experience increased warranty claims. Such claims could disrupt our sales operations, damage our reputation and require costly repairs or other remedies, negatively impacting revenues and operating income.
SPECIFIC RISKS RELATED TO OUR ELECTRONIC TEST EQUIPMENT BUSINESS SEGMENT:
Market risk and cyclical downturns in the industries using test equipment may result in periods of low demand for our product resulting in excess inventory, impairment charges and reduction of our operating results and cash flows.
TRS-RenTelco’s revenues are derived from the rental and sale of general purpose and communications test equipment to a broad range of companies, from Fortune 500 to middle and smaller market companies, in the aerospace, defense, communications, manufacturing and semiconductor industries. Electronic test equipment rental and sales revenues are primarily affected by the
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business activity within these industries related to research and development, manufacturing, and communication infrastructure installation and maintenance. Historically, these industries have been cyclical and have experienced periodic downturns, which can have a material
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adverse impact on the industry’s demand for equipment, including our rental electronic test equipment. In addition, the severity and length of any downturn in an industry may also affect overall access to capital, which could adversely affect our customers and result in excess inventory and impairment charges. During periods of reduced and declining demand for test equipment, we are exposed to additional receivable risk from non-payment and may need to rapidly align our cost structure with prevailing market conditions, which may negatively impact our operating results and cash flows.
Seasonality of our electronic test equipment business may impact quarterly results.
Generally, rental activity declines in the fourth quarter month of December and the first quarter months of January and February. These months may have lower rental activity due to holiday closures, particularly by larger companies, inclement weather and its impact on various field related communications equipment rentals, and companies’ operational recovery from holiday closures which may impact the start-up of new projects coming online in the first quarter. These seasonal factors historically have impacted quarterly results in each year’s first and fourth quarter, but we are unable to predict how such factors may impact future periods.
Our rental test equipment may become obsolete or may no longer be supported by a manufacturer, which could result in an impairment charge.
Electronic test equipment is characterized by changing technology and evolving industry standards that may render our existing equipment obsolete through new product introductions, or enhancements, before the end of its anticipated useful life, causing us to incur impairment charges. We must anticipate and keep pace with the introduction of new hardware, software and networking technologies and acquire equipment that will be marketable to our current and prospective customers.
Additionally, some manufacturers of our equipment may be acquired or cease to exist, resulting in a future lack of support for equipment purchased from those manufacturers. This could result in the remaining useful life becoming shorter, causing us to incur an impairment charge. We monitor our manufacturers’ capacity to support their products and the introduction of new technologies, and we acquire equipment that will be marketable to our current and prospective customers. However, any prolonged economic downturn could result in unexpected bankruptcies or reduced support from our manufacturers. Failure to properly select, manage and respond to the technological needs of our customers and changes to our products through their technology life cycle may cause certain electronic test equipment to become obsolete, resulting in impairment charges, which may negatively impact operating results and cash flows.
If we do not effectively compete in the rental equipment market, our operating results will be materially and adversely affected.
The electronic test equipment rental business is characterized by intense competition from several competitors including Electro Rent Corporation, Continental Resources and TestEquity, some of which may have access to greater financial and other resources than we do. Although no single competitor holds a dominant market share, we face competition from these established entities and new entrants in the market. We believe that we anticipate and keep pace with the introduction of new products and acquire equipment that will be marketable to our current and prospective customers. We compete on the basis of a number of factors, including product availability, price, service and reliability. Some of our competitors may offer similar equipment for lease, rental or sale at lower prices and may offer more extensive servicing, or financing options. Failure to adequately forecast the adoption of, and demand for, new or existing products may cause us not to meet our customers’ equipment requirements and may materially and adversely affect our operating results.
If we are not able to obtain equipment at favorable rates, there could be a material adverse effect on our operating results and reputation.
The majority of our rental equipment portfolio is comprised of general purpose test and measurement instruments purchased from leading manufacturers such as Keysight Technologies (formerly Agilent Technologies) and Tektronix, a division of Fortive Corporation.manufacturers. We depend on purchasing equipment from these manufacturers and suppliers for use as our rental equipment. If, in the future, we are not able to purchase necessary equipment from one or more of these suppliers on favorable terms, we may not be able to meet our customers’ demands in a timely manner or for a rental rate that generates a profit. If this should occur, we may not be able to secure necessary equipment from an alternative source on acceptable terms and our business and reputation may be materially and adversely affected.
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If we are not able to anticipate and mitigate the risks associated with operating internationally, there could be a material adverse effect on our operating results.
Currently, total foreign country customers and operations account for less than 10% of the Company’s revenues. In recent years some of our customers have expanded their international operations faster than domestic operations, and this trend may continue. Over
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time, we anticipate the amount of our international business may increase if ourwe focus on international market opportunities continues.opportunities. Operating in foreign countries subjects the Company to additional risks, any of which may adversely impact our future operating results, including:
international political, economic and legal conditions including tariffs and trade barriers;
our ability to comply with customs, anti-corruption, import/export and other trade compliance regulations, together with any unexpected changes in such regulations;
greater difficulty in our ability to recover rental equipment and obtain payment of the related trade receivables;
additional costs to establish and maintain international subsidiaries and related operations;
difficulties in attracting and retaining staff and business partners to operate internationally;
language and cultural barriers;
seasonal reductions in business activities in the countries where our international customers are located;
difficulty with the integration of foreign operations;
longer payment cycles;
currency fluctuations; and
potential adverse tax consequences.
Unfavorable currency exchange rates may negatively impact our financial results in U.S. dollar terms.
We receive revenues in Canadian dollars from our business activities in Canada. Conducting business in currencies other than U.S. dollars subjects us to fluctuations in currency exchange rates. If the currency exchange rates change unfavorably, the value of net receivables we receive in foreign currencies and later convert to U.S. dollars after the unfavorable change would be diminished. This could have a negative impact on our reported operating results. We currently do not engage in hedging strategies to mitigate this risk.
SPECIFIC RISKS RELATED TO OUR LIQUID AND SOLID CONTAINMENT TANKS AND BOXES BUSINESS SEGMENT:GENERAL RISKS:
Our effective tax rate may change and become less predictable as our business expands, or as a result of federal and state tax law changes, making our future earnings less predictable.
We continue to consider expansion opportunities domestically and internationally for our rental businesses. Since the Company’s effective tax rate depends on business levels, personnel and assets located in various jurisdictions, further expansion into new markets or acquisitions may be brought into tort or environmental litigation or held responsible for cleanup of spills ifchange the customer fails to perform, or an accident occurseffective tax rate in the usefuture and may make it, and consequently our earnings, less predictable going forward. Further, the enactment of future tax law changes by federal and state taxing authorities may impact the Company’s current period tax provision and its deferred tax liabilities. In addition, the amount and timing of stock-based compensation may also impact the Company’s current tax provision.
Changes in financial accounting standards may cause lower than expected operating results and affect our rental products,reported results of operations.
Changes in accounting standards and their application may have a significant effect on our reported results on a going-forward basis and may also affect the recording and disclosure of previously reported transactions. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred in the past and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business.
Adverse economic conditions in the United States and globally, as well as geopolitical tensions, could have a negative effect on our business, results of operations, financial condition and liquidity.
Adverse macroeconomic conditions in the United States and globally, including inflation, slower than expected growth or recession, changes to fiscal and monetary policy, tightening of the credit markets, higher interest rates and currency fluctuations, could negatively impact our business, financial condition, results of operations and liquidity. These factors could negatively affect demand for our business.
Adverse economic conditions in the United States and globally have from time to time caused or exacerbated significant slowdowns in our industry and in the markets in which we operate, which have adversely affected our business and results of operations. Macroeconomic weakness and uncertainty also make it more difficult for us to accurately forecast revenue, gross margin and expenses, and may make it more difficult to refinance debt.
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Furthermore, sustained uncertainty about, or worsening of, geopolitical tensions, including further escalation of war between Russia and Ukraine, further escalation of trade tensions between the U.S. and China, escalation of tensions between China and Taiwan, further escalation in the conflict between the State of Israel and Hamas, as well as further escalation of tensions between the State of Israel and various countries in the Middle East and North Africa, could result in a global economic slowdown and long-term changes to global trade. Any or all of these factors could negatively affect our revenue and could materially adversely affect our business, future operating results of operations, financial condition and growth.
Environmental, social and governance (ESG) matters may impact our business and reputation.
Governmental authorities, non-governmental organizations, customers, investors, external stakeholders and employees are increasingly sensitive to ESG concerns. This focus on ESG concerns may lead to new requirements that could result in increased costs for our business. Our ability to compete could also be affected by changing customer preferences and requirements, such as growing demand for more environmentally friendly products, supplier practices, or financial position.
Our rental tanks and boxesby failure to meet such customer expectations or demand. We risk negative shareholder reaction, including from proxy advisory services, as well as damage to our reputation, if we do not act responsibly, or if we are used by our customersperceived to store non-hazardous and certain hazardous liquids and solids onnot be acting responsibly in key ESG areas. If we do not meet the customer’s site. Our customers are generally responsible for proper operationESG expectations of our tank and box rental equipment while on rent and returning a cleaned and undamaged container upon completion of use, but exceptions may be granted and we cannot always assure that these responsibilities are fully met in all cases. Although we require the customer to carry commercial general liability insurance in a minimum amount of $5,000,000, such policies often contain pollution exclusionsinvestors, customers and other exceptions. Furthermore,stakeholders, we cannot be certain our liability insurance will always be sufficient. In addition, if an accident were to occur involving our rental equipment or a spill of substances were to occur when the tank or box was in transport or on rent with our customer, a claim could be made against us as owner of the rental equipment.
In the event of a spill or accident, we may be brought into a lawsuit or enforcement action by either our customer or a third party on numerous potential grounds, including an allegation that an inherent flaw in a tank or box contributed to an accident or that the tank had suffered some undiscovered harm from a previous customer’s prior use. In the event of a spill caused by our customers, we may be held responsible for cleanup under environmental laws and regulations concerning obligations of suppliers of rental products to effect remediation. In addition, applicable environmental laws and regulations may impose liability on us for the conduct of third parties, or for actions that complied with applicable regulations when taken, regardless of negligence or fault. Substantial damage awards have also been made in certain jurisdictions against lessors of industrial equipment based upon claims of personal injury, property damage, and resource damage caused by the use of various products. While we take what we believe
-26-
are reasonable precautions that our rental equipment is in good and safe condition prior to rental and carry insurance to protect against certain risks of loss or accidents, such liability could adversely impact our profitability.
The liquid and solid containment rental industry is highly competitive, and competitive pressures could lead to a decrease in our market share or in rental rates and our ability to rent, or sell, equipment at favorable prices, which could adversely affect our operating results.
The liquid and solid containment rental industry is highly competitive. We compete against national, regional and local companies, including BakerCorp, Rain For Rent and Mobile Mini, all of which may be larger than we are and both of which may have greater financial and marketing resources than we have. Some of our competitors also have longer operating histories, lower cost basis of rental equipment, lower cost structures and more established relationships with equipment manufacturers than we have. In addition, certain of our competitors are more geographically diverse than we are and have greater name recognition among customers than we do. As a result, our competitors that have these advantages may be better able to attract customers and provide their products and services at lower rental rates. Some competitors offer different approaches to liquid storage, such as large-volume modular tanks that may have better economics and compete with conventional frac tanks in certain oil and gas field applications. We may in the future encounter increased competition in the markets that we serve from existing competitors or from new market entrants.
We believe that equipment quality, service levels, rental rates and fleet size are key competitive factors in the liquid and solid containment rental industry. From time to time, we or our competitors may attempt to compete aggressively by lowering rental rates or prices. Competitive pressures could adversely affect our revenues and operating results by decreasing our market share or depressing rental rates. To the extent we lower rental rates or increase our fleet in order to retain or increase market share, our operating margins would be adversely impacted. In addition, we may not be able to match a larger competitor’s price reductions or fleet investment because of its greater financial resources, all of which could adversely impact our operating results through a combination of a decrease in our market share, revenues and operating income.
Market risk, commodity price volatility, regulatory changes or interruptions and cyclical downturns in the industries using tanks and boxes may result in periods of lowexperience reduced demand for our products, resulting in excess inventory, impairment chargesloss of customers, and reduction of our operating results and cash flows.
Adler Tanks’ revenues are derived from the rental of tanks and boxes to companies involved in oil and gas exploration, extraction and refinement, environmental remediation and wastewater/groundwater treatment, infrastructure and building construction and various industrial services, among others. In the quarter and twelve months ended December 31, 2017, oil and gas exploration and production accounted for approximately 10% and 9%, respectively, of Adler Tanks’ rental revenues, and approximately 2% of the Company’s total revenues for the same periods. We expect tank and box rental revenues will primarily be affected by the business activity within these industries. Historically, these industries have been cyclical and have experienced periodic downturns, which have a material adverse impact on the industry’s demand for equipment, including the tanks and boxes rented by us. Lower oil or gas prices may have an adverse effectother negative impacts on our liquid and solid containment tanks and boxes business. Any steep decline in both domestic and international oil prices driven by materially higher supply levels and weak demand could have a significant negative impact on the industry’s demand for equipment, especially if such market conditions continue for an extended period of time. If the price reduction causes customers to limit or stop exploration, extraction or refinement activities, resulting in lower demand and pricing for renting Adler Tank’s products, our financial results could be adversely impacted. Also, a weak U.S. economy may negatively impact infrastructure construction and industrial activity. Any of these factors may result in excess inventory or impairment charges and reduce our operating results and cash flows.
Changes in regulatory, or governmental, oversight of hydraulic fracturing could materially adversely affect the demand for our rental products and reduce our operating results and cash flows.
We believe that demand related to hydraulic fracturing has increased the total rental revenues and market size in recent years. Oil and gas exploration and extraction (including use of tanks for hydraulic fracturing to obtain shale oil and shale gas) are subject to numerous local, state and federal regulations. The hydraulic fracturing method of extraction has come under scrutiny in several states and by the Federal government due to the potential adverse effects that hydraulic fracturing, and the liquids and chemicals used, may have on water quality and public health. In addition, the disposal of wastewater from the hydraulic fracturing process into injection wells may increase the rate of seismic activity near drill sites and could result in regulatory changes, delays or interruption of future activity. Changes in these regulations could limit, interrupt, or stop exploration and extraction activities, which would negatively impact the demand for our rental products. Finally, it is possible that changes in the technology utilized in hydraulic fracturing could make it less dependent on liquids and therefore lower the related requirements for the use of our rental products, which would reduce our operating results and cash flows.
-27-
Seasonality of the liquid and solid containment rental industry may impact quarterly results.
Rental activity may decline in the fourth quarter month of December and the first quarter months of January and February. These months may have lower rental activity in parts of the country where inclement weather may delay, or suspend, a company’s project. The impact of these delays may be to decrease the number of tanks, or boxes, on rent until companies are able to resume their projects when weather improves. These seasonal factors historically have impacted quarterly results in each year’s first and fourth quarter, but we are unable to predict how such factors may impact future periods.
Significant increases in raw material, fuel and labor costs could increase our acquisition and operating costs of rental equipment, which would increase operating costs and decrease profitability.
Increases in raw material costs such as steel and labor to manufacture liquid and solid containment tanks and boxes would increase the cost of acquiring new equipment. These price increases could materially and adversely impact our financial conditionbusiness and results of operations if weoperations.
We have begun to report our prior modular building and portable storage segment in two separate segments of modular building and portable storage container. This segment reporting structure has been in effect for a limited period of time, and there are not able to recoup these increases through higher rental revenues. In addition, a significant amount of revenues are generated from the transport of rental equipment to and from customers. We own delivery trucks, employ drivers and utilize subcontractors to provide these services. The price of fuel can be unpredictable and beyond our control. During periods of rising fuel and labor costs, and in particular when prices increase rapidly, we may not be able recoup these costs from our customers, which would reduce our profitability.
Failure by third parties to manufacture our products timely or properly may harm our ability to meet customer demand and harm our financial condition.
We are dependent on a variety of third party companies to manufacture equipment to be used in our rental fleet. In some cases, we may not be able to procure equipment on a timely basis to the extent that manufacturers for the quantities of equipment we need are not able to produce sufficient inventory on schedules that meet our delivery requirements. If demand for new equipment increases significantly, especially during a seasonal manufacturing slowdown, manufacturers may not be able to meet customer orders on a timely basis. As a result, we at times may experience long lead-times for certain types of new equipment and we cannot assureno assurances that we will be able to acquiresuccessfully operate the typesprior segment in two distinct segments, and the change could be confusing to investors and may not have the desired effects.
During the quarter ended December 31, 2023, we began reporting our prior modular building and portable storage segment as two distinct segments of modular buildings and portable storage containers. Managing these changes has required, and may continue to require, significant expenditures and allocation of valuable management resources. We have provided disclosures about this new segment reporting structure, but there is no guarantee that investors or sufficient numbersthe market will understand this change to our financial reporting. There is also no guarantee that this change will have the desired effect. Failure of the equipment we needinvestors or analysts to growunderstand our rental fleet as quickly as we would like and this could harm ourrevised segment reporting structure may negatively affect their ability to meet customer demandunderstand our business and harm our financial condition.
We derive a meaningful amount of our revenue in our liquid and solid containment tank and boxes business from a limited number of customers, the loss of one or more ofoperating results which could have an adverse effect onadversely affect our business.
Periodically, a meaningful portion of our revenue in our liquidstock price. In addition, we test for goodwill impairment at the reporting segment level and solid containment tank and boxes business may be generated from a few major customers. Although we have some long-term relationships with our major customers, we cannot be assured that our customers will continue to use our products or services or that they will continue to do so at historical levels. The loss of any meaningful customer,consider the failure to collect a material receivable from a meaningful customer, any material reduction in orders by a meaningful customer ordifference between the cancellationfair value of a meaningful customer order could significantly reduce our revenuesreporting segment and consequently harm our financial condition and our ability to fund our operations.
We may not be able to quickly redeploy equipment returning from leases at equivalent prices.
Many of our rental transactions are short-term in nature with pricing established on a daily basis. The length of time that a customer needs equipment can often be difficult to determine andits’ carrying value, when determining whether any impairment exists. There can be impacted by a number of factors such as weather, customer funding and project delays. In addition,no assurance that the change to our equipment is primarily used in the oil and gas, industrial plant services, environmental remediation and infrastructure and building construction industries. Changes in the economic conditions facing any of those industries couldsegment reporting structure will not result in a significant number of units returning off rent, both for us and our competitors.
If the supply of rental equipment available on the market significantly increases due to units coming off rent, demand for and pricing of our rental products could be adversely impacted. We may experience delaysimpairment charges in remarketing our off-rent units to new customers and incur cost to move the units to other regions where demand is stronger. Actions in these circumstances by our competitors may also depress the market price for rental units. These delays and price pressures would adversely affect equipment utilization levels and total revenues, which would reduce our profitability.future periods.
|
|
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Cybersecurity represents an important component of the Company’s overall approach to risk management. The Company’s cybersecurity policies, standards and practices are integrated into the Company’s enterprise risk management (“ERM”) approach, and cybersecurity risks are one of the enterprise risks that are subject to oversight by the Company’s Board of Directors (the “Board”). The Company’s cybersecurity policies, standards and practices follow industry trends, which align with frameworks established by the National Institute of Standards and Technology and the International Organization for Standardization. The Company approaches cybersecurity threats through a cross-functional approach which endeavors to: (i) identify, prevent and mitigate cybersecurity threats to the Company; (ii) preserve the confidentiality, security and availability of the information that we collect and store to use in our business; (iii) protect the Company’s intellectual property; (iv) maintain the confidence of our customers, clients and business partners; and (v) provide appropriate public disclosure of cybersecurity risks and incidents when required.
Risk Management and Strategy
The Company’s cybersecurity program focuses on the following areas:
-29-
None.The Company manages risks from cybersecurity threats through the assessment and testing of the Company’s processes and practices focused on evaluating the effectiveness of our cybersecurity measures. The Company engages a third-party independent cybersecurity company that provides security testing and monitoring, including penetration testing, auditing, and security assessment, for the Company. The results of such assessments and reviews are reported as part of the technology and cyber security update to the Company’s executive leadership team and the Board, and the Company adjusts its cybersecurity policies, standards, processes and practices as necessary based on the information provided by the assessments, audits and reviews.
-28-Governance
The Board oversees the management of risks from cybersecurity threats, including the policies, standards, processes and practices that the Company’s management implements to address risks from cybersecurity threats. The Board receives reports on the Company’s technology and cybersecurity functions, including vulnerability assessments, any third-party and independent reviews, the threat environment, and other information security considerations. The Board also receives prompt and timely information regarding any cybersecurity incident that meets established reporting thresholds, as well as ongoing updates regarding such incident until it has been addressed. The cyber security Steering Committee meets multiple times throughout the year to discuss the Company’s cyber security programs and practices, risk management related to cyber security and a wide range of other related topics including, for example, recent developments, evolving standards, vulnerability assessments, third-party and independent reviews, the threat environment, technological trends and information security considerations arising with respect to the Company’s peers and third parties. At least once each year, the Board and the Company’s executive leadership team discuss the Company’s approach to cybersecurity risk management with the Company’s VP of Information Technology.
The Company’s VP of Information Technology is the member of the Company’s management who is principally responsible for overseeing the Company’s cybersecurity risk management program, in partnership with other business leaders across the Company. The VP of Information Technology works in coordination with senior leadership, which includes our Chief Executive Officer and President, Chief Financial Officer and General Counsel. The Company’s VP of Information Technology has served in various roles in technology and is supported by a team of information technology and cyber security professionals with decades of relevant experience. Most notably, the Company’s Enterprise Manager of Cybersecurity and Network holds a Certified Information Systems Security Professional (CISSP) certification and has over 15 years of experience with managing risks arising from cybersecurity threats.
The Company has established a Cybersecurity Steering Committee that includes executives and senior leadership across all divisions and corporate services to implement and manage a program designed to protect the Company’s information systems from cybersecurity threats and to respond promptly to any cybersecurity incidents. To facilitate the success of this program, multidisciplinary teams throughout the Company are created and deployed to address cybersecurity threats and to respond to cybersecurity incidents in accordance with the Company’s Incident Response Plans (IRP). Through the ongoing communications from these teams, the Steering committee monitors the effectiveness of the prevention, detection, mitigation and remediation within the cybersecurity program. The
-30-
Company’s General Counsel, as part of the Incident Response Team, will report any credible threats or security concerns to the Board when appropriate.
As of the date of this Annual Report on Form 10-K, we are not aware of any cybersecurity threats that have materially affected or are reasonably likely to affect the Company, including its business strategy, results of operations, or financial condition.
|
ITEM 2. PROPERTIES.
The Company’s corporate and administrative offices are located in Livermore, California in approximately 26,000 square feet. At December 31, 2023, the Company’s four reportable business segments currently conductconducted operations from the following locations:
Mobile Modular and Portable Storage – FourMobile Modular and Portable Storage operate from 22 owned and 60 leased locations. Our largest owned facilities include seven inventory centers, at which relocatable modular buildings and storage containers are displayed, refurbished and stored are located in stored:
Livermore, California (San(140 acres in the San Francisco Bay Area),
Mira Loma, California (Los(82 acres in the Los Angeles Area)area),
Pasadena, Texas (Houston Area) and(50 acres in the Houston area),
Grand Prairie, Texas (30 acres in the Dallas area),
Auburndale, Florida (Orlando Area)(123 acres in the Orlando area),
Arcade, Georgia (48 acres in the Atlanta area),
Fredericksburg, Virginia (68 acres in the Washington D.C. area).
The inventory centers conduct rental and sales operations from modular buildings, serving as working models of the Company’s modular product. The Company also has a modular sales office in Charlotte, North Carolina from which the states of North Carolina, Georgia, Virginia and Maryland are served.
TRS-RenTelco – Electronic test equipment rental and sales operations are conducted from a 117,000 square foot leased facility in Grapevine, Texas (Dallas Area)area) and a sales office in Dollard-des-Ormeaux, Quebec (Montreal, Canada Area)area).
Adler Tanks – Adler Tanks operates from branch offices serving the Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West. A number of our branch offices are leased and have remaining lease terms of one to three years, or are leased on a month to month basis. We believe satisfactory alternative properties can be found in all of our markets if we do not renew our existing leased properties.
Enviroplex – The Company’s wholly owned subsidiary, Enviroplex, manufactures modular buildings used primarily as classrooms in California from its 108,000 square foot facility in Stockton, California (San Francisco Bay Area).
The following table sets forth the total acres, square footage of office space, square footage of warehouse space and total square footage of our significant properties at December 31, 2017.
|
|
|
|
|
| Square Footage |
| |||||||||
|
| Total Acres |
|
| Office |
|
| Warehouse |
|
| Total |
| ||||
Corporate Offices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Livermore, California 1 |
|
| — |
|
|
| 26,160 |
|
|
| — |
|
|
| 26,160 |
|
Mobile Modular |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Livermore, California 1, 2, 5 |
|
| 137.2 |
|
|
| 7,680 |
|
|
| 53,440 |
|
|
| 61,120 |
|
Mira Loma, California 5 |
|
| 78.5 |
|
|
| 7,920 |
|
|
| 45,440 |
|
|
| 53,360 |
|
Pasadena, Texas |
|
| 50.0 |
|
|
| 3,868 |
|
|
| 24,000 |
|
|
| 27,868 |
|
Auburndale, Florida 5 |
|
| 122.5 |
|
|
| 8,400 |
|
|
| 95,902 |
|
|
| 104,302 |
|
Charlotte, North Carolina (two facilities) 6 |
|
| 8.5 |
|
|
| 7,811 |
|
|
| — |
|
|
| 7,811 |
|
Lexington, North Carolina 7 |
|
| 5.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Riverside, California 3 |
|
| 16.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
San Diego, California 4 |
|
| 2.5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Grand Prairie, Texas 5 |
|
| 29.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
San Antonio, Texas 5 |
|
| 35.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Round Rock, Texas |
|
| 5.0 |
|
|
| 3,600 |
|
|
| — |
|
|
| 3,600 |
|
Arcade, Georgia |
|
| 48.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
TRS-RenTelco |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grapevine, Texas 8 |
|
| — |
|
|
| 45,000 |
|
|
| 71,895 |
|
|
| 116,895 |
|
Dollard-des-Ormeaux, Quebec 7 |
|
| — |
|
|
| 12,500 |
|
|
| — |
|
|
| 12,500 |
|
Adler Tanks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Plainfield, New Jersey |
|
| 20.9 |
|
|
| 1,685 |
|
|
| 11,832 |
|
|
| 13,517 |
|
Deer Park, Texas |
|
| 10.2 |
|
|
| 3,448 |
|
|
| 5,353 |
|
|
| 8,801 |
|
Beaumont, Texas |
|
| 5.4 |
|
|
| 850 |
|
|
| — |
|
|
| 850 |
|
Mokena, Illinois |
|
| 21.3 |
|
|
| 13,800 |
|
|
| — |
|
|
| 13,800 |
|
Wayland, Michigan |
|
| 10.0 |
|
|
| 3,000 |
|
|
| 12,912 |
|
|
| 15,912 |
|
Ellsworth, Wisconsin |
|
| 11.3 |
|
|
| — |
|
|
| 11,230 |
|
|
| 11,230 |
|
Enviroplex |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockton, California |
|
| 8.9 |
|
|
| 2,091 |
|
|
| 105,985 |
|
|
| 108,076 |
|
|
|
| 626.1 |
|
|
| 147,813 |
|
|
| 437,989 |
|
|
| 585,802 |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various lawsuits and routine claims arising out of the normal course of its business. The Company maintains insurance coverage for its operations and employees with appropriate aggregate, per occurrence and deductible limits as the Company reasonably determines necessary or prudent with current operations and historical experience. The major policies include coverage for property, general liability, cyber, auto, directors and officers, health, and workers’ compensation insurances. In the opinion of management, the ultimate amount of liability not covered by insurance, if any, under any pending litigation and claims, individually or in the aggregate, will not have a material adverse effect on the financial position or operating results of the Company.
|
|
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable
-30-
|
|
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
The Company's common stock is traded in the NASDAQ Global Select Market under the symbol “MGRC”.
The market prices (as quoted by NASDAQ) and cash dividends declared, per share of the Company’s common stock, by calendar quarter for the past two years were as follows:
Stock Activity
|
| 2017 |
|
| 2016 |
| ||||||||||||||||||||||||||
|
| 4Q |
|
| 3Q |
|
| 2Q |
|
| 1Q |
|
| 4Q |
|
| 3Q |
|
| 2Q |
|
| 1Q |
| ||||||||
High |
| $ | 49.66 |
|
| $ | 44.30 |
|
| $ | 38.23 |
|
| $ | 39.49 |
|
| $ | 39.86 |
|
| $ | 33.35 |
|
| $ | 31.06 |
|
| $ | 26.73 |
|
Low |
| $ | 42.98 |
|
| $ | 33.24 |
|
| $ | 32.09 |
|
| $ | 32.21 |
|
| $ | 29.27 |
|
| $ | 29.85 |
|
| $ | 22.40 |
|
| $ | 21.46 |
|
Close |
| $ | 46.98 |
|
| $ | 43.75 |
|
| $ | 34.63 |
|
| $ | 33.57 |
|
| $ | 39.19 |
|
| $ | 31.71 |
|
| $ | 30.59 |
|
| $ | 25.08 |
|
Dividends Declared |
| $ | 0.260 |
|
| $ | 0.260 |
| �� | $ | 0.260 |
|
| $ | 0.260 |
|
| $ | 0.255 |
|
| $ | 0.255 |
|
| $ | 0.255 |
|
| $ | 0.255 |
|
As of February 26, 2018,21, 2024, the Company's common stock was held by approximately 4045 shareholders of record, which does not include shareholders whose shares are held in street or nominee name. The Company believes that when holders in street or nominee name are added, the number of holders of the Company's common stock exceeds 500.
Dividends
The Company has declared a quarterly dividend on its common stock every quarter since 1990. The total amount of cash dividends paid by the Company in 2017 and 2016 is discussed under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ― Liquidity and Capital Resources.” Subject to its continued profitability and favorable cash flow, the Company intends to continue the payment of quarterly dividends.
Stock Repurchase Plan
In May 2008, the Company’s Board of Directors authorized the Company to repurchase an aggregate of 2,000,000 shares of the Company's outstanding common stock. The Company has in the past made purchases of shares of its common stock from time to time in over-the-counter market (NASDAQ) transactions, through privately negotiated, large block transactions and through a share repurchase plan, in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. In August 2015, the Company’s Board of Directors authorized the Company to
-31-
repurchase an additional 2,000,000 shares of the Company's outstanding common stock.stock (the “Repurchase Plan”). The amount and time of the specific repurchases are subject to prevailing market conditions, applicable legal requirements and other factors, including management’s discretion. All shares repurchased by the Company are canceled and returned to the status of authorized but unissued shares of common stock. There can be no assurance that any authorized shares will be repurchased and the repurchase program may be modified, extended or terminated by the boardBoard of directorsDirectors at any time. There were no repurchasesshares of common stock repurchased during the twelve months ended December 31, 20172023 and 2016.2022. As of December 31, 2017, 1,592,0262023, 1,309,805 shares remain authorized for repurchase.
-31-
The following table summarizes the Company’s selected financial data for the five years ended December 31, 2017 and should be read in conjunction with the detailed audited consolidated financial statements and related notes included in “Item 8. Financial Statements and Supplementary Data” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Result of Operations”.
Selected Consolidated Financial Data
(in thousands, except per share data) |
| Year Ended December 31, |
| |||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
Operations Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
| $ | 289,417 |
|
| $ | 271,388 |
|
| $ | 273,696 |
|
| $ | 269,575 |
|
| $ | 255,766 |
|
Rental related services |
|
| 78,068 |
|
|
| 75,859 |
|
|
| 73,314 |
|
|
| 64,132 |
|
|
| 53,148 |
|
Rental operations |
|
| 367,485 |
|
|
| 347,247 |
|
|
| 347,010 |
|
|
| 333,707 |
|
|
| 308,914 |
|
Sales |
|
| 91,500 |
|
|
| 74,410 |
|
|
| 55,385 |
|
|
| 72,248 |
|
|
| 68,443 |
|
Other |
|
| 3,049 |
|
|
| 2,423 |
|
|
| 2,149 |
|
|
| 2,167 |
|
|
| 2,152 |
|
Total revenues |
|
| 462,034 |
|
|
| 424,080 |
|
|
| 404,544 |
|
|
| 408,122 |
|
|
| 379,509 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of rental operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of rental equipment |
|
| 69,908 |
|
|
| 72,197 |
|
|
| 75,213 |
|
|
| 72,678 |
|
|
| 68,208 |
|
Rental related services |
|
| 60,029 |
|
|
| 59,044 |
|
|
| 57,144 |
|
|
| 50,969 |
|
|
| 42,117 |
|
Other |
|
| 65,472 |
|
|
| 60,130 |
|
|
| 58,511 |
|
|
| 54,826 |
|
|
| 53,089 |
|
Total direct costs of rental operations |
|
| 195,409 |
|
|
| 191,371 |
|
|
| 190,868 |
|
|
| 178,473 |
|
|
| 163,414 |
|
Costs of sales |
|
| 60,280 |
|
|
| 48,542 |
|
|
| 36,769 |
|
|
| 47,430 |
|
|
| 47,080 |
|
Total costs of revenues |
|
| 255,689 |
|
|
| 239,913 |
|
|
| 227,637 |
|
|
| 225,903 |
|
|
| 210,494 |
|
Gross profit |
|
| 206,345 |
|
|
| 184,167 |
|
|
| 176,907 |
|
|
| 182,219 |
|
|
| 169,015 |
|
Selling and administrative expenses |
|
| 111,605 |
|
|
| 104,908 |
|
|
| 99,950 |
|
|
| 96,859 |
|
|
| 88,765 |
|
Income from operations |
|
| 94,740 |
|
|
| 79,259 |
|
|
| 76,957 |
|
|
| 85,360 |
|
|
| 80,250 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (11,622 | ) |
|
| (12,207 | ) |
|
| (10,092 | ) |
|
| (9,280 | ) |
|
| (8,687 | ) |
Gain on sale of property, plant and equipment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 812 |
|
|
| — |
|
Foreign currency exchange gain (loss) |
|
| 334 |
|
|
| (121 | ) |
|
| (488 | ) |
|
| (331 | ) |
|
| (189 | ) |
Income before (benefit) provision for income taxes |
|
| 83,452 |
|
|
| 66,931 |
|
|
| 66,377 |
|
|
| 76,561 |
|
|
| 71,374 |
|
(Benefit) provision for income taxes |
|
| (70,468 | ) |
|
| 28,680 |
|
|
| 25,907 |
|
|
| 30,852 |
|
|
| 27,977 |
|
Net income |
| $ | 153,920 |
|
| $ | 38,251 |
|
| $ | 40,470 |
|
| $ | 45,709 |
|
| $ | 43,397 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 6.41 |
|
| $ | 1.60 |
|
| $ | 1.60 |
|
| $ | 1.77 |
|
| $ | 1.71 |
|
Diluted |
| $ | 6.34 |
|
| $ | 1.60 |
|
| $ | 1.59 |
|
| $ | 1.75 |
|
| $ | 1.67 |
|
Shares used in per share calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 23,999 |
|
|
| 23,900 |
|
|
| 25,369 |
|
|
| 25,914 |
|
|
| 25,433 |
|
Diluted |
|
| 24,269 |
|
|
| 23,976 |
|
|
| 25,457 |
|
|
| 26,175 |
|
|
| 25,926 |
|
Balance Sheet Data (at period end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental equipment, at cost |
| $ | 1,347,533 |
|
| $ | 1,324,057 |
|
| $ | 1,310,083 |
|
| $ | 1,229,638 |
|
| $ | 1,144,168 |
|
Rental equipment, net |
| $ | 862,320 |
|
| $ | 856,371 |
|
| $ | 869,601 |
|
| $ | 825,750 |
|
| $ | 767,010 |
|
Total assets |
| $ | 1,147,854 |
|
| $ | 1,128,276 |
|
| $ | 1,152,709 |
|
| $ | 1,116,407 |
|
| $ | 1,027,611 |
|
Notes payable |
| $ | 303,414 |
|
| $ | 326,266 |
|
| $ | 381,281 |
|
| $ | 322,338 |
|
| $ | 289,836 |
|
Shareholders' equity |
| $ | 524,184 |
|
| $ | 394,287 |
|
| $ | 379,687 |
|
| $ | 424,531 |
|
| $ | 401,030 |
|
Shares issued and outstanding |
|
| 24,052 |
|
|
| 23,948 |
|
|
| 23,851 |
|
|
| 26,051 |
|
|
| 25,757 |
|
Book value per share |
| $ | 21.79 |
|
| $ | 16.46 |
|
| $ | 15.92 |
|
| $ | 16.30 |
|
| $ | 15.57 |
|
Total liabilities to equity |
|
| 1.19 |
|
|
| 1.86 |
|
|
| 2.04 |
|
|
| 1.63 |
|
|
| 1.56 |
|
Debt (notes payable) to equity |
|
| 0.58 |
|
|
| 0.83 |
|
|
| 1.00 |
|
|
| 0.76 |
|
|
| 0.72 |
|
Return on average equity |
|
| 37.1 | % |
|
| 9.8 | % |
|
| 9.8 | % |
|
| 11.1 | % |
|
| 11.3 | % |
Cash dividends declared per common share |
| $ | 1.04 |
|
| $ | 1.02 |
|
| $ | 1.00 |
|
| $ | 0.98 |
|
| $ | 0.96 |
|
-32-
Adjusted EBITDA
To supplement the Company’s financial data presented on a basis consistent with accounting principles generally accepted in the United States of America (“GAAP”), the Company presents “Adjusted EBITDA”, which is defined by the Company as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs and share-based compensation. The Company presents Adjusted EBITDA as a financial measure as management believes it provides useful information to investors regarding the Company’s liquidity and financial condition and because management, as well as the Company’s lenders, use this measure in evaluating the performance of the Company.
Management uses Adjusted EBITDA as a supplement to GAAP measures to further evaluate period-to-period operating performance, compliance with financial covenants in the Company’s revolving lines of credit and senior notes and the Company’s ability to meet future capital expenditure and working capital requirements. Management believes the exclusion of non-cash charges, including share-based compensation, is useful in measuring the Company’s cash available for operations and performance of the Company. Because management finds Adjusted EBITDA useful, the Company believes its investors will also find Adjusted EBITDA useful in evaluating the Company’s performance.
Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows, or other consolidated income or cash flow data prepared in accordance with GAAP or as a measure of the Company’s profitability or liquidity. Adjusted EBITDA is not in accordance with or an alternative for GAAP, and may be different from non−GAAP measures used by other companies. Unlike EBITDA, which may be used by other companies or investors, Adjusted EBITDA does not include share-based compensation charges. The Company believes that Adjusted EBITDA is of limited use in that it does not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP and does not accurately reflect real cash flow. In addition, other companies may not use Adjusted EBITDA or may use other non-GAAP measures, limiting the usefulness of Adjusted EBITDA for purposes of comparison. The Company’s presentation of Adjusted EBITDA should not be construed as an inference that the Company will not incur expenses that are the same as or similar to the adjustments in this presentation. Therefore, Adjusted EBITDA should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures. The Company compensates for the limitations of Adjusted EBITDA by relying upon GAAP results to gain a complete picture of the Company’s performance. Because Adjusted EBITDA is a non-GAAP financial measure, as defined by the SEC, the Company includes in the tables below reconciliations of Adjusted EBITDA to the most directly comparable financial measures calculated and presented in accordance with GAAP.
Reconciliation of Net Income to Adjusted EBITDA
(dollar amounts in thousands) |
| Year Ended December 31, |
| |||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
Net income |
| $ | 153,920 |
|
| $ | 38,251 |
|
| $ | 40,470 |
|
| $ | 45,709 |
|
| $ | 43,397 |
|
(Benefit) provision for income taxes |
|
| (70,468 | ) |
|
| 28,680 |
|
|
| 25,907 |
|
|
| 30,852 |
|
|
| 27,977 |
|
Interest expense |
|
| 11,622 |
|
|
| 12,207 |
|
|
| 10,092 |
|
|
| 9,280 |
|
|
| 8,687 |
|
Depreciation and amortization |
|
| 78,416 |
|
|
| 81,179 |
|
|
| 84,280 |
|
|
| 81,125 |
|
|
| 76,849 |
|
EBITDA |
|
| 173,490 |
|
|
| 160,317 |
|
|
| 160,749 |
|
|
| 166,966 |
|
|
| 156,910 |
|
Impairment of rental assets |
|
| 1,639 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Share-based compensation |
|
| 3,198 |
|
|
| 3,091 |
|
|
| 3,399 |
|
|
| 3,854 |
|
|
| 3,680 |
|
Adjusted EBITDA 1 |
| $ | 178,327 |
|
| $ | 163,408 |
|
| $ | 164,148 |
|
| $ | 170,820 |
|
| $ | 160,590 |
|
Adjusted EBITDA margin 2 |
|
| 39 | % |
|
| 39 | % |
|
| 41 | % |
|
| 42 | % |
|
| 42 | % |
-33-
Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities
(dollar amounts in thousands) |
| Year Ended December 31, |
| |||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
Adjusted EBITDA 1 |
| $ | 178,327 |
|
| $ | 163,408 |
|
| $ | 164,148 |
|
| $ | 170,820 |
|
| $ | 160,590 |
|
Interest paid |
|
| (11,825 | ) |
|
| (12,436 | ) |
|
| (10,041 | ) |
|
| (9,074 | ) |
|
| (8,813 | ) |
Income taxes paid, net of refunds received |
|
| (29,504 | ) |
|
| (15,555 | ) |
|
| (2,498 | ) |
|
| (22,275 | ) |
|
| (11,074 | ) |
Gain on sale of used rental equipment |
|
| (17,733 | ) |
|
| (13,739 | ) |
|
| (11,902 | ) |
|
| (15,368 | ) |
|
| (13,091 | ) |
Gain on sale of property, plant and equipment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (812 | ) |
|
| — |
|
Foreign currency exchange (gain) loss |
|
| (334 | ) |
|
| 121 |
|
|
| 488 |
|
|
| 331 |
|
|
| 189 |
|
Amortization of debt issuance cost |
|
| 50 |
|
|
| 51 |
|
|
| 52 |
|
|
| 14 |
|
|
| 14 |
|
Change in certain assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
| (8,995 | ) |
|
| (1,860 | ) |
|
| 5,777 |
|
|
| (13,782 | ) |
|
| 4,606 |
|
Income taxes receivable |
| — |
|
|
| 11,000 |
|
|
| (11,000 | ) |
|
| — |
|
|
| — |
| |
Prepaid expenses and other assets |
|
| 3,124 |
|
|
| 1,949 |
|
|
| 12,910 |
|
|
| (13,528 | ) |
|
| (8,279 | ) |
Accounts payable and other liabilities |
|
| 7,559 |
|
|
| 7,220 |
|
|
| (10,531 | ) |
|
| 21,524 |
|
|
| 12,422 |
|
Deferred income |
|
| 1,720 |
|
|
| 536 |
|
|
| 7,149 |
|
|
| 5,136 |
|
|
| (2,921 | ) |
Net cash provided by operating activities |
| $ | 122,389 |
|
| $ | 140,695 |
|
| $ | 144,552 |
|
| $ | 122,986 |
|
| $ | 133,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA is a component of two restrictive financial covenants for the Company’s unsecured Credit Facility, and Series A Senior Notes, Series B Senior Notes and Series C Senior Notes (as defined and more fully describedrepurchase under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”). These instruments contain financial covenants requiring the Company to not:Repurchase Plan.
ITEM 6. [Reserved]
-32-
Permit the Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Facility and the Note Purchase Agreement (as defined and more fully described under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources” in this MD&A)) of Adjusted EBITDA (as defined in the Credit Facility and the Note Purchase Agreement) to fixed charges as of the end of any fiscal quarter to be less than 2.50 to 1. At December 31, 2017, the actual ratio was 6.82 to 1.
Permit the Consolidated Leverage Ratio of funded debt (as defined in the Credit Facility and the Note Purchase Agreement) to Adjusted EBITDA at any time during any period of four consecutive quarters to be greater than 2.75 to 1. At December 31, 2017, the actual ratio was 1.70 to 1.
At December 31, 2017, the Company was in compliance with each of these aforementioned covenants. There are no anticipated trends that the Company is aware of that would indicate non-compliance with these covenants, though, significant deterioration in our financial performance could impact the Company's ability to comply with these covenants.
-34-
ITEM 7. 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 contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in this section as well as those discussed under Part I, “Item 1A. Risk Factors” and elsewhere in this document. This discussion should be read together with the financial statements and the related notes thereto set forth in “Item 8. Financial Statements and Supplementary Data.”
Results of Operations
General
The Company, incorporated in 1979, is a leading rental provider of relocatable modular buildings for classroom and office space, portable storage containers, and electronic test equipment for general purpose and communications needs, and liquid and solid containment tanks and boxes.needs. The Company’s primary emphasis is on equipment rentals. TheAt December 31, 2023 the Company iswas comprised of four reportable business segments: (1) its modular building and portable storage container rental segment (“Mobile Modular”); (2) its portable storage container rental segment ("Portable Storage"); (3) its electronic test equipment rental segment (“TRS-RenTelco”); (3) its containment solutions for the storage of hazardous and non-hazardous liquids and solids segment (“Adler Tanks”); and (4) its classroom manufacturing segment selling modular buildings used primarily as classrooms in California (“Enviroplex”). In 2017,2023, Mobile Modular, Portable Storage, TRS-RenTelco Adler Tanks and Enviroplex contributed 50%62%, 31%22%, 13%16% and 6%0%, respectively, of the Company’s income from continuing operations before provision for taxes (the equivalent of “pre-tax income”), compared to 53%50%, 32%22%, 10%27% and 5%1%, respectively, for 2016. Although managed as a separate business segment, Enviroplex’s revenues, pre-tax income contribution and total assets are not significant relative to the Company’s consolidated financial position.2022.
The Company generates its revenues primarily from the rental of its equipment on operating leases with sales of equipment occurring in the normal course of business. The Company requires significant capital outlay to purchase its rental inventory and recovers its investment through rental and sales revenues. Rental revenue and certain other service revenues negotiated as part of the lease agreements with customers and related costs are recognized on a straight-line basis over the terms of the lease. Sales revenue and related costs are recognized upon delivery and installation of the equipment to the customers. Sales revenues are less predictable and can fluctuate from period to period depending on customer demands and requirements. Generally, rental revenues less cash operating costs recover the equipment’s capitalized cost in a shorter period of time relative to the equipment’s potential rental life and when sold, sale proceeds are usually above its net book value.
The Company’s rental operations include rental and rental related services revenues which comprised approximately 80%74% of the Company’s total revenues from continuing operations in 20172023 and 82%76% for the three years ended December 31, 2017.2023. Over the past three years, modulars, storage containers and electronic test equipment and tanks and boxes comprised approximately 50%61%, 25%15% and 25%24%, respectively, of the cumulative rental operations revenues.revenues from continuing operations. The Company’s direct costs of rental operations include depreciation of rental equipment, rental related service costs, impairment of rental equipment, and other direct costs of rental operations (which include direct labor, supplies, repairs, insurance, property taxes, license fees and amortization of certain lease costs).
The Company sells modular,modulars, storage containers and electronic test equipment and liquid and solid containment tanks and boxes that are new, or previously rented. The Company’s Enviroplex subsidiary manufactures and sells new modular classrooms. The renting and selling of some modular equipment requires a dealer’s license, which the Company has obtained from the appropriate governmental agencies. Sales and other revenues of modulars, containers and electronic test equipment and tanks and boxes have comprised approximately 20%26% of the Company’s consolidated revenues from continuing operations in 20172023 and 18%24% for the three years ended December 31, 2017.2023. Over the past three years, modulars, containers and electronic test equipment and tanks and boxes comprised approximately 68%81%, 30%3% and 2%16% of sales and other revenues, respectively. The Company’s cost of sales includes the carrying value of the equipment sold and the direct costs associated with the equipment sold such as delivery, installation, modifications and related site work.
The rental and sale of modulars to public school districts comprised 26%18%, 23%21% and 16%24% of the Company’s consolidated rental and sales revenues from continuing operations for 2017, 20162023, 2022 and 2015,2021, respectively. (For more information, see “Item 1. Business – Relocatable Modular Buildings – Classroom Rentals and Sales to Public Schools (K-12)” above.)
Selling and administrative expenses primarily include personnel and benefit costs, which includes share-based compensation, depreciation and amortization of property, plant and equipment and intangible assets, bad debt expense,credit losses, advertising costs, and professional service fees. The Company believes that sharing of common facilities, financing, senior management, and operating and accounting systems by all of the Company’s operations, results in an efficient use of overhead. Historically, the Company’s operating margins have been impacted favorably to the extent its costs and expenses are leveraged over a large installed customer base. However, there can be no assurance as to the Company’s ability to maintain a large installed customer base or ability to sustain its historical operating margins.
-35--33-
Proposed Acquisition by WillScot Mobile Mini
On January 28, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with WillScot Mobile Mini Holdings Corp., a Delaware corporation ("WillScot Mobile Mini”), Brunello Merger Sub I, Inc., a California corporation and a direct wholly owned subsidiary of WillScot Mobile Mini (“Merger Sub I”), and Brunello Merger Sub II, LLC, a Delaware limited liability company and direct wholly owned subsidiary of WillScot Mobile Mini (“Merger Sub II”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub I will merge with and into the Company (the “First-Step Merger”), with the Company surviving the First-Step Merger and, immediately thereafter, the Company will merge with and into Merger Sub II (the “Second-Step Merger” and together with the First-Step Merger, the “Transaction”), with Merger Sub II surviving the Second-Step Merger as a wholly owned subsidiary of WillScot Mobile Mini. Each of the parties to the Merger Agreement intends that the Transaction will be treated as a single integrated transaction that qualifies as a “reorganization” within the meaning of Section 368(a) of the U.S. Internal Revenue Code of 1986, as amended. Consummation of the Transaction is subject to the approval of the Company’s shareholders, the receipt of required regulatory approvals, and satisfaction or waiver of other customary closing conditions. The First-Step Merger and the Second-Step Merger will be consummated on the same day.
On the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the First-Step Merger (the “Effective Time”), each share of common stock, no par value, of the Company (the “Company Common Stock”) issued and outstanding immediately prior to the Effective Time, other than shares of Company Common Stock owned by WillScot Mobile Mini or any subsidiary of WillScot Mobile Mini or the Company, and shares held by shareholders who did not vote in favor of the Transaction (or consent thereto in writing) and who are entitled to demand and properly demands appraisal of such shares, will be automatically converted into the right to receive either (1) $123 in cash (the “Per Share Cash Consideration”) or (2) 2.8211 (the “Exchange Ratio”) shares of validly issued, fully paid and nonassessable shares of common stock, par value $0.0001, of WillScot Mobile Mini (the “WillScot Mobile Mini Common Stock”) (the “Per Share Stock Consideration” together with the Per Share Cash Consideration, the “Merger Consideration”), as determined pursuant to the election and allocation procedures in the Merger Agreement. The Company’s shareholders will have the opportunity to elect to receive either the Per Share Cash Consideration or the Per Share Stock Consideration in respect of their Company Common Stock, provided that 60% of the Company Common Stock will be converted into the cash consideration and 40% of the Company Common Stock will be converted into the stock consideration.
The consummation of the Transaction is subject to certain closing conditions, including (i) the approval of the Company’s shareholders, (ii) the expiration or termination of all waiting periods applicable to the transactions contemplated by the Merger Agreement under the Hart-Scott Rodino Antitrust Improvements Act of 1976 (the “HSR Act,” and such expiration or termination, the “Antitrust Approval”), (iii) the absence of any order by any governmental authorities or other legal restraint or prohibition preventing the consummation of the transactions contemplated by the Merger Agreement, (iv) the effectiveness of the registration statement to be filed by WillScot Mobile Mini with SEC relating to the registration of shares of WillScot Mobile Mini Common Stock to be issued to the Company’s shareholders pursuant to the Merger Agreement and (v) other customary conditions specified in the Merger Agreement. The parties have submitted their respective filings under the HSR Act with the U.S. Department of Justice and the Federal Trade Commission as contemplated by the Merger Agreement. The closing of the Transaction is not subject to any financing condition.
For additional information regarding the Transaction, please refer to our current report on Form 8-K and Amendment No. 1 on Form 8-K/A, each filed with the SEC on January 29, 2024.
Because the Transaction is not yet complete, and except as otherwise specifically stated, the descriptions and disclosures presented elsewhere in this Form 10-K assume the continuation of the Company as a public company.
Dividends
In February 2018,2024, the Company announced that its boardBoard of directorsDirectors declared a cash dividend of $0.34$0.475 per common share for the quarter ending March 31, 2018,2024, an increase of 31%2% over the prior year’s comparable quarter.
-34-
Percentage of Revenue Table
The following table sets forth for the periods indicated the results of operations as a percentage of the Company’s total revenues from continuing operations and the percentage of changes in the amount of such of items as compared to the amount in the indicated prior period:
|
| Percent of Total Revenues |
|
| Percent Change |
| ||||||||||||||||||
|
| Three Years |
|
| Year Ended December 31, |
|
| 2023 over |
|
| 2022 over |
| ||||||||||||
|
| 2023–2021 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Rental |
|
| 60 | % |
|
| 57 | % |
|
| 61 | % |
|
| 62 | % |
|
| 22 | % |
|
| 17 | % |
Rental related services |
| 16 |
|
| 17 |
|
| 15 |
|
|
| 14 |
|
|
| 45 |
|
|
| 26 |
| |||
Rental operations |
|
| 76 |
|
|
| 74 |
|
|
| 76 |
|
|
| 76 |
|
|
| 26 |
|
|
| 18 |
|
Sales |
|
| 23 |
|
|
| 25 |
|
|
| 23 |
|
|
| 23 |
|
|
| 40 |
|
|
| 21 |
|
Other |
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 267 |
|
|
| 7 |
|
Total revenues |
|
| 100 |
|
|
| 100 |
|
|
| 100 |
|
|
| 100 |
|
|
| 31 |
|
|
| 19 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Direct costs of rental operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation of rental equipment |
|
| 12 |
|
|
| 11 |
|
|
| 13 |
|
|
| 14 |
|
|
| 11 |
|
|
| 7 |
|
Rental related services |
|
| 11 |
|
|
| 12 |
|
|
| 11 |
|
|
| 10 |
|
|
| 40 |
|
|
| 24 |
|
Other |
|
| 15 |
|
|
| 13 |
|
|
| 16 |
|
|
| 15 |
|
|
| 10 |
|
|
| 31 |
|
Total direct costs of rental operations |
|
| 38 |
|
|
| 36 |
|
|
| 40 |
|
|
| 39 |
|
|
| 18 |
|
|
| 20 |
|
Cost of sales |
|
| 15 |
|
|
| 17 |
|
|
| 14 |
|
|
| 14 |
|
|
| 50 |
|
|
| 20 |
|
Total costs |
|
| 53 |
|
|
| 53 |
|
|
| 54 |
|
|
| 53 |
|
|
| 27 |
|
|
| 20 |
|
Gross profit |
|
| 47 |
|
|
| 47 |
|
|
| 46 |
|
|
| 47 |
|
|
| 36 |
|
|
| 17 |
|
Selling and administrative expenses |
|
| 24 |
|
|
| 25 |
|
|
| 22 |
|
|
| 23 |
|
|
| 45 |
|
|
| 16 |
|
Other income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 100 |
|
|
| 0 |
|
Income from operations |
|
| 23 |
|
|
| 23 |
|
|
| 24 |
|
|
| 24 |
|
|
| 29 |
|
|
| 19 |
|
Interest expense |
|
| 3 |
|
|
| 5 |
|
|
| 2 |
|
|
| 2 |
|
|
| 232 |
|
|
| 48 |
|
Income from continuing operations before provision for income taxes |
|
| 20 |
|
|
| 18 |
|
|
| 22 |
|
|
| 22 |
|
|
| 11 |
|
|
| 16 |
|
Provision for income taxes from continuing operations |
|
| 5 |
|
|
| 5 |
|
|
| 5 |
|
|
| 6 |
|
|
| 20 |
|
|
| 2 |
|
Income from continuing operations |
|
| 15 | % |
|
| 13 | % |
|
| 17 | % |
|
| 16 | % |
|
| 8 | % |
|
| 21 | % |
|
| Percent of Total Revenues |
|
| Percent Change |
| ||||||||||||||||||
|
| Three Years |
|
| Year Ended December 31, |
|
| 2017 over |
|
| 2016 over |
| ||||||||||||
|
| 2017–2015 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| ||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
| 65 | % |
|
| 63 | % |
|
| 64 | % |
|
| 68 | % |
|
| 7 | % |
|
| (1 | )% |
Rental related services |
| 18 |
|
|
| 17 |
|
|
| 18 |
|
|
| 18 |
|
|
| 3 |
|
|
| 3 |
| |
Rental operations |
|
| 82 |
|
|
| 80 |
|
|
| 82 |
|
|
| 86 |
|
|
| 6 |
|
|
| — |
|
Sales |
|
| 17 |
|
|
| 20 |
|
|
| 18 |
|
|
| 14 |
|
|
| 23 |
|
|
| 34 |
|
Other |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 26 |
|
|
| 13 |
|
Total revenues |
|
| 100 |
|
|
| 100 |
|
|
| 100 |
|
|
| 100 |
|
|
| 9 |
|
|
| 5 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of rental operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of rental equipment |
|
| 17 |
|
|
| 15 |
|
|
| 17 |
|
|
| 19 |
|
|
| (3 | ) |
|
| (4 | ) |
Rental related services |
|
| 13 |
|
|
| 13 |
|
|
| 13 |
|
|
| 14 |
|
|
| 6 |
|
|
| 3 |
|
Other |
|
| 15 |
|
|
| 14 |
|
|
| 15 |
|
|
| 14 |
|
|
| 4 |
|
|
| 3 |
|
Total direct costs of rental operations |
|
| 45 |
|
|
| 42 |
|
|
| 45 |
|
|
| 47 |
|
|
| 2 |
|
|
| — |
|
Cost of sales |
|
| 11 |
|
|
| 13 |
|
|
| 12 |
|
|
| 9 |
|
|
| 24 |
|
|
| 32 |
|
Total costs |
|
| 56 |
|
|
| 55 |
|
|
| 57 |
|
|
| 56 |
|
|
| 7 |
|
|
| 5 |
|
Gross profit |
|
| 44 |
|
|
| 45 |
|
|
| 43 |
|
|
| 44 |
|
|
| 12 |
|
|
| 4 |
|
Selling and administrative expenses |
|
| 25 |
|
|
| 24 |
|
|
| 24 |
|
|
| 25 |
|
|
| 6 |
|
|
| 5 |
|
Income from operations |
|
| 19 |
|
|
| 21 |
|
|
| 19 |
|
|
| 19 |
|
|
| 20 |
|
|
| 3 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 2 |
|
|
| 3 |
|
|
| 3 |
|
|
| 3 |
|
|
| (5 | ) |
|
| 21 |
|
Foreign currency exchange gain (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| nm |
|
| nm |
| ||
Income before (benefit) provision for income taxes |
|
| 17 |
|
|
| 18 |
|
|
| 16 |
|
|
| 16 |
|
|
| 25 |
|
|
| 1 |
|
(Benefit) provision for income taxes |
|
| (1 | ) |
|
| (15 | ) |
|
| 7 |
|
|
| 6 |
|
| nm |
|
|
| 11 |
| |
Net income |
|
| 18 | % |
|
| 33 | % |
|
| 9 | % |
|
| 10 | % |
| nm |
|
|
| (5 | )% |
-35-
nm = not meaningful
-36-
Twelve Months Ended December 31, 20172023 Compared to
Twelve Months Ended December 31, 20162022
Overview
Consolidated revenues in 20172023 increased 9%,13% to $462.0$841.3 million, from $424.1$733.8 million in 2016.2022. Consolidated net income in 2017 increased2023, excluding the gain on sale of discontinued operations from the divestiture of Adler Tanks, decreased to $153.9$113.1 million, or $6.34$4.61 per diluted share in 2017,2023, compared to $38.3$115.1 million, or $1.60$4.70 per diluted share, in 2016. 2017 results include an increase to net income of $102.5 million, or $4.23 per diluted share due to the tax benefit associated with the enactment by the U.S. government of the Tax Cuts and Jobs Act of 2017 on December 22, 2017 (the “Tax Act”), which is discussed below.2022. The Company’s year over year total revenue increase was primarily due to higher rental, sales and rental related services revenues, as more fully described below.
For 2017Revenues from discontinued operations for the year ended December 31, 2023, was $9.4 million, compared to 2016,$98.2 million for the same period in 2022. Income from discontinued operations for the year ended December 31, 2023, was $62.8 million, which included the net gain on sale of discontinued operations of $61.5 million, compared to $11.8 million for the same period in 2022. Earnings per diluted share from discontinued operations for the year ended December 31, 2023 was $2.56, compared to $0.48 for the same period in 2022. For additional information on discontinued operations and the divestiture of Adler Tanks, refer to Note 5 of the consolidated financial statements.
For 2023 compared to 2022, on a consolidated basis:basis from continuing operations:
Gross profit increased $22.2$103.4 million, or 12%36%, to $206.3$393.6 million. Mobile Modular’s gross profit increased $10.1$96.0 million, or 11%59%, due to higher gross profit on rental, sales and rental related services revenues. Adler Tanks’Portable Storage's gross profit increased $5.8$13.6 million, or 16%25%, due to higher gross profit on rental sales and rental related services revenues. TRS-RenTelco’s gross profit increased $4.5decreased $5.3 million, or 10%8%, primarily due to higherlower gross profit on rental and sales revenues. Enviroplex’s gross profit increased $1.8decreased $0.9 million, or 25%17%, primarily due to higher$3.0 million lower sales revenues.
Selling and administrative expenses increased $6.7$64.6 million, or 6%45%, to $111.6$207.5 million, primarily due to increased headcount and employees’ salaries and employee benefit costs totaling $29.0 million, partly attributed to increased employee headcount from the Vesta Modular acquisition, and professional fees.
During the year ended December 31, 2023, the Company sold four properties, which resulted in a net gain on sale of $3.6 million. The gain on sale, which was presented in Other income on the Consolidated Statements of Income, contributed $0.11 in earnings per diluted share.
Pre-tax income contribution was 50%, 31% and 13% by Mobile Modular, Portable Storage and TRS-RenTelco was 62%, 22% and Adler Tanks,16%, respectively, in 2017, compared to 53%50%, 32%22% and 10%27%, respectively, in 2016.2022. These results are discussed on a segment basis below. Pre-tax income contribution by Enviroplex was 6%0% for 2023 and 5% in 2017 and 2016, respectively.
The Tax Act, among other things, reduced the federal income tax rate from 35% to 21% effective January 1, 2018, and required a one-time mandatory repatriation of foreign earnings. As a result of the Tax Act, the Company re-measured its net deferred tax liabilities and recognized a net benefit of $102.8 million. In addition, a one-time transition income tax estimated at $0.3 million related to repatriation of foreign earnings was recorded. The provision for income taxes resulted in an effective tax rate of a benefit of 88.4% compared to a provision of 42.9% in 2016.25.5% and 23.3% for the twelve months ended December 31, 2023 and 2022, respectively. The lower taxhigher rate in 20172023 was primarily due to the $102.5 million net impact of the Tax Act. In addition, the Company benefited from $0.9 million lower re-pricing ofchanges in state deferred tax liabilities in 2017 compared to 2016business activity levels and the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which resulted in the recording of $0.9 million excess tax benefits as a reduction to the provision for income taxes. These tax benefits, or shortfalls, were historically recorded in equity. In addition, in 2016 the decision to exit the Company’s Bangalore, India branch increased the 2016 provision for income taxes by $0.7 million as a valuation allowance was recorded against the related deferred tax assets.
Adjusted EBITDA increased $14.9$70.8 million, or 9%28%, to $178.3 million compared to $163.4$322.0 million in 2016.2023. Adjusted EBITDA is a non-GAAP financial measure and is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and share-based compensation.transaction costs. A reconciliation of Adjusted EBITDA to net cash provided by operating activities and net income to Adjusted EBITDA can be found in “Item 6. Selected Financial Data.” on page 34.
-37--36-
For 2017,2023, Mobile Modular’s total revenues increased $21.8$183.0 million, or 10%48%, to $231.3$562.2 million compared to 2016,2022, primarily due to higher rental, sales and rental related services revenues. The revenue increase, together with higherHigher gross profit on rental, sales and salesrental related services revenues, partly offset by $52.8 million higher selling and administrative expenses, resulted in an increase in pre-tax income of $6.1$24.5 million, or 17%36%, to $41.7$92.0 million in 2017.2023.
The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax income, and other selected information.
Mobile Modular – 20172023 compared to 20162022
(dollar amounts in thousands) |
| Year Ended December 31, |
|
| Increase (Decrease) |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rental |
| $ | 285,553 |
|
| $ | 206,070 |
|
| $ | 79,483 |
|
|
| 39 | % |
Rental related services |
|
| 114,511 |
|
|
| 74,756 |
|
|
| 39,755 |
|
|
| 53 | % |
Rental operations |
|
| 400,064 |
|
|
| 280,826 |
|
|
| 119,238 |
|
|
| 42 | % |
Sales |
|
| 155,267 |
|
|
| 97,046 |
|
|
| 58,221 |
|
|
| 60 | % |
Other |
|
| 6,905 |
|
|
| 1,339 |
|
|
| 5,566 |
|
| nm |
| |
Total revenues |
|
| 562,236 |
|
|
| 379,211 |
|
|
| 183,025 |
|
|
| 48 | % |
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Direct costs of rental operations: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation of rental equipment |
|
| 36,921 |
|
|
| 28,373 |
|
|
| 8,548 |
|
|
| 30 | % |
Rental related services |
|
| 75,390 |
|
|
| 49,910 |
|
|
| 25,480 |
|
|
| 51 | % |
Other |
|
| 86,983 |
|
|
| 76,819 |
|
|
| 10,164 |
|
|
| 13 | % |
Total direct costs of rental operations |
|
| 199,294 |
|
|
| 155,102 |
|
|
| 44,192 |
|
|
| 28 | % |
Costs of sales |
|
| 105,021 |
|
|
| 62,224 |
|
|
| 42,797 |
|
|
| 69 | % |
Total costs of revenues |
|
| 304,315 |
|
|
| 217,326 |
|
|
| 86,989 |
|
|
| 40 | % |
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rental |
|
| 161,649 |
|
|
| 100,878 |
|
|
| 60,771 |
|
|
| 60 | % |
Rental related services |
|
| 39,121 |
|
|
| 24,847 |
|
|
| 14,274 |
|
|
| 57 | % |
Rental operations |
|
| 200,770 |
|
|
| 125,725 |
|
|
| 75,045 |
|
|
| 60 | % |
Sales |
|
| 50,246 |
|
|
| 34,822 |
|
|
| 15,424 |
|
|
| 44 | % |
Other |
|
| 6,905 |
|
|
| 1,339 |
|
|
| 5,566 |
|
| nm |
| |
Total gross profit |
|
| 257,921 |
|
|
| 161,885 |
|
|
| 96,036 |
|
|
| 59 | % |
Selling and administrative expenses |
|
| (138,574 | ) |
|
| (85,769 | ) |
|
| 52,805 |
|
|
| 62 | % |
Other income |
|
| 2,329 |
|
|
| — |
|
|
| 2,329 |
|
| nm |
| |
Income from operations |
|
| 121,676 |
|
|
| 76,116 |
|
|
| 45,560 |
|
|
| 60 | % |
Interest expense allocation |
|
| (29,724 | ) |
|
| (8,657 | ) |
|
| 21,067 |
|
| nm |
| |
Pre-tax income |
| $ | 91,952 |
|
| $ | 67,459 |
|
| $ | 24,493 |
|
|
| 36 | % |
Other Selected Information |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Adjusted EBITDA |
| $ | 191,990 |
|
| $ | 121,981 |
|
| $ | 70,009 |
|
|
| 57 | % |
Average rental equipment 1 |
| $ | 1,093,086 |
|
| $ | 855,640 |
|
| $ | 237,446 |
|
|
| 28 | % |
Average rental equipment on rent |
| $ | 870,621 |
|
| $ | 667,559 |
|
| $ | 203,062 |
|
|
| 30 | % |
Average monthly total yield 2 |
|
| 2.18 | % |
|
| 2.01 | % |
|
|
|
|
| 8 | % | |
Average utilization 3 |
|
| 79.7 | % |
|
| 78.0 | % |
|
|
|
|
| 2 | % | |
Average monthly rental rate 4 |
|
| 2.73 | % |
|
| 2.57 | % |
|
|
|
|
| 6 | % | |
Period end rental equipment 1 |
| $ | 1,163,704 |
|
| $ | 869,926 |
|
| $ | 293,778 |
|
|
| 34 | % |
Period end utilization 3 |
|
| 79.4 | % |
|
| 80.3 | % |
|
|
|
|
| (1 | )% |
(dollar amounts in thousands) |
| Year Ended December 31, |
|
| Increase (Decrease) |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| $ |
|
| % |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
| $ | 142,584 |
|
| $ | 130,496 |
|
| $ | 12,088 |
|
|
| 9 | % |
Rental related services |
|
| 50,448 |
|
|
| 49,206 |
|
|
| 1,242 |
|
|
| 3 | % |
Rental operations |
|
| 193,032 |
|
|
| 179,702 |
|
|
| 13,330 |
|
|
| 7 | % |
Sales |
|
| 37,435 |
|
|
| 29,393 |
|
|
| 8,042 |
|
|
| 27 | % |
Other |
|
| 799 |
|
|
| 417 |
|
|
| 382 |
|
|
| 92 | % |
Total revenues |
|
| 231,266 |
|
|
| 209,512 |
|
|
| 21,754 |
|
|
| 10 | % |
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of rental operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of rental equipment |
|
| 21,247 |
|
|
| 21,001 |
|
|
| 246 |
|
|
| 1 | % |
Rental related services |
|
| 37,755 |
|
|
| 37,392 |
|
|
| 363 |
|
|
| 1 | % |
Other |
|
| 41,290 |
|
|
| 35,683 |
|
|
| 5,607 |
|
|
| 16 | % |
Total direct costs of rental operations |
|
| 100,292 |
|
|
| 94,076 |
|
|
| 6,216 |
|
|
| 7 | % |
Costs of sales |
|
| 27,039 |
|
|
| 21,620 |
|
|
| 5,419 |
|
|
| 25 | % |
Total costs of revenues |
|
| 127,331 |
|
|
| 115,696 |
|
|
| 11,635 |
|
|
| 10 | % |
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
| 80,048 |
|
|
| 73,813 |
|
|
| 6,235 |
|
|
| 8 | % |
Rental related services |
|
| 12,693 |
|
|
| 11,814 |
|
|
| 879 |
|
|
| 7 | % |
Rental operations |
|
| 92,741 |
|
|
| 85,627 |
|
|
| 7,114 |
|
|
| 8 | % |
Sales |
|
| 10,395 |
|
|
| 7,772 |
|
|
| 2,623 |
|
|
| 34 | % |
Other |
|
| 799 |
|
|
| 417 |
|
|
| 382 |
|
|
| 92 | % |
Total gross profit |
|
| 103,935 |
|
|
| 93,816 |
|
|
| 10,119 |
|
|
| 11 | % |
Selling and administrative expenses |
|
| 55,583 |
|
|
| 51,432 |
|
|
| 4,151 |
|
|
| 8 | % |
Income from operations |
|
| 48,352 |
|
|
| 42,384 |
|
|
| 5,968 |
|
|
| 14 | % |
Interest expense allocation |
|
| (6,671 | ) |
|
| (6,804 | ) |
|
| (133 | ) |
|
| (2 | )% |
Pre-tax income |
| $ | 41,681 |
|
| $ | 35,580 |
|
| $ | 6,101 |
|
|
| 17 | % |
Other Selected Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average rental equipment 1 |
| $ | 747,478 |
|
| $ | 724,333 |
|
| $ | 23,145 |
|
|
| 3 | % |
Average rental equipment on rent 1 |
| $ | 574,201 |
|
| $ | 554,485 |
|
| $ | 19,716 |
|
|
| 4 | % |
Average monthly total yield 2 |
|
| 1.59 | % |
|
| 1.50 | % |
|
|
|
|
|
| 6 | % |
Average utilization 3 |
|
| 76.8 | % |
|
| 76.6 | % |
|
|
|
|
|
| 0 | % |
Average monthly rental rate 4 |
|
| 2.07 | % |
|
| 1.96 | % |
|
|
|
|
|
| 6 | % |
Period end rental equipment 1 |
| $ | 746,852 |
|
| $ | 744,099 |
|
| $ | 2,753 |
|
|
| 0 | % |
Period end utilization 3 |
|
| 77.8 | % |
|
| 77.3 | % |
|
|
|
|
|
| 1 | % |
-37-
|
|
|
|
|
|
|
|
-38-
Mobile Modular’s gross profit for 20172023 increased 11%$96.0 million, or 59%, to $103.9 million from $93.8 million in 2016.$257.9 million. For the year ended December 31, 20172023 compared to the year ended December 31, 2016:2022:
Gross Profit on Rental Revenues – Rental revenues increased $12.1$79.5 million, or 9%39%, compared to 2016, due to 4%30% higher average rental equipment on rent and 6% higher average monthly rental rates.rates in 2023. As a percentage of rental revenues, depreciation was 15%13% and 14% in 2017 compared to 16% in 20162023 and 2022, respectively, and other direct costs were 29%30% in 20172023 and 27%37% in 2016,2022, which resulted in gross margin percentage of 56%57% in 20172023, compared to 57%49% in 2016. The increased other direct costs in 2017 were partly attributable to a $1.6 million impairment of rental assets, deemed beyond economic repair in the Southern California region.2022. The higher rental revenues partly offset by lowerand increased rental margins resulted in gross profit on rental revenues increasing 8%$60.8 million, or 60%, to $80.0 million from $73.8$161.6 million in 2016.
Gross Profit on Rental Related Services – Rental related services revenues increased $1.2$39.8 million, or 3%53%, compared to 2016.2022. Most of these service revenues are negotiated with the initial lease and are recognized on a straight-line basis with the associated costs over the initial term of the lease. The increase in rental related services revenues was primarily attributable to higher services performed during the lease,delivery, return delivery and dismantle revenues and higher delivery and return delivery at Mobile Modular Portable Storage.site related services. The higher revenues andaccompanied by higher gross margin percentage of 25%34% in 20172023, compared to 24%33% in 20162022, resulted in rental related services gross profit increasing 7%$14.3 million, or 57%, to $12.7 million from $11.8$39.1 million in 2016.
Gross Profit on Sales – Sales revenues increased $8.0$58.2 million, or 27%60%, compared to 2016. Gross profit on sales increased $2.6 million, or 34%,primarily due to higher usednew equipment sales. The higher sales revenues and higherlower gross margins of 28%32% in 20172023, compared to 26%36% in 2016.2022, resulted in sales gross profit increasing $15.4 million, or 44%, to $50.2 million in 2023. Sales occur routinely as a normal part of Mobile Modular’s rental business; however, these sales can fluctuate from period to period depending on customer requirements, equipment availability and funding.
For 2017,2023, Mobile Modular’s selling and administrative expenses increased $4.2$52.8 million, or 8%62%, to $55.6$138.6 million, from $51.4 million in 2016, primarily due to increased employee headcount, salaries and benefit costs totaling $21.6 million, partly attributed to increased employee headcount from the Vesta Modular acquisition, $14.1 million higher allocated corporate expenses, which included $5.3 million of transaction costs primarily attributed to the divestiture of Adler Tanks. In addition, the Company had $10.7 million higher marketing and administrative costs and higher corporate allocated expenses.compared to 2022, which included $7.7 million Vesta transaction costs.
-38-
Portable Storage
-39-
For 2017, TRS-RenTelco’s2023, Portable Storage’s total revenues decreased $0.6increased $18.6 million, or 1%23%, to $108.0$101.1 million compared to 2016,2022, primarily due to lowerhigher rental, rental related services and sales revenues. Higher gross profit on rental, rental related services and sales revenues, partly offset by higher rental revenues. Pre-tax income increased $4.8$7.1 million or 23%, to $26.1 million for 2017, primarily due to higher gross profit on rental and sales revenues and foreign currency exchange gain, partly offset by higher selling and administrative expenses.expenses, resulted in an increase in pre-tax income of $3.5 million, or 12%, to $32.9 million in 2023.
The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax income, and other selected information.
TRS-RenTelcoPortable Storage – 20172023 compared to 20162022
(dollar amounts in thousands) |
| Year Ended December 31, |
|
| Increase (Decrease) |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rental |
| $ | 74,536 |
|
| $ | 62,218 |
|
| $ | 12,318 |
|
|
| 20 | % |
Rental related services |
|
| 20,510 |
|
|
| 17,095 |
|
|
| 3,415 |
|
|
| 20 | % |
Rental operations |
|
| 95,046 |
|
|
| 79,313 |
|
|
| 15,733 |
|
|
| 20 | % |
Sales |
|
| 4,587 |
|
|
| 2,933 |
|
|
| 1,654 |
|
|
| 56 | % |
Other |
|
| 1,504 |
|
|
| 260 |
|
|
| 1,244 |
|
| nm |
| |
Total revenues |
|
| 101,137 |
|
|
| 82,506 |
|
|
| 18,631 |
|
|
| 23 | % |
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Direct costs of rental operations: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation of rental equipment |
|
| 3,514 |
|
|
| 2,799 |
|
|
| 715 |
|
|
| 26 | % |
Rental related services |
|
| 18,568 |
|
|
| 16,344 |
|
|
| 2,224 |
|
|
| 14 | % |
Other |
|
| 7,317 |
|
|
| 6,212 |
|
|
| 1,105 |
|
|
| 18 | % |
Total direct costs of rental operations |
|
| 29,399 |
|
|
| 25,355 |
|
|
| 4,044 |
|
|
| 16 | % |
Costs of sales |
|
| 2,858 |
|
|
| 1,849 |
|
|
| 1,009 |
|
|
| 55 | % |
Total costs of revenues |
|
| 32,257 |
|
|
| 27,204 |
|
|
| 5,053 |
|
|
| 19 | % |
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rental |
|
| 63,705 |
|
|
| 53,207 |
|
|
| 10,498 |
|
|
| 20 | % |
Rental related services |
|
| 1,942 |
|
|
| 750 |
|
|
| 1,192 |
|
| nm |
| |
Rental operations |
|
| 65,647 |
|
|
| 53,957 |
|
|
| 11,690 |
|
|
| 22 | % |
Sales |
|
| 1,729 |
|
|
| 1,084 |
|
|
| 645 |
|
|
| 60 | % |
Other |
|
| 1,504 |
|
|
| 260 |
|
|
| 1,244 |
|
| nm |
| |
Total gross profit |
|
| 68,880 |
|
|
| 55,302 |
|
|
| 13,578 |
|
|
| 25 | % |
Selling and administrative expenses |
|
| (31,537 | ) |
|
| (24,465 | ) |
|
| 7,072 |
|
|
| 29 | % |
Other income |
|
| 457 |
|
|
| — |
|
|
| 457 |
|
| nm |
| |
Income from operations |
|
| 37,800 |
|
|
| 30,837 |
|
|
| 6,963 |
|
|
| 23 | % |
Interest expense allocation |
|
| (4,950 | ) |
|
| (1,518 | ) |
|
| 3,432 |
|
| nm |
| |
Pre-tax income |
| $ | 32,850 |
|
| $ | 29,319 |
|
| $ | 3,531 |
|
|
| 12 | % |
Other Selected Information |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Adjusted EBITDA |
| $ | 47,147 |
|
| $ | 37,393 |
|
| $ | 9,754 |
|
|
| 26 | % |
Average rental equipment 1 |
| $ | 206,095 |
|
| $ | 169,997 |
|
| $ | 36,098 |
|
|
| 21 | % |
Average rental equipment on rent |
| $ | 159,391 |
|
| $ | 144,133 |
|
| $ | 15,258 |
|
|
| 11 | % |
Average monthly total yield 2 |
|
| 3.01 | % |
|
| 3.05 | % |
|
|
|
|
| (1 | )% | |
Average utilization 3 |
|
| 77.3 | % |
|
| 84.8 | % |
|
|
|
|
| (9 | )% | |
Average monthly rental rate 4 |
|
| 3.90 | % |
|
| 3.60 | % |
|
|
|
|
| 8 | % | |
Period end rental equipment 1 |
| $ | 221,817 |
|
| $ | 184,919 |
|
| $ | 36,898 |
|
|
| 20 | % |
Period end utilization 3 |
|
| 71.5 | % |
|
| 82.6 | % |
|
|
|
|
| (13 | )% |
(dollar amounts in thousands) |
| Year Ended December 31, |
|
| Increase (Decrease) |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| $ |
|
| % |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
| $ | 82,812 |
|
| $ | 82,307 |
|
| $ | 505 |
|
|
| 1 | % |
Rental related services |
|
| 2,858 |
|
|
| 2,846 |
|
|
| 12 |
|
|
| 0 | % |
Rental operations |
|
| 85,670 |
|
|
| 85,153 |
|
|
| 517 |
|
|
| 1 | % |
Sales |
|
| 20,334 |
|
|
| 21,582 |
|
|
| (1,248 | ) |
|
| -6 | % |
Other |
|
| 2,040 |
|
|
| 1,882 |
|
|
| 158 |
|
|
| 8 | % |
Total revenues |
|
| 108,044 |
|
|
| 108,617 |
|
|
| (573 | ) |
|
| -1 | % |
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of rental operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of rental equipment |
|
| 32,891 |
|
|
| 35,256 |
|
|
| (2,365 | ) |
|
| -7 | % |
Rental related services |
|
| 2,589 |
|
|
| 2,640 |
|
|
| (51 | ) |
|
| -2 | % |
Other |
|
| 13,503 |
|
|
| 14,320 |
|
|
| (817 | ) |
|
| -6 | % |
Total direct costs of rental operations |
|
| 48,983 |
|
|
| 52,216 |
|
|
| (3,233 | ) |
|
| -6 | % |
Costs of sales |
|
| 8,772 |
|
|
| 10,604 |
|
|
| (1,832 | ) |
|
| -17 | % |
Total costs of revenues |
|
| 57,755 |
|
|
| 62,820 |
|
|
| (5,065 | ) |
|
| -8 | % |
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
| 36,418 |
|
|
| 32,730 |
|
|
| 3,688 |
|
|
| 11 | % |
Rental related services |
|
| 269 |
|
|
| 206 |
|
|
| 63 |
|
|
| 31 | % |
Rental operations |
|
| 36,687 |
|
|
| 32,936 |
|
|
| 3,751 |
|
|
| 11 | % |
Sales |
|
| 11,562 |
|
|
| 10,979 |
|
|
| 583 |
|
|
| 5 | % |
Other |
|
| 2,040 |
|
|
| 1,882 |
|
|
| 158 |
|
|
| 8 | % |
Total gross profit |
|
| 50,289 |
|
|
| 45,797 |
|
|
| 4,492 |
|
|
| 10 | % |
Selling and administrative expenses |
|
| 22,171 |
|
|
| 21,896 |
|
|
| 275 |
|
|
| 1 | % |
Income from operations |
|
| 28,118 |
|
|
| 23,901 |
|
|
| 4,217 |
|
|
| 18 | % |
Interest expense allocation |
|
| (2,320 | ) |
|
| (2,465 | ) |
|
| (145 | ) |
|
| -6 | % |
Foreign currency exchange gain (loss) |
|
| 334 |
|
|
| (121 | ) |
|
| 455 |
|
| nm |
| |
Pre-tax income |
| $ | 26,132 |
|
| $ | 21,315 |
|
| $ | 4,817 |
|
|
| 23 | % |
Other Selected Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average rental equipment 1 |
| $ | 252,332 |
|
| $ | 254,019 |
|
| $ | (1,687 | ) |
|
| -1 | % |
Average rental equipment on rent 1 |
| $ | 158,830 |
|
| $ | 153,985 |
|
| $ | 4,845 |
|
|
| 3 | % |
Average monthly total yield 2 |
|
| 2.74 | % |
|
| 2.70 | % |
|
|
|
|
|
| 1 | % |
Average utilization 3 |
|
| 62.9 | % |
|
| 60.6 | % |
|
|
|
|
|
| 4 | % |
Average monthly rental rate 4 |
|
| 4.35 | % |
|
| 4.45 | % |
|
|
|
|
|
| -2 | % |
Period end rental equipment 1 |
| $ | 261,552 |
|
| $ | 245,700 |
|
| $ | 15,852 |
|
|
| 6 | % |
Period end utilization 3 |
|
| 61.7 | % |
|
| 61.0 | % |
|
|
|
|
|
| 1 | % |
|
|
|
|
|
|
|
|
nm = Not meaningful
-39-
-40-
TRS-RenTelco’sPortable Storage’s gross profit for 20172023 increased 10%$13.6 million, or 25%, to $50.3 million from $45.8 million in 2016.$68.9 million. For the year ended December 31, 20172023 compared to the year ended December 31, 2016:2022:
Gross Profit on Rental Revenues – Rental revenues increased $0.5$12.3 million, or 1%20%, due to $82.8 million with depreciation expense decreasing $2.4 million, or 7%,11% higher average rental equipment on rent and other direct costs decreasing $0.8 million, or 6%, resulting8% higher average monthly rental rates in an increase in gross profit on rental revenues of $3.7 million, or 11%, to $36.4 million in 2017.2023. As a percentage of rental revenues, depreciation was 40%5% and 4% in 2017 compared to 43% in 20162023 and 2022, respectively, and other direct costs was 16%were 10% in 2017 compared to 17% in 2016,both 2023 and 2022, which resulted in gross margin percentage of 44%85% in 20172023 compared to 86% in 2022. The higher rental revenues and lower rental margins resulted in gross profit on rental revenues increasing $10.5 million, or 20%, to $63.7 million in 2023.
For 2023, Portable Storage’s selling and administrative expenses increased $7.1 million, or 29%, to $31.5 million, primarily due to $3.2 million higher allocated corporate expenses, which included $1.3 million of allocated transaction costs from the divestiture of Adler Tanks, and increased employee salaries and benefit costs totaling $2.0 million, as compared to 2022.
-40-
TRS-RenTelco
For 2023, TRS-RenTelco’s total revenues decreased $2.5 million, or 2%, to $148.3 million compared to 2022, primarily due to lower rental revenues, partially offset by higher sales and other revenues. Pre-tax income decreased $12.3 million, or 33%, to $24.6 million for 2023, primarily due to lower gross profit on rental and sales revenues, coupled with an increase in selling and administrative expenses.
The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax income, and other selected information.
TRS-RenTelco – 2023 compared to 2022
(dollar amounts in thousands) |
| Year Ended December 31, |
|
| Increase (Decrease) |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rental |
| $ | 114,247 |
|
| $ | 121,375 |
|
| $ | (7,128 | ) |
|
| (6 | )% |
Rental related services |
|
| 3,139 |
|
|
| 3,112 |
|
|
| 27 |
|
|
| 1 | % |
Rental operations |
|
| 117,386 |
|
|
| 124,487 |
|
|
| (7,101 | ) |
|
| (6 | )% |
Sales |
|
| 27,119 |
|
|
| 24,571 |
|
|
| 2,548 |
|
|
| 10 | % |
Other |
|
| 3,772 |
|
|
| 1,720 |
|
|
| 2,052 |
|
| nm |
| |
Total revenues |
|
| 148,277 |
|
|
| 150,778 |
|
|
| (2,501 | ) |
|
| (2 | )% |
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Direct costs of rental operations: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation of rental equipment |
|
| 48,477 |
|
|
| 49,253 |
|
|
| (776 | ) |
|
| (2 | )% |
Rental related services |
|
| 2,670 |
|
|
| 2,592 |
|
|
| 78 |
|
|
| 3 | % |
Other |
|
| 20,642 |
|
|
| 21,327 |
|
|
| (685 | ) |
|
| (3 | )% |
Total direct costs of rental operations |
|
| 71,789 |
|
|
| 73,172 |
|
|
| (1,383 | ) |
|
| (2 | )% |
Costs of sales |
|
| 13,884 |
|
|
| 9,707 |
|
|
| 4,177 |
|
|
| 43 | % |
Total costs of revenues |
|
| 85,673 |
|
|
| 82,879 |
|
|
| 2,794 |
|
|
| 3 | % |
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rental |
|
| 45,128 |
|
|
| 50,795 |
|
|
| (5,667 | ) |
|
| (11 | )% |
Rental related services |
|
| 469 |
|
|
| 520 |
|
|
| (51 | ) |
|
| (10 | )% |
Rental operations |
|
| 45,597 |
|
|
| 51,315 |
|
|
| (5,718 | ) |
|
| (11 | )% |
Sales |
|
| 13,235 |
|
|
| 14,864 |
|
|
| (1,629 | ) |
|
| (11 | )% |
Other |
|
| 3,772 |
|
|
| 1,720 |
|
|
| 2,052 |
|
|
| 119 | % |
Total gross profit |
|
| 62,604 |
|
|
| 67,899 |
|
|
| (5,295 | ) |
|
| (8 | )% |
Selling and administrative expenses |
|
| (30,962 | ) |
|
| (27,245 | ) |
|
| 3,717 |
|
|
| 14 | % |
Other income |
|
| 832 |
|
|
| — |
|
|
| 832 |
|
| nm |
| |
Income from operations |
|
| 32,474 |
|
|
| 40,654 |
|
|
| (8,180 | ) |
|
| (20 | )% |
Interest expense allocation |
|
| (8,146 | ) |
|
| (3,294 | ) |
|
| 4,852 |
|
| nm |
| |
Foreign currency exchange loss |
|
| 310 |
|
|
| (378 | ) |
|
| 688 |
|
| nm |
| |
Pre-tax income |
| $ | 24,638 |
|
| $ | 36,982 |
|
| $ | (12,344 | ) |
|
| (33 | )% |
Other Selected Information |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Adjusted EBITDA |
| $ | 84,736 |
|
| $ | 92,007 |
|
| $ | (7,271 | ) |
|
| (8 | )% |
Average rental equipment 1 |
| $ | 388,679 |
|
| $ | 383,235 |
|
| $ | 5,444 |
|
|
| 1 | % |
Average rental equipment on rent |
| $ | 228,787 |
|
| $ | 245,893 |
|
| $ | (17,106 | ) |
|
| (7 | )% |
Average monthly total yield 2 |
|
| 2.43 | % |
|
| 2.63 | % |
|
|
|
|
| (8 | )% | |
Average utilization 3 |
|
| 58.9 | % |
|
| 64.2 | % |
|
|
|
|
| (8 | )% | |
Average monthly rental rate 4 |
|
| 4.16 | % |
|
| 4.11 | % |
|
|
|
|
| 1 | % | |
Period end rental equipment 1 |
| $ | 374,438 |
|
| $ | 395,214 |
|
| $ | (20,776 | ) |
|
| (5 | )% |
Period end utilization 3 |
|
| 55.9 | % |
|
| 59.4 | % |
|
|
|
|
| (6 | )% |
nm = Not meaningful
-41-
TRS-RenTelco’s gross profit for 2023 decreased $5.3 million, or 8%, to $62.6 million. For the year ended December 31, 2023 compared to the year ended December 31, 2022:
Gross Profit on Sales – Sales revenues decreased $1.2increased $2.5 million, or 6%10%, compared to 2016. The higher$27.1 million in 2023. Gross profit on sales decreased $1.6 million, or 11%, to $13.2 million, with a gross margin percentage of 57%49% in 2017,2023, compared to 51%60% in 20162022. The reduction in gross margin during the year was primarily dueattributed to higher grossa decrease in margin on used equipment sales. The higher gross margin was partly offset by lower sales revenues, which resulted in gross profit on sales increasing 5%, to $11.6 million from $11.0 million in 2016. Sales occur routinely as a normal part of TRS-RenTelco’s rental business; however, these sales and related gross margins can fluctuate from period to period depending on customer requirements, equipment availability and funding.
For 2017,2023, TRS-RenTelco’s selling and administrative expenses increased $0.3$3.7 million, or 1%14%, to $22.2$31.0 million, from $21.9 million in 2016, primarily due to $2.6 million higher salaries and employee benefit costs, partly offset by lower allocated corporate expenses.
-41-
expenses, which included $1.6 million of allocated transaction costs from the divestiture of Adler Tanks,
For 2017, Adler Tanks’ total revenues increased $7.5 million, or 9%, to $91.4 million compared to 2016, primarily due to higher rental and sales revenues during 2017. The revenue increase together with higher gross profit on rental, sales and rental related services revenues, partly offset by higher selling and administrative expenses resulted in a pre-tax income increase of $4.0 million, or 61%, to $10.6 million for the year ended December 31, 2017.
The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.
Adler Tanks – 2017 compared to 2016
(dollar amounts in thousands) |
| Year Ended December 31, |
|
| Increase (Decrease) |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| $ |
|
| % |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
| $ | 64,021 |
|
| $ | 58,585 |
|
| $ | 5,436 |
|
|
| 9 | % |
Rental related services |
|
| 24,762 |
|
|
| 23,807 |
|
|
| 955 |
|
|
| 4 | % |
Rental operations |
|
| 88,783 |
|
|
| 82,392 |
|
|
| 6,391 |
|
|
| 8 | % |
Sales |
|
| 2,362 |
|
|
| 1,314 |
|
|
| 1,048 |
|
|
| 80 | % |
Other |
|
| 210 |
|
|
| 124 |
|
|
| 86 |
|
|
| 69 | % |
Total revenues |
|
| 91,355 |
|
|
| 83,830 |
|
|
| 7,525 |
|
|
| 9 | % |
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of rental operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of rental equipment |
|
| 15,770 |
|
|
| 15,940 |
|
|
| (170 | ) |
|
| (1 | )% |
Rental related services |
|
| 19,685 |
|
|
| 19,012 |
|
|
| 673 |
|
|
| 4 | % |
Other |
|
| 10,679 |
|
|
| 10,127 |
|
|
| 552 |
|
|
| 5 | % |
Total direct costs of rental operations |
|
| 46,134 |
|
|
| 45,079 |
|
|
| 1,055 |
|
|
| 2 | % |
Costs of sales |
|
| 2,003 |
|
|
| 1,342 |
|
|
| 661 |
|
|
| 49 | % |
Total costs of revenues |
|
| 48,137 |
|
|
| 46,421 |
|
|
| 1,716 |
|
|
| 4 | % |
Gross Profit (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
| 37,572 |
|
|
| 32,518 |
|
|
| 5,054 |
|
|
| 16 | % |
Rental related services |
|
| 5,076 |
|
|
| 4,795 |
|
|
| 281 |
|
|
| 6 | % |
Rental operations |
|
| 42,648 |
|
|
| 37,313 |
|
|
| 5,335 |
|
|
| 14 | % |
Sales |
|
| 360 |
|
|
| (28 | ) |
|
| 388 |
|
| nm |
| |
Other |
|
| 210 |
|
|
| 124 |
|
|
| 86 |
|
|
| 69 | % |
Total gross profit |
|
| 43,218 |
|
|
| 37,409 |
|
|
| 5,809 |
|
|
| 16 | % |
Selling and administrative expenses |
|
| 29,542 |
|
|
| 27,610 |
|
|
| 1,932 |
|
|
| 7 | % |
Income from operations |
|
| 13,676 |
|
|
| 9,799 |
|
|
| 3,877 |
|
|
| 40 | % |
Interest expense allocation |
|
| (3,071 | ) |
|
| (3,200 | ) |
|
| (129 | ) |
|
| (4 | )% |
Pre-tax income |
| $ | 10,605 |
|
| $ | 6,599 |
|
| $ | 4,006 |
|
|
| 61 | % |
Other Selected Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average rental equipment 1 |
| $ | 307,558 |
|
| $ | 307,416 |
|
| $ | 142 |
|
|
| 0 | % |
Average rental equipment on rent 1 |
| $ | 172,140 |
|
| $ | 154,165 |
|
| $ | 17,975 |
|
|
| 12 | % |
Average monthly total yield 2 |
|
| 1.73 | % |
|
| 1.59 | % |
|
|
|
|
|
| 9 | % |
Average utilization 3 |
|
| 56.0 | % |
|
| 50.1 | % |
|
|
|
|
|
| 12 | % |
Average monthly rental rate 4 |
|
| 3.10 | % |
|
| 3.17 | % |
|
|
|
|
|
| -2 | % |
Period end rental equipment 1 |
| $ | 308,877 |
|
| $ | 306,701 |
|
| $ | 2,176 |
|
|
| 1 | % |
Period end utilization 3 |
|
| 57.5 | % |
|
| 50.7 | % |
|
|
|
|
|
| 13 | % |
|
|
|
|
|
|
|
|
nm = Not meaningful
-42-
Adler Tanks’ gross profit for 2017 increased $5.8 million, or 16%, to $43.2 million from $37.4 million for the same period in 2016. For the year ended December 31, 2017 compared to year ended December 31, 2016:
Gross Profit on Rental Revenues – Rental revenues increased $5.4 million, or 9%, due to 12% higher average rental equipment on rent, partly offset by 2% lower average rental rates in 2017 as compared to 2016. As a percentage of rental revenues, depreciation was 25% and 27% in 2017 and 2016, respectively, and other direct costs were 17% in 2017 and 2016, which resulted in gross margin percentages of 59% in 2017 compared to 56% in 2016. The higher rental revenues, together with higher rental margins resulted in gross profit on rental revenues increasing $5.1 million, or 16%, to $37.6 million in 2017.2022.
-42-
Gross Profit on Rental Related Services – Rental related services revenues increased $1.0 million, or 4%, compared to 2016. The higher revenues and higher gross margin percentage of 21% in 2017 compared to 20% in 2016, resulted in rental related services gross profit increasing $0.3 million, or 6%, to $5.1 million from $4.8 million in 2016.
For 2017, Adler Tanks’ selling and administrative expenses increased $1.9 million, to $29.5 million from $27.6 million in the same period in 2016, primarily due to increased employee headcount, salaries and benefit costs and higher corporate allocated expenses.
-43-
Twelve Months Ended December 31, 20162022 Compared to
Twelve Months Ended December 31, 20152021
Overview
Consolidated revenues in 20162022 increased 5%, to $424.1$733.8 million from $404.5$616.8 million in 2015.2021. Consolidated net income in 2016 decreased2022 increased to $38.3$115.1 million, or $1.60$4.70 per diluted share in 20162022, compared to $40.5$89.7 million, or $1.59$3.66 per diluted share, in 2015.2021. The Company’s year over year total revenue increase was primarily due to higher rental, sales and rental related services revenues partly offset by lower rental revenues as more fully described below.
For 2016Revenues from discontinued operations for the twelve months ended December 31, 2022, was $98.2 million, compared to 2015,$82.2 million for the same period in 2021. Income from discontinued operations for the twelve months ended December 31, 2022, was $11.8 million, compared to $4.6 million for the same period in 2021. Earnings per diluted share from discontinued operations for 2022 was $0.48, compared to $0.19 for the same period in 2021. For additional information on discontinued operations and the divestiture of Adler Tanks, refer to Note 5 of the consolidated financial statements.
For 2022 compared to 2021, on a consolidated basis:basis from continuing operations:
Gross profit increased $7.3$42.9 million, or 4%17%, to $184.2$290.2 million. Mobile Modular’s gross profit increased $15.0$41.1 million, or 19%23%, due to higher gross profit on rental, sales and rental related services revenues. TRS-RenTelco’s gross profit increased $6.5 million, or 11%, primarily due to higher gross profit on rental and sales revenues. Enviroplex’s gross profit increased $4.2decreased $4.8 million, or 48%, primarily due to higher$7.9 million lower sales revenues. TRS-RenTelco’s gross profit decreased $2.0 million, or 4%, due torevenues and lower gross profit on rental and rental related services revenues, partly offset by higher gross profit on sales revenues. Adler Tanks’ gross profit decreased $10.0 million, or 21%, duemargins of 22.1% compared to lower gross profit on rental and rental related services revenues, partly offset by higher gross profit on sales revenues.
Selling and administrative expenses increased $5.0$19.9 million, or 5%16%, to $104.9$142.9 million, primarily due to increased employee headcount and employees’ salaries and employee benefit costs totaling $11.2 million and $9.3 million higher marketing and administrative costs.
Interest expense increased $2.1$4.0 million, or 21%48%, to $12.2 million, primarily due to 18% higher net average interest rate and 2%15% higher average debt levels of the Company.
Pre-tax income contribution in 2022 was 53%, 32%72% and 10%27% by Mobile Modular and TRS-RenTelco, and Adler Tanks, respectively, in 2016, compared to 41%, 33%66% and 26%29%, respectively, in 2015.2021. These results are discussed on a segment basis below. Pre-tax income contribution by Enviroplex was 5%1% and 0%4% in 20162022 and 2015,2021, respectively.
ProvisionThe provision for income taxes resulted in an effective tax rate of 42.9%23.3% and 26.3% for the twelve months ended December 31, 2022 and 2021, respectively. The lower rate in 2016, compared with 39.0%2022 was primarily due to decreased business activity levels in 2015, which increased the provision for income taxes in 2016 by $2.6 million and reduced earnings per diluted share by approximately $0.11 compared to 2015. The increased effectivehigher tax rate in 2016 was primarily a result of a change in business mix by state and the decision to discontinue TRS-RenTelco’s branch operations in India. Higher business levels in states with higher tax rates, in particular growth in California, and the resulting re-pricing of deferred tax liabilities increased the provision for income taxes in 2016 by $1.6 million. The decision to exit the Bangalore, India branch operations increased the provision for income taxes by $0.7 million as a valuation allowance was recorded against the deferred tax assets that resulted primarily from accumulated net operating loss carry forwards in India as of December 31, 2016 that management estimated the benefit of which will not be realized.
Adjusted EBITDA decreased $0.7increased $30.6 million, or less than 1%14%, to $163.4 million compared to $164.1$251.2 million in 2015.2022. Adjusted EBITDA is a non-GAAP financial measure and is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and share-based compensation.transaction costs. A reconciliation of Adjusted EBITDA to net cash provided by operating activities and net income to Adjusted EBITDA can be found in “Item 6. Selected Financial Data.” on page 34.
-44-
-43-
For 2016,2022, Mobile Modular’s total revenues increased $25.2$98.4 million, or 14%27%, to $209.5$461.7 million compared to 2015,2021, primarily due to higher rental, sales and rental related services revenues. The revenue increase together with higherHigher gross marginprofit on rental, sales and rental related services revenues, partly offset by $17.6 million higher selling and administrative expenses, and higher interest expense, resulted in an increase in pre-tax income of $8.7$19.8 million, or 32%26%, to $35.6$96.8 million in 2016.2022.
The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax income, and other selected information.
Mobile Modular – 20162022 compared to 20152021
(dollar amounts in thousands) |
| Year Ended December 31, |
|
| Increase (Decrease) |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rental |
| $ | 268,288 |
|
| $ | 220,569 |
|
| $ | 47,719 |
|
|
| 22 | % |
Rental related services |
|
| 91,851 |
|
|
| 72,330 |
|
|
| 19,521 |
|
|
| 27 | % |
Rental operations |
|
| 360,139 |
|
|
| 292,899 |
|
|
| 67,240 |
|
|
| 23 | % |
Sales |
|
| 99,979 |
|
|
| 68,982 |
|
|
| 30,997 |
|
|
| 45 | % |
Other |
|
| 1,599 |
|
|
| 1,435 |
|
|
| 164 |
|
|
| 11 | % |
Total revenues |
|
| 461,717 |
|
|
| 363,316 |
|
|
| 98,401 |
|
|
| 27 | % |
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Direct costs of rental operations: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation of rental equipment |
|
| 31,172 |
|
|
| 28,071 |
|
|
| 3,101 |
|
|
| 11 | % |
Rental related services |
|
| 66,254 |
|
|
| 53,018 |
|
|
| 13,236 |
|
|
| 25 | % |
Other |
|
| 83,031 |
|
|
| 60,429 |
|
|
| 22,602 |
|
|
| 37 | % |
Total direct costs of rental operations |
|
| 180,457 |
|
|
| 141,518 |
|
|
| 38,939 |
|
|
| 28 | % |
Costs of sales |
|
| 64,073 |
|
|
| 45,758 |
|
|
| 18,315 |
|
|
| 40 | % |
Total costs of revenues |
|
| 244,530 |
|
|
| 187,276 |
|
|
| 57,254 |
|
|
| 31 | % |
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rental |
|
| 154,085 |
|
|
| 132,070 |
|
|
| 22,015 |
|
|
| 17 | % |
Rental related services |
|
| 25,597 |
|
|
| 19,310 |
|
|
| 6,287 |
|
|
| 33 | % |
Rental operations |
|
| 179,682 |
|
|
| 151,380 |
|
|
| 28,302 |
|
|
| 19 | % |
Sales |
|
| 35,906 |
|
|
| 23,225 |
|
|
| 12,681 |
|
|
| 55 | % |
Other |
|
| 1,599 |
|
|
| 1,435 |
|
|
| 164 |
|
|
| 11 | % |
Total gross profit |
|
| 217,187 |
|
|
| 176,040 |
|
|
| 41,147 |
|
|
| 23 | % |
Selling and administrative expenses |
|
| (110,234 | ) |
|
| (92,603 | ) |
|
| 17,631 |
|
|
| 19 | % |
Income from operations |
|
| 106,953 |
|
|
| 83,436 |
|
|
| 23,517 |
|
|
| 28 | % |
Interest expense allocation |
|
| (10,175 | ) |
|
| (6,433 | ) |
|
| 3,742 |
|
|
| 58 | % |
Pre-tax income |
| $ | 96,778 |
|
| $ | 77,003 |
|
| $ | 19,775 |
|
|
| 26 | % |
Other Selected Information |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Adjusted EBITDA |
| $ | 159,224 |
|
| $ | 130,089 |
|
| $ | 29,135 |
|
|
| 22 | % |
Average rental equipment 1 |
| $ | 1,025,637 |
|
| $ | 925,951 |
|
| $ | 99,686 |
|
|
| 11 | % |
Average rental equipment on rent |
| $ | 811,693 |
|
| $ | 705,577 |
|
| $ | 106,116 |
|
|
| 15 | % |
Average monthly total yield 2 |
|
| 2.18 | % |
|
| 1.99 | % |
|
|
|
|
| 10 | % | |
Average utilization 3 |
|
| 79.1 | % |
|
| 76.2 | % |
|
|
|
|
| 4 | % | |
Average monthly rental rate 4 |
|
| 2.75 | % |
|
| 2.61 | % |
|
|
|
|
| 5 | % | |
Period end rental equipment 1 |
| $ | 1,054,845 |
|
| $ | 1,001,165 |
|
| $ | 53,680 |
|
|
| 5 | % |
Period end utilization 3 |
|
| 80.7 | % |
|
| 76.4 | % |
|
|
|
|
| 6 | % |
(dollar amounts in thousands) |
| Year Ended December 31, |
|
| Increase (Decrease) |
| ||||||||||
|
| 2016 |
|
| 2015 |
|
| $ |
|
| % |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
| $ | 130,496 |
|
| $ | 115,986 |
|
| $ | 14,510 |
|
|
| 13 | % |
Rental related services |
|
| 49,206 |
|
|
| 45,616 |
|
|
| 3,590 |
|
|
| 8 | % |
Rental operations |
|
| 179,702 |
|
|
| 161,602 |
|
|
| 18,100 |
|
|
| 11 | % |
Sales |
|
| 29,393 |
|
|
| 22,248 |
|
|
| 7,145 |
|
|
| 32 | % |
Other |
|
| 417 |
|
|
| 434 |
|
|
| (17 | ) |
|
| (4 | )% |
Total revenues |
|
| 209,512 |
|
|
| 184,284 |
|
|
| 25,228 |
|
|
| 14 | % |
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of rental operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of rental equipment |
|
| 21,001 |
|
|
| 19,246 |
|
|
| 1,755 |
|
|
| 9 | % |
Rental related services |
|
| 37,392 |
|
|
| 35,001 |
|
|
| 2,391 |
|
|
| 7 | % |
Other |
|
| 35,683 |
|
|
| 34,808 |
|
|
| 875 |
|
|
| 3 | % |
Total direct costs of rental operations |
|
| 94,076 |
|
|
| 89,055 |
|
|
| 5,021 |
|
|
| 6 | % |
Costs of sales |
|
| 21,620 |
|
|
| 16,458 |
|
|
| 5,162 |
|
|
| 31 | % |
Total costs of revenues |
|
| 115,696 |
|
|
| 105,513 |
|
|
| 10,183 |
|
|
| 10 | % |
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
| 73,813 |
|
|
| 61,932 |
|
|
| 11,881 |
|
|
| 19 | % |
Rental related services |
|
| 11,814 |
|
|
| 10,615 |
|
|
| 1,199 |
|
|
| 11 | % |
Rental operations |
|
| 85,627 |
|
|
| 72,547 |
|
|
| 13,080 |
|
|
| 18 | % |
Sales |
|
| 7,772 |
|
|
| 5,790 |
|
|
| 1,982 |
|
|
| 34 | % |
Other |
|
| 417 |
|
|
| 434 |
|
|
| (17 | ) |
|
| (4 | )% |
Total gross profit |
|
| 93,816 |
|
|
| 78,771 |
|
|
| 15,045 |
|
|
| 19 | % |
Selling and administrative expenses |
|
| 51,432 |
|
|
| 46,496 |
|
|
| 4,936 |
|
|
| 11 | % |
Income from operations |
|
| 42,384 |
|
|
| 32,275 |
|
|
| 10,109 |
|
|
| 31 | % |
Interest expense allocation |
|
| (6,804 | ) |
|
| (5,363 | ) |
|
| (1,441 | ) |
|
| 27 | % |
Pre-tax income |
| $ | 35,580 |
|
| $ | 26,912 |
|
| $ | 8,668 |
|
|
| 32 | % |
Other Selected Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average rental equipment 1 |
| $ | 724,333 |
|
| $ | 667,953 |
|
| $ | 56,380 |
|
|
| 8 | % |
Average rental equipment on rent 1 |
| $ | 554,485 |
|
| $ | 506,062 |
|
| $ | 48,423 |
|
|
| 10 | % |
Average monthly total yield 2 |
|
| 1.50 | % |
|
| 1.45 | % |
|
|
|
|
|
| 3 | % |
Average utilization 3 |
|
| 76.6 | % |
|
| 75.8 | % |
|
|
|
|
|
| 1 | % |
Average monthly rental rate 4 |
|
| 1.96 | % |
|
| 1.91 | % |
|
|
|
|
|
| 3 | % |
Period end rental equipment 1 |
| $ | 744,099 |
|
| $ | 706,155 |
|
| $ | 37,944 |
|
|
| 11 | % |
Period end utilization 3 |
|
| 77.3 | % |
|
| 76.9 | % |
|
|
|
|
|
| 1 | % |
-44-
|
|
|
|
|
|
|
|
-45-
Mobile Modular’s gross profit for 20162022 increased 19%$41.1 million, or 23%, to $93.8 million from $78.8 million in 2015.$217.2 million. For the year ended December 31, 20162022 compared to the year ended December 31, 2015:2021:
Gross Profit on Rental Revenues – Rental revenues increased $14.5$47.7 million, or 13%22%, compared to 2015, due to 10%15% higher average rental equipment on rent and 3%5% higher average monthly rental rates.rates in 2022. As a percentage of rental revenues, depreciation was 16%12% and 13% in 2016 compared to 17% in 20152022 and 2021, respectively, and other direct costs were 31% in 2022 and 27% in 2016 and 30% in 2015,2021, which resulted in gross margin percentage of 56%57% in 20162022 compared to 53%60% in 2015.2021. The higher rental revenues together with higherand lower rental margins resulted in gross profit on rental revenues increasing 19%$22.0 million, or 17%, to $73.8 million from $61.9$154.1 million in 2015.
Gross Profit on Rental Related Services – Rental related services revenues increased $3.6$19.5 million, or 8%27%, compared to 2015.2021. Most of these service revenues are negotiated with the initial lease and are recognized on a straight-line basis with the associated costs over the initial term of the lease. The increase in rental related services revenues was primarily attributable to higher amortization of modular building delivery and return delivery and dismantle revenues and higherincreased delivery and return delivery revenues at Mobile Modular Portable Storage. The higher revenues andaccompanied by higher gross margin percentage of 24%28% in 20162022 compared to 23%27% in 20152021, resulted in rental related services gross profit increasing 11%$6.3 million, or 33%, to $11.8 million from $10.6$25.6 million in 2015.
Gross Profit on Sales – Sales revenues increased $7.1$31.0 million, or 32%, compared to 2015. Gross profit on sales increased $2.0 million, or 34%45%, due to higher used and new and used equipment sales. The higher sales revenues and comparablehigher gross margins of 26%36% in 20162022 compared to 2015.34% in 2021, resulted in sales gross profit increasing $12.7 million, or 55%, to $35.9 million in 2022. Sales occur routinely as a normal part of Mobile Modular’s rental business; however, these sales can fluctuate from period to period depending on customer requirements, equipment availability and funding.
For 2016,2022, Mobile Modular’s selling and administrative expenses increased $4.9$17.6 million, or 11%19%, to $51.4$110.2 million, from $46.5 million in 2015, primarily due to $8.2 million higher allocated corporate expenses, increased employee headcount, salaries and benefit costs totaling $6.0 million, and $2.8 million higher marketing and administrative costs, and higher corporate allocated expenses.compared to 2021.
-46-
-45-
TRS-RenTelco
For 2016,2022, TRS-RenTelco’s total revenues decreased $6.4increased $10.6 million, or 6%8%, to $108.6$150.8 million compared to 2015,2021, primarily due to lowerhigher rental and rental related services revenues, partly offset by higher sales revenues. Pre-tax income decreased $0.9increased $3.2 million, or 4%10%, to $21.3$37.0 million for 2016,2022, primarily due to lowerhigher gross profit on rental and rental related servicessales revenues, partly offset by higher gross profit on sales and loweran increase in selling and administrative expenses.
The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax income, and other selected information.
TRS-RenTelco – 20162022 compared to 20152021
(dollar amounts in thousands) |
| Year Ended December 31, |
|
| Increase (Decrease) |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rental |
| $ | 121,375 |
|
| $ | 113,419 |
|
| $ | 7,956 |
|
|
| 7 | % |
Rental related services |
|
| 3,112 |
|
|
| 2,880 |
|
|
| 232 |
|
|
| 8 | % |
Rental operations |
|
| 124,487 |
|
|
| 116,299 |
|
|
| 8,188 |
|
|
| 7 | % |
Sales |
|
| 24,571 |
|
|
| 22,242 |
|
|
| 2,329 |
|
|
| 10 | % |
Other |
|
| 1,720 |
|
|
| 1,653 |
|
|
| 67 |
|
|
| 4 | % |
Total revenues |
|
| 150,778 |
|
|
| 140,194 |
|
|
| 10,584 |
|
|
| 8 | % |
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Direct costs of rental operations: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation of rental equipment |
|
| 49,253 |
|
|
| 47,374 |
|
|
| 1,879 |
|
|
| 4 | % |
Rental related services |
|
| 2,592 |
|
|
| 2,704 |
|
|
| (112 | ) |
|
| (4 | )% |
Other |
|
| 21,327 |
|
|
| 19,148 |
|
|
| 2,179 |
|
|
| 11 | % |
Total direct costs of rental operations |
|
| 73,172 |
|
|
| 69,226 |
|
|
| 3,946 |
|
|
| 6 | % |
Costs of sales |
|
| 9,707 |
|
|
| 9,574 |
|
|
| 133 |
|
|
| 1 | % |
Total costs of revenues |
|
| 82,879 |
|
|
| 78,800 |
|
|
| 4,079 |
|
|
| 5 | % |
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rental |
|
| 50,795 |
|
|
| 46,897 |
|
|
| 3,898 |
|
|
| 8 | % |
Rental related services |
|
| 520 |
|
|
| 176 |
|
|
| 344 |
|
| nm |
| |
Rental operations |
|
| 51,315 |
|
|
| 47,073 |
|
|
| 4,242 |
|
|
| 9 | % |
Sales |
|
| 14,864 |
|
|
| 12,667 |
|
|
| 2,197 |
|
|
| 17 | % |
Other |
|
| 1,720 |
|
|
| 1,653 |
|
|
| 67 |
|
|
| 4 | % |
Total gross profit |
|
| 67,899 |
|
|
| 61,394 |
|
|
| 6,505 |
|
|
| 11 | % |
Selling and administrative expenses |
|
| (27,245 | ) |
|
| (25,152 | ) |
|
| 2,093 |
|
|
| 8 | % |
Income from operations |
|
| 40,654 |
|
|
| 36,243 |
|
|
| 4,411 |
|
|
| 12 | % |
Interest expense allocation |
|
| (3,294 | ) |
|
| (2,270 | ) |
|
| 1,024 |
|
|
| 45 | % |
Foreign currency exchange loss |
|
| (378 | ) |
|
| (210 | ) |
|
| (168 | ) |
| nm |
| |
Pre-tax income |
| $ | 36,982 |
|
| $ | 33,763 |
|
| $ | 3,219 |
|
|
| 10 | % |
Other Selected Information |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Adjusted EBITDA |
| $ | 92,007 |
|
| $ | 85,723 |
|
| $ | 6,284 |
|
|
| 7 | % |
Average rental equipment 1 |
| $ | 383,235 |
|
| $ | 351,895 |
|
| $ | 31,340 |
|
|
| 9 | % |
Average rental equipment on rent |
| $ | 245,893 |
|
| $ | 235,773 |
|
| $ | 10,120 |
|
|
| 4 | % |
Average monthly total yield 2 |
|
| 2.63 | % |
|
| 2.69 | % |
|
|
|
|
| (2 | )% | |
Average utilization 3 |
|
| 64.2 | % |
|
| 67.0 | % |
|
|
|
|
| (4 | )% | |
Average monthly rental rate 4 |
|
| 4.11 | % |
|
| 4.01 | % |
|
|
|
|
| 2 | % | |
Period end rental equipment 1 |
| $ | 395,214 |
|
| $ | 361,130 |
|
| $ | 34,084 |
|
|
| 9 | % |
Period end utilization 3 |
|
| 59.4 | % |
|
| 62.9 | % |
|
|
|
|
| (6 | )% |
nm = Not meaningful
(dollar amounts in thousands) |
| Year Ended December 31, |
|
| Increase (Decrease) |
| ||||||||||
|
| 2016 |
|
| 2015 |
|
| $ |
|
| % |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
| $ | 82,307 |
|
| $ | 89,208 |
|
| $ | (6,901 | ) |
|
| (8 | )% |
Rental related services |
|
| 2,846 |
|
|
| 3,055 |
|
|
| (209 | ) |
|
| (7 | )% |
Rental operations |
|
| 85,153 |
|
|
| 92,263 |
|
|
| (7,110 | ) |
|
| (8 | )% |
Sales |
|
| 21,582 |
|
|
| 21,137 |
|
|
| 445 |
|
|
| 2 | % |
Other |
|
| 1,882 |
|
|
| 1,617 |
|
|
| 265 |
|
|
| 16 | % |
Total revenues |
|
| 108,617 |
|
|
| 115,017 |
|
|
| (6,400 | ) |
|
| (6 | )% |
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of rental operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of rental equipment |
|
| 35,256 |
|
|
| 39,974 |
|
|
| (4,718 | ) |
|
| (12 | )% |
Rental related services |
|
| 2,640 |
|
|
| 2,722 |
|
|
| (82 | ) |
|
| (3 | )% |
Other |
|
| 14,320 |
|
|
| 13,619 |
|
|
| 701 |
|
|
| 5 | % |
Total direct costs of rental operations |
|
| 52,216 |
|
|
| 56,315 |
|
|
| (4,099 | ) |
|
| (7 | )% |
Costs of sales |
|
| 10,604 |
|
|
| 10,866 |
|
|
| (262 | ) |
|
| (2 | )% |
Total costs of revenues |
|
| 62,820 |
|
|
| 67,181 |
|
|
| (4,361 | ) |
|
| (6 | )% |
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
| 32,730 |
|
|
| 35,615 |
|
|
| (2,885 | ) |
|
| (8 | )% |
Rental related services |
|
| 206 |
|
|
| 333 |
|
|
| (127 | ) |
|
| (38 | )% |
Rental operations |
|
| 32,936 |
|
|
| 35,948 |
|
|
| (3,012 | ) |
|
| (8 | )% |
Sales |
|
| 10,979 |
|
|
| 10,271 |
|
|
| 708 |
|
|
| 7 | % |
Other |
|
| 1,882 |
|
|
| 1,617 |
|
|
| 265 |
|
|
| 16 | % |
Total gross profit |
|
| 45,797 |
|
|
| 47,836 |
|
|
| (2,039 | ) |
|
| (4 | )% |
Selling and administrative expenses |
|
| 21,896 |
|
|
| 22,930 |
|
|
| (1,034 | ) |
|
| (5 | )% |
Income from operations |
|
| 23,901 |
|
|
| 24,906 |
|
|
| (1,005 | ) |
|
| (4 | )% |
Interest expense allocation |
|
| (2,465 | ) |
|
| (2,194 | ) |
|
| (271 | ) |
|
| 12 | % |
Foreign currency exchange loss |
|
| (121 | ) |
|
| (488 | ) |
|
| 367 |
|
|
| (75 | )% |
Pre-tax income |
| $ | 21,315 |
|
| $ | 22,224 |
|
| $ | (909 | ) |
|
| (4 | )% |
Other Selected Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average rental equipment 1 |
| $ | 254,019 |
|
| $ | 265,832 |
|
| $ | (11,813 | ) |
|
| (4 | )% |
Average rental equipment on rent 1 |
| $ | 153,985 |
|
| $ | 160,833 |
|
| $ | (6,848 | ) |
|
| (4 | )% |
Average monthly total yield 2 |
|
| 2.70 | % |
|
| 2.80 | % |
|
|
|
|
|
| (4 | )% |
Average utilization 3 |
|
| 60.6 | % |
|
| 60.5 | % |
|
|
|
|
|
| 0 | % |
Average monthly rental rate 4 |
|
| 4.45 | % |
|
| 4.62 | % |
|
|
|
|
|
| (4 | )% |
Period end rental equipment 1 |
| $ | 245,700 |
|
| $ | 261,996 |
|
| $ | (16,296 | ) |
|
| (6 | )% |
Period end utilization 3 |
|
| 61.0 | % |
|
| 58.7 | % |
|
|
|
|
|
| 4 | % |
-46-
|
|
|
|
|
|
|
|
-47-
TRS-RenTelco’s gross profit for 2016 decreased 4%2022 increased $6.5 million, or 11%, to $45.8 million from $47.8 million in 2015.$67.9 million. For the year ended December 31, 20162022 compared to the year ended December 31, 2015:2021:
Gross Profit on Rental Revenues – Rental revenues decreased $6.9increased $8.0 million, or 8%7%, to $82.3$121.4 million, with depreciation expense decreasing $4.7increasing $1.9 million, or 12%4%, and other direct costs increasing $0.7$2.2 million, or 5%11%, resulting in a decreasean increase in gross profit on rental revenues of $2.9$3.9 million, or 8%, in 2022 compared to $32.7 million in 2016.2021. As a percentage of rental revenues, depreciation was 43%41% and 42% in 2016 compared to 45% in 20152022 and 2021, respectively, and other direct costs was 18% in 2022 compared to 17% in 2016 compared to 15% in 2015,2021, which resulted in gross margin percentage of 39%42% in 20162022 compared to 40%41% in 2015.2021. The rental revenues decreaseincrease was due to 4% lower average monthly rental rates and 4% lowerhigher average rental equipment on rent.
Gross Profit on Sales – Sales revenues increased $0.4$2.3 million, or 2%10%, compared to 2015. The$24.6 million in 2022. Gross profit on sales revenue increase togetherincreased $2.2 million, or 17%, to $14.9 million with highera gross margin percentage of 51%60% in 2016,2022, compared to 49%57% in 2015,2021. The increase in gross margin during the year was primarily dueattributed to higher grossan increase in margin on used equipment sales, resulted in gross profit on sales increasing 7%, to $11.0 million from $10.3 million in 2015.sales. Sales occur routinely as a normal part of TRS-RenTelco’s rental business; however, these sales and related gross margins can fluctuate from period to period depending on customer requirements, equipment availability and funding.
For 2016,2022, TRS-RenTelco’s selling and administrative expenses decreased $1.0increased $2.1 million, or 5%8%, to $21.9$27.2 million, from $22.9 million in 2015, primarily due to lower$0.9 million higher allocated corporate expenses and an increase of $0.7 million in marketing and administrative expenses, compared to 2021.
-47-
Adjusted EBITDA
To supplement the Company’s financial data presented on a basis consistent with accounting principles generally accepted in the United States of America (“GAAP”), the Company presents “Adjusted EBITDA”, which is defined by the Company as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation and allocated corporate expenses.transaction costs. The Company presents Adjusted EBITDA as a financial measure as management believes it provides useful information to investors regarding the Company’s liquidity and financial condition and because management, as well as the Company’s lenders, use this measure in evaluating the performance of the Company.
Management uses Adjusted EBITDA as a supplement to GAAP measures to further evaluate period-to-period operating performance, compliance with financial covenants in the Company’s revolving lines of credit and senior notes and the Company’s ability to meet future capital expenditure and working capital requirements. Management believes the exclusion of non-cash charges, including share-based compensation, and transaction costs is useful in measuring the Company’s cash available for operations and performance of the Company. Because management finds Adjusted EBITDA useful, the Company believes its investors will also find Adjusted EBITDA useful in evaluating the Company’s performance.
-48-
Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows, or other consolidated income or cash flow data prepared in accordance with GAAP or as a measure of the Company’s profitability or liquidity. Adjusted EBITDA is not in accordance with or an alternative for GAAP and may be different from non−GAAP measures used by other companies. Unlike EBITDA, which may be used by other companies or investors, Adjusted EBITDA does not include share-based compensation charges and transaction costs. The Company believes that Adjusted EBITDA is of limited use in that it does not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP and does not accurately reflect real cash flow. In addition, other companies may not use Adjusted EBITDA or may use other non-GAAP measures, limiting the usefulness of Adjusted EBITDA for purposes of comparison. The Company’s presentation of Adjusted EBITDA should not be construed as an inference that the Company will not incur expenses that are the same as or similar to the adjustments in this presentation. Therefore, Adjusted EBITDA should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures. The Company compensates for the limitations of Adjusted EBITDA by relying upon GAAP results to gain a complete picture of the Company’s performance. Because Adjusted EBITDA is a non-GAAP financial measure, as defined by the SEC, the Company includes in the tables below reconciliations of Adjusted EBITDA to the most directly comparable financial measures calculated and presented in accordance with GAAP.
Adler TanksReconciliation of Income from Continuing Operations to Adjusted EBITDA
For 2016, Adler Tanks’
(dollar amounts in thousands) |
| Year Ended December 31, |
| |||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||||
Income from continuing operations |
| $ | 111,852 |
|
| $ | 103,309 |
|
| $ | 85,085 |
|
| $ | 96,121 |
|
| $ | 85,907 |
|
Provision for income taxes |
|
| 37,610 |
|
|
| 31,377 |
|
|
| 30,725 |
|
|
| 28,715 |
|
|
| 28,961 |
|
Interest expense |
|
| 40,560 |
|
|
| 12,230 |
|
|
| 8,244 |
|
|
| 6,680 |
|
|
| 8,894 |
|
Depreciation and amortization |
|
| 107,918 |
|
|
| 93,490 |
|
|
| 87,972 |
|
|
| 75,751 |
|
|
| 69,802 |
|
EBITDA |
|
| 297,940 |
|
|
| 240,406 |
|
|
| 212,026 |
|
|
| 207,267 |
|
|
| 193,564 |
|
Share-based compensation |
|
| 8,157 |
|
|
| 6,747 |
|
|
| 6,585 |
|
|
| 4,746 |
|
|
| 4,805 |
|
Transaction costs 3 |
|
| 15,877 |
|
|
| 4,053 |
|
|
| 2,045 |
|
|
| — |
|
|
| — |
|
Adjusted EBITDA 1 |
| $ | 321,974 |
|
| $ | 251,206 |
|
| $ | 220,656 |
|
| $ | 212,013 |
|
| $ | 198,369 |
|
Adjusted EBITDA margin 2 |
|
| 39 | % |
|
| 40 | % |
|
| 41 | % |
|
| 43 | % |
|
| 42 | % |
For the year ended December 31, 2016.
The following table summarizes year-to-year results for each revenue2023, total Adjusted EBITDA from both continuing and gross profit category, income fromdiscontinued operations pre-tax income and other selected information.
was $325.7 million, excluding the gain on divestiture of Adler Tanks, – 2016 compared to 2015
(dollar amounts in thousands) |
| Year Ended December 31, |
|
| Increase (Decrease) |
| ||||||||||
|
| 2016 |
|
| 2015 |
|
| $ |
|
| % |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
| $ | 58,585 |
|
| $ | 68,502 |
|
| $ | (9,917 | ) |
|
| (14 | )% |
Rental related services |
|
| 23,807 |
|
|
| 24,643 |
|
|
| (836 | ) |
|
| (3 | )% |
Rental operations |
|
| 82,392 |
|
|
| 93,145 |
|
|
| (10,753 | ) |
|
| (12 | )% |
Sales |
|
| 1,314 |
|
|
| 1,388 |
|
|
| (74 | ) |
|
| (5 | )% |
Other |
|
| 124 |
|
|
| 98 |
|
|
| 26 |
|
|
| 27 | % |
Total revenues |
|
| 83,830 |
|
|
| 94,631 |
|
|
| (10,801 | ) |
|
| (11 | )% |
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of rental operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of rental equipment |
|
| 15,940 |
|
|
| 15,993 |
|
|
| (53 | ) |
|
| (0 | )% |
Rental related services |
|
| 19,012 |
|
|
| 19,421 |
|
|
| (409 | ) |
|
| (2 | )% |
Other |
|
| 10,127 |
|
|
| 10,084 |
|
|
| 43 |
|
|
| 0 | % |
Total direct costs of rental operations |
|
| 45,079 |
|
|
| 45,498 |
|
|
| (419 | ) |
|
| (1 | )% |
Costs of sales |
|
| 1,342 |
|
|
| 1,736 |
|
|
| (394 | ) |
|
| (23 | )% |
Total costs of revenues |
|
| 46,421 |
|
|
| 47,234 |
|
|
| (813 | ) |
|
| (2 | )% |
Gross Profit (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
| 32,518 |
|
|
| 42,425 |
|
|
| (9,907 | ) |
|
| (23 | )% |
Rental related services |
|
| 4,795 |
|
|
| 5,222 |
|
|
| (427 | ) |
|
| (8 | )% |
Rental operations |
|
| 37,313 |
|
|
| 47,647 |
|
|
| (10,334 | ) |
|
| (22 | )% |
Sales |
|
| (28 | ) |
|
| (348 | ) |
|
| 320 |
|
|
| (92 | )% |
Other |
|
| 124 |
|
|
| 98 |
|
|
| 26 |
|
|
| 27 | % |
Total gross profit |
|
| 37,409 |
|
|
| 47,397 |
|
|
| (9,988 | ) |
|
| (21 | )% |
Selling and administrative expenses |
|
| 27,610 |
|
|
| 27,494 |
|
|
| 116 |
|
|
| 0 | % |
Income from operations |
|
| 9,799 |
|
|
| 19,903 |
|
|
| (10,104 | ) |
|
| (51 | )% |
Interest expense allocation |
|
| (3,200 | ) |
|
| (2,729 | ) |
|
| (471 | ) |
|
| 17 | % |
Pre-tax income |
| $ | 6,599 |
|
| $ | 17,174 |
|
| $ | (10,575 | ) |
|
| (62 | )% |
Other Selected Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average rental equipment 1 |
| $ | 307,416 |
|
| $ | 304,001 |
|
| $ | 3,415 |
|
|
| 1 | % |
Average rental equipment on rent 1 |
| $ | 154,165 |
|
| $ | 177,117 |
|
| $ | (22,952 | ) |
|
| (13 | )% |
Average monthly total yield 2 |
|
| 1.59 | % |
|
| 1.88 | % |
|
|
|
|
|
| (15 | )% |
Average utilization 3 |
|
| 50.1 | % |
|
| 58.3 | % |
|
|
|
|
|
| (14 | )% |
Average monthly rental rate 4 |
|
| 3.17 | % |
|
| 3.22 | % |
|
|
|
|
|
| (2 | )% |
Period end rental equipment 1 |
| $ | 306,701 |
|
| $ | 307,614 |
|
| $ | (913 | ) |
|
| (0 | )% |
Period end utilization 3 |
|
| 50.7 | % |
|
| 49.7 | % |
|
|
|
|
|
| 2 | % |
|
|
|
|
|
|
|
|
-49-
Adler Tanks’ gross profit for 2016 decreased $10.0 million to $37.4 million from $47.4$288.9 million for the same period in 2015.2022. For the yearyears ended December 31, 2016 compared2023 and 2022, the total Adjusted EBITDA from continuing operations was $322.0 million and $251.4 million, respectively, and the total Adjusted EBITDA from discontinued operations was $3.7 million and $37.7 million, respectively.
The following table reconciles Adjusted EBITDA on a combined basis, including both continuing and discontinued operations, to year endedthe net cash provided by operating activities on the Company's consolidated statement of cash flows.
-48-
Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities
(dollar amounts in thousands) |
| Year Ended December 31, |
| |||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||||
Adjusted EBITDA 1 |
| $ | 325,656 |
|
| $ | 288,866 |
|
| $ | 248,617 |
|
| $ | 241,023 |
|
| $ | 236,824 |
|
Interest paid |
|
| (38,603 | ) |
|
| (14,775 | ) |
|
| (10,326 | ) |
|
| (9,050 | ) |
|
| (12,475 | ) |
Income taxes paid, net of refunds received |
|
| (91,565 | ) |
|
| (27,362 | ) |
|
| (9,087 | ) |
|
| (34,903 | ) |
|
| (17,528 | ) |
Gain on sale of used rental equipment |
|
| (31,642 | ) |
|
| (37,979 | ) |
|
| (25,441 | ) |
|
| (19,329 | ) |
|
| (21,309 | ) |
Foreign currency exchange (gain) loss |
|
| (310 | ) |
|
| 378 |
|
|
| 210 |
|
|
| (78 | ) |
|
| (84 | ) |
Amortization of debt issuance costs |
|
| 8 |
|
|
| 16 |
|
|
| 15 |
|
|
| 11 |
|
|
| 11 |
|
Change in certain assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts receivable, net |
|
| (35,143 | ) |
|
| (30,524 | ) |
|
| (23,946 | ) |
|
| 4,783 |
|
|
| (6,310 | ) |
Prepaid expenses and other assets |
|
| (29,326 | ) |
|
| (16,484 | ) |
|
| (6,816 | ) |
|
| 3,807 |
|
|
| (13,530 | ) |
Accounts payable and other liabilities |
|
| (17,826 | ) |
|
| 8,595 |
|
|
| 11,155 |
|
|
| 3,229 |
|
|
| 17,257 |
|
Deferred income |
|
| 14,094 |
|
|
| 23,701 |
|
|
| 9,082 |
|
|
| (8,989 | ) |
|
| 5,138 |
|
Net cash provided by operating activities |
| $ | 95,343 |
|
| $ | 194,432 |
|
| $ | 193,463 |
|
| $ | 180,504 |
|
| $ | 187,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA is a component of two restrictive financial covenants for the Company’s unsecured Credit Facility, the Note Purchase Agreement, Series D Senior Notes, Series E Senior Notes and Series F Senior Notes (as defined and more fully described under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”). These instruments contain financial covenants requiring the Company to not:
Gross Profit on Rental Revenues – Rental revenues decreased $9.9 million, or 14%, due2023, the actual ratio was 3.33 to 13% lower average rental equipment on rent and 2% lower average rental rates in 2016 as compared to 2015. As a percentage1.
Gross Profit on Rental Related Services – Rental related services revenues decreased $0.8 million, or 3%, compared to 2015. The lower gross margin percentage of 20% in 2016 compared to 21% in 2015 and lower revenues, resulted in rental related services gross profit decreasing $0.4 million, or 8%, to $4.8 million from $5.2 million in 2015.
For 2016, Adler Tanks’ selling and administrative expenses increased $0.1 million, to $27.6 million from $27.5 millionfunded debt (as defined in the sameCredit Facility and the Note Purchase Agreement) to Adjusted EBITDA at any time during any period of four consecutive quarters to be greater than 2.75 to 1. At December 31, 2023, the actual ratio was 2.34 to 1.
At December 31, 2023, the Company was in 2015, primarily duecompliance with each of these aforementioned covenants. There are no anticipated trends that the Company is aware of that would indicate non-compliance with these covenants, though, significant deterioration in our financial performance could impact the Company's ability to increased employee headcount, salaries and benefit costs, partly offset by lower corporate allocated expenses.comply with these covenants.
-50--49-
Liquidity and Capital Resources
This section contains statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. See the statements at the beginning of this Item for cautionary information with respect to such forward-looking statements.
The Company’s rental businesses are capital intensive and generate significant cash flows. Cash flows for the Company in 20172023 as compared to 20162022 are summarized as follows:
Cash Flows from Operating Activities: The Company’s operations provided net cash flowflows of $122.4$95.3 million for 20172023, compared to $194.4 million in 2022. The $99.1 million reduction in net cash provided by operating activities was primarily the result of the $61.5 million gain on sale of discontinued operations and $48.9 million lower accounts payable and accrued liabilities in 2023, as compared to $140.7 million in 2016. The 13% decrease was primarily attributable to a higher increase in accounts receivable and an income tax refund received in 2016 and other balance sheet changes.2022.
Cash Flows from Investing Activities: Net cash used in investing activities was $70.9$391.9 million for 2017 as2023, compared to $60.2$131.4 million in 2016.2022. The $10.7$260.4 million increase in net cash used was primarily due to $15.6the $462.1 million higher purchasespaid for the business acquisitions of rental equipment of $94.6 millionVesta Modular, Brekke Storage, Dixie Storage and Inland Leasing in 2017, compared to $79.0 million in 2016, $4.1 million higher purchases of property, plant and equipment,2023, partly offset by higher$268.0 million in proceeds received from salesthe sale of used rental equipment.the Adler Tanks business.
Cash Flows from Financing Activities: Net cash used inprovided by financing activities was $49.9$296.4 million in 2017 as2023, compared to $80.8net used of $63.5 million in 2016.2022. The $31.9 million decreasechange in net cash during 2023 was primarily due to $32.2 million lower netincreased borrowings under the Company’s bank lines of credit.credit and note purchase agreements. The borrowings in 2023 were primarily attributed to the funding of the Vesta Modular, Brekke Storage, Dixie Storage and Inland Leasing acquisitions, and capital needs for the tax obligations arising from the divestiture of Adler Tanks.
Significant capital expenditures are required to maintain and grow the Company’s rental assets. During the last three years, the Company has financed its working capital and capital expenditure requirements through cash flowflows from operations, proceeds from the sale of rental equipment and from bank borrowings and notes offerings.borrowings. During the year ended December 31, 2023, the Company sold its Adler Tanks business, generating a total of $202.7 million in net proceeds, which were primarily used to expand the Company's rental asset fleet through the purchase of Vesta Modular. Sales of rental equipment occur routinely as a normal part of the Company’s rental businesses. However, these sales can fluctuate from period to period depending on customer requirements and funding. Although the net proceeds received from sales may fluctuate from period to period, the Company believes its liquidity will not be adversely impacted from lower sales in any given year because it believes it has the ability to increase its bank borrowings, offer additional notes and conserve its cash in the future by reducing the amount of cash it uses to purchase rental equipment, pay dividends, or repurchase the Company’s common stock.
As the following table indicates, cash flow provided by operating activities and proceeds from sales of used rental equipment have been greater than rental equipment purchases over the past three years.
Funding of Rental Asset Growth
(amounts in thousands) |
| Year Ended December 31, |
|
| Three Year |
|
| Year Ended December 31, |
|
| Three Year |
| ||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| Totals |
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| Totals |
| ||||||||
Cash provided by operating activities |
| $ | 122,389 |
|
| $ | 140,695 |
|
| $ | 144,260 |
|
| $ | 407,344 |
|
| $ | 95,343 |
|
| $ | 194,432 |
|
| $ | 195,743 |
|
| $ | 485,518 |
|
Proceeds from sales of used rental equipment |
|
| 38,344 |
|
|
| 29,406 |
|
|
| 26,214 |
|
|
| 93,964 |
|
|
| 66,168 |
|
|
| 73,879 |
|
|
| 57,337 |
|
|
| 197,384 |
|
Proceeds from sale of discontinued operation, net of tax |
|
| 202,706 |
|
|
| — |
|
|
| — |
|
|
| 202,706 |
| ||||||||||||||||
Cash available for purchase of rental equipment |
|
| 160,733 |
|
|
| 170,101 |
|
|
| 170,474 |
|
|
| 501,308 |
|
|
| 364,217 |
|
|
| 268,311 |
|
|
| 253,080 |
|
|
| 885,608 |
|
Purchases of rental equipment |
|
| (94,579 | ) |
|
| (79,038 | ) |
|
| (131,037 | ) |
|
| (304,654 | ) |
|
| (229,679 | ) |
|
| (187,689 | ) |
|
| (114,145 | ) |
|
| (531,513 | ) |
Cash available for other uses |
| $ | 66,154 |
|
| $ | 91,063 |
|
| $ | 39,437 |
|
| $ | 196,654 |
| ||||||||||||||||
Cash available for other purposes |
| $ | 134,538 |
|
| $ | 80,622 |
|
| $ | 138,935 |
|
| $ | 354,095 |
|
In addition to increasing its rental assets, the Company has periodically made acquisitions of businesses and business assets. During the year ended December 31, 2023, the Company transacted a total of $462.1 million in acquisition related costs. There were no acquisition related transactions during the year ended December 31, 2022 and $292.2 million in acquisition related costs during the same period in 2021. The Company had other capital expenditures for property, plant and equipment of $14.6$44.0 million in 2017, $10.52023, $17.6 million in 20162022 and $9.3$2.7 million in 2015,2021, and has used cash to provide returns to its shareholders in the form of cash dividends. The Company paid cash dividends of $24.9$45.6 million, $24.4$44.3 million and $25.8$42.2 million in the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively.
The Company has in the past made repurchasespurchases of shares of its common stock from time to time in the over-the-counter market (NASDAQ) and/ortransactions, through privately negotiated, large block transactions under an authorization fromand through a share repurchase plan, in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. In August 2015, the Company’s Board of Directors. SharesDirectors authorized the Company to repurchase 2,000,000 shares of the Company's outstanding common stock (the “Repurchase Plan”). The amount and time of the specific repurchases are subject to prevailing market conditions, applicable legal requirements and other factors, including management’s discretion. All shares repurchased by the Company are canceled and returned to the status of authorized but unissued shares of common stock. DuringThere can be no assurance that any authorized shares will be repurchased and the twelve months ended December 31, 2015,repurchase program may be modified, extended or terminated by the Company repurchased 2,407,974Board of Directors at any time. There were no shares of common stock for an aggregate repurchase price of $64.0 million, or an average price of $26.56 per share. There were no repurchases of common stockrepurchased during the twelve months
-50-
ended December 31, 20172023, 2022 and 2016.2021. As of February 26, 2018, 1,592,026December 31, 2023, 1,309,805 shares remain authorized for repurchase.repurchase under the Repurchase Plan.
-51-
Unsecured Revolving Lines of Credit
In March 2016,On July 15, 2022, the Company renewed itsentered into an amended and restated credit agreement with a syndicateBank of banksAmerica, N.A., as Administrative Agent, Swing Line Lender, L/C Issuer and lender, and other lenders named therein (the “Credit Facility”). The five-year facility matures on March 31, 2021 and replaced the Company’s prior $420.0 million unsecured revolving credit facility. The Credit Facility provides for a $420.0$650.0 million unsecured revolving credit facility (which may be further increased to $620.0$950.0 million with $200.0 millionby adding one or more tranches of additionalterm loans and/or increasing the aggregate revolving commitments), which includes a $25.0$40.0 million sublimit for the issuance of standby letters of credit and a $10.0$20.0 million sublimit for swingline loans. The proceeds of the Credit Facility are available to be used for general corporate purposes, including permitted acquisitions. The Credit Facility permits the Company’s existing indebtedness to remain, which includes the Company’s $20.0 million Treasury Sweep Note due July 15, 2027, the Company’s existing senior notes issued pursuant to the Note Purchase and Private Shelf Agreement with Prudential Investment Management, Inc., dated as of April 21, 2011 (as amended): (i) the $60.0 million aggregate outstanding principal of notes issued November 5, 2015 which were repaid on November 5, 2022, (ii) the $40.0 million aggregate outstanding principal of notes issued March 17, 2021 and due March 17, 2028, and (iii) the $60.0 million aggregate outstanding principal of notes issued June 16, 2021 and due June 16, 2026. In addition, the Company may incur additional senior note indebtedness in an aggregate amount not to exceed $250.0 million. The Credit Facility matures on July 15, 2027 and replaced the Company’s prior $420.0 million credit facility dated March 31, 2020 with Bank of America, N.A., as agent, as amended. All obligations outstanding under the prior credit facility as of the date of the Credit Facility were refinanced by the Credit Facility on July 15, 2022.
In March 2016,On August 19, 2022, the Company entered into aan amended and restated Credit Facility Letter Agreement and a Credit Line Note in favor of MUFG Union Bank, N.A., extending itswhich provides for a $20.0 million line of credit facility related to its cash management services (“Sweep Service Facility”) and increasing the facility size from $10.0 million to $12.0 million.. The Sweep Service Facility matures on the earlier of March 31, 2021,July 15, 2027, or the date the Company ceases to utilize MUFG Union Bank, N.A. for its cash management services. The Sweep Service Facility replaced the Company’s prior $12.0 million sweep service facility, dated as of March 30, 2020.
At December 31, 2017,2023, under the Credit Facility and Sweep Service Facility, the Company had unsecured lines of credit that permit it to borrow up to $432.0$650.0 million of which $183.5$588.0 million was outstanding, and had capacity to borrow up to an additional $248.5 million.outstanding. The Credit Facility contains financial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to such terms in the Amended Credit Facility):
Permit the Consolidated Fixed Charge Coverage Ratio of EBITDA to fixed charges as of the end of any fiscal quarter to be less than 2.50 to 1. At December 31, 2017,2023, the actual ratio was 6.823.33 to 1.
Permit the Consolidated Leverage Ratio of funded debt to EBITDA at any time during any period of four consecutive fiscal quarters to be greater than 2.75 to 1. At December 31, 2017,2023, the actual ratio was 1.702.34 to 1.
Permit Tangible Net Worth as of the end of any fiscal quarter of the Company to be less than the sum of (i) $246.1 million plus (ii) 25% of the Company’s Consolidated Net Income (as defined in the Amended Credit Facility) (but only if a positive number) for each fiscal quarter ended subsequent to December 31, 2011 plus (iii) 90% of the net cash proceeds from the issuance of the Company’s capital stock after December 31, 2011. At December 31, 2017, such sum was $349.9 million and the actual Tangible Net Worth of the Company was $488.7 million.
At December 31, 2017,2023, the Company was in compliance with each of the aforementioned covenants. There are no anticipated trends that the Company is aware of that would indicate non-compliance with these covenants, although significant deterioration in our financial performance could impact the Company’s ability to comply with these covenants.
4.03% Senior Notes Due in 2018Note Purchase and Private Shelf Agreement
On April 21, 2011,June 8, 2023, the Company entered into a Second Amended and Restated Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”) with Prudential Investment Management,PGIM, Inc. (“PIM”PGIM”), The Prudential Insurance Company and the holders of AmericaSeries D and Prudential Retirement Insurance and Annuity Company (collectively, the “Purchaser”),Series E Notes previously issued pursuant to whichthe Prior Amended and Restated NPA, among the Company agreedand the other parties to sell anthe Note Purchase Agreement. The Note Purchase Agreement amended and restated, and superseded in its entirety, the Prior NPA. Pursuant to the Prior NPA, the Company issued (i) $40.0 million aggregate principal amount of $100.0its 2.57% Series D Senior Notes, due March 17, 2028, and (ii) $60.0 million aggregate principal amount of its 4.03%2.35% Series AE Senior Notes, (the “Series A Senior Notes”)due June 16, 2026, to which the Purchaser. The Series A Senior Notes are an unsecured obligationterms of the Company, due on April 21, 2018. Interest on these notes is due semi-annually in arrears and the principal is due in five equal annual installments, with the first payment due on April 21, 2014. In addition, the Note Purchase Agreement allows forshall apply.
In addition, pursuant to the Note Purchase Agreement, the Company may authorize the issuance and sale of additional senior notes to the Purchaser (the “Shelf Notes”) in the aggregate principal amount of $100.0(x) $300 million minus (y) the amount of other notes (such as the Series D Senior Notes, Series E Senior Notes and Series F Senior Notes, each defined below) then outstanding, to be dated the date of issuance thereof, to mature, in case of each Shelf Note so issued, no more than 1215 years after the date of original issuance thereof, to have an average life, in the case of each Shelf Note so issued, of no more than 1015 years andafter the date of original issuance thereof, to bear interest on the unpaid balance. At December 31, 2017,balance thereof from the principal balance outstanding underdate thereof at the Series A Seniorrate per annum, and to have such other particular terms, as shall be set forth, in the case of each Shelf Note so issued, in accordance with the Note Purchase Agreement. Shelf Notes was $20.0 million.may be issued and sold from time to time at the discretion of the Company’s Board of Directors and in such amounts as the Board of Directors may determine, subject to prospective purchasers’ agreement to purchase the Shelf Notes. The Company will sell the Shelf Notes directly to such
-51-
purchasers. The full net proceeds of each Shelf Note will be used in the manner described in the applicable Request for Purchase with respect to such Shelf Note.
3.68%6.25% Senior Notes Due in 20212030
On March 17, 2014,September 27, 2023, the Company issued and sold to the Purchasers a $40.0purchasers $75.0 million aggregate principal amount of its 3.68%6.25% Series B SeniorF Notes (the “Series BF Senior Notes”) pursuant to the terms of the Second Amended and Restated Note Purchase and Private Shelf Agreement, as amended. dated June 8, 2023 (the “Note Purchase Agreement”), among the Company, PGIM, Inc. and the noteholders party thereto.
The Series BF Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 3.68%6.25% per annum and mature on September 27, 2030. Interest on the Series F Senior Notes is payable semi-annually beginning on March 27, 2024 and continuing thereafter on September 27 and March 27 of each year until maturity. The principal balance is due when the notes mature on September 27, 2030. The full net proceeds from the Series F Senior Notes will primarily be used to fulfill the income tax obligations incurred from the divestiture of Adler Tanks. At December 31, 2023, the principal balance outstanding under the Series F Senior Notes was $75.0 million.
2.57% Senior Notes Due in 2028
On March 17, 2021, the Company issued and sold to the purchasers $40 million aggregate principal amount of 2.57% Series D Notes (the “Series D Senior Notes”) pursuant to the terms of the Amended and Restated Note Purchase and Private Shelf Agreement, dated March 31, 2020 (the “Note Purchase Agreement”), among the Company, PGIM, Inc. and the noteholders party thereto.
The Series D Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 2.57% per annum and mature on March 17, 2021.2028. Interest on the Series BD Senior Notes is payable semi-annually beginning on September 17, 20142021 and continuing thereafter on March 17 and September 17 of each year until maturity. The principal balance is due when the notes mature in 2021.on March 17, 2028. The full net proceeds from the Series BD Senior Notes were used for working capital and other general corporate purposes.to pay off the Company’s $40 million Series B Senior Notes. At December 31, 2017,2023, the principal balance outstanding under the Series BD Senior Notes was $40.0 million.
-52-
3.84%2.35% Senior Notes Due in 20222026
On November 5, 2015,June 16, 2021, the Company issued and sold to the Purchasers a $60.0purchasers $60 million aggregate principal amount of its 3.84%2.35% Series C SeniorE Notes (the “Series C Senior Notes”"Series E Notes") pursuant to the terms of the Amended and Restated Note Purchase and Private Shelf Agreement, as amended. dated March 31, 2020 (the “Note Purchase Agreement”), among the Company, PGIM, Inc. and the noteholders party thereto.
The Series CE Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 3.84%2.35% per annum and mature on November 5, 2022.June 16, 2026. Interest on the Series CE Senior Notes is payable semi-annually beginning on May 5, 2016December 16, 2021 and continuing thereafter on November 5June 16 and May 5December 16 of each year until maturity. The principal balance is due when the notes mature in 2022.on June 16, 2026. The full net proceeds from the Series CE Senior Notes were used to reduce the outstanding balance onpay down the Company’s revolving credit line.facility. At December 31, 2017,2023, the principal balance outstanding under the Series CE Senior Notes was $60.0 million.
Among other restrictions, the Note Purchase Agreement, which has superseded in its entirety the Prior NPA, under which the Series AD Senior Notes, Series BE Senior Notes and Series CF Senior Notes were sold, contains financial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to such terms in the Note Purchase Agreement):
Permit the Consolidated Fixed Charge Coverage Ratio of EBITDA (as defined in the Note Purchase Agreement) to fixed charges as of the end of any fiscal quarter to be less than 2.50 to 1. At December 31, 2017,2023, the actual ratio was 6.823.33 to 1.
Permit the Consolidated Leverage Ratio of funded debt to EBITDA (as defined in the Note Purchase Agreement) at any time during any period of four consecutive quarters to be greater than 2.75 to 1. At December 31, 2017,2023, the actual ratio was 1.702.34 to 1.
Permit tangible net worth, calculated as of the last day of each fiscal quarter, to be less than the sum of (i) $229.0 million, plus (ii) 25% of net income for such fiscal quarter subsequent to December 31, 2010, plus (iii) 90% of the net cash proceeds from the issuance of the Company’s capital stock after December 31, 2010. At December 31, 2017, such sum was $349.9 million and the actual tangible net worth of the Company was $488.7 million.
At December 31, 2017,2023, the Company was in compliance with each of the aforementioned covenants. There are no anticipated trends that the Company is aware of that would indicate non-compliance with these covenants, although significant deterioration in our financial performance could impact the Company’s ability to comply with these covenants.
On February 9, 2016, the Company entered into an amendment to the Note Purchase Agreement (“2016 Amendment”) with the Purchaser. Pursuant to the 2016 Amendment, (i) the issuance period for the shelf notes to be issued and sold pursuant to the Note Purchase Agreement is extended until the earlier of February 9, 2019 or the termination of the issuance and sale of the shelf notes upon the 30 days’ prior notice of either PIM or the Company, and (ii) the definition of the “Available Facility Amount,” which is the aggregate amount of the shelf notes that may be authorized for purchase pursuant to the Note Purchase Agreement was amended to equal a formula based on: $250 million, minus the aggregate principal amount of the shelf notes then outstanding and purchased pursuant to the Note Purchase Agreement, minus the shelf notes accepted by the Company for purchase, but not yet purchased, by the Purchaser pursuant to the Note Purchase Agreement; provided, however, the aggregate amount of the shelf notes purchased by any corporation or other entity controlling, controlled by, or under common control with, PIM shall not exceed $200 million.
Although no assurance can be given, the Company believes it will continue to be able to negotiate general bank lines of credit and issue senior notes adequate to meet capital requirements not otherwise met by operational cash flows and proceeds from sales of rental equipment.
-53-
Contractual Obligations and Commitments
At December 31, 2017,2023, the Company’s material contractual obligations and commitments consisted of outstanding borrowings under our credit facilities expiring in 2021,2027, outstanding amounts under our 4.03%2.35%, 3.68%2.57% and 3.84%6.25% senior notes due in 2018, 20212026, 2028 and 2022,2030, respectively, and operating leases for facilities. The operating lease amounts exclude property taxes and insurance. The table
-52-
below provides a summary of the Company’s contractual obligations and reflects expected payments due as of December 31, 20172023 and does not reflect changes that could arise after that date.
Payments Due by Period
(dollar amounts in thousands) |
| Total |
|
| Within 1 Year |
|
| Within 2 to 3 Years |
|
| Within 4 to 5 Years |
|
| More than 5 Years |
|
| Total |
|
| Within |
|
| Within |
|
| Within |
|
| More than |
| ||||||||||
Revolving lines of credit |
| $ | 183,473 |
|
| $ | — |
|
| $ | — |
|
| $ | 183,473 |
|
| $ | — |
|
| $ | 588,000 |
|
| $ | — |
|
| $ | — |
|
| $ | 588,000 |
|
| $ | — |
|
4.03% Series A senior notes due in 2018 |
|
| 20,405 |
|
|
| 20,405 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||
3.68% Series B senior notes due in 2021 |
|
| 45,888 |
|
|
| 1,472 |
|
|
| 2,944 |
|
|
| 41,472 |
|
|
| — |
| ||||||||||||||||||||
3.84% Series C senior notes due in 2022 |
|
| 71,526 |
|
|
| 2,310 |
|
|
| 4,608 |
|
|
| 64,608 |
|
|
| — |
| ||||||||||||||||||||
6.25% Series F senior notes due in 2030 |
|
| 107,813 |
|
|
| 4,688 |
|
|
| 9,375 |
|
|
| 9,375 |
|
|
| 84,375 |
| ||||||||||||||||||||
2.57% Series D senior notes due in 2028 |
|
| 44,626 |
|
|
| 1,028 |
|
|
| 2,056 |
|
|
| 41,542 |
|
|
| — |
| ||||||||||||||||||||
2.35% Series E senior notes due in 2026 |
|
| 63,525 |
|
|
| 1,410 |
|
|
| 62,115 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||
Operating leases for facilities |
|
| 7,521 |
|
|
| 1,632 |
|
|
| 2,223 |
|
|
| 1,702 |
|
|
| 1,964 |
|
|
| 15,002 |
|
|
| 6,270 |
|
|
| 6,827 |
|
|
| 786 |
|
|
| 1,119 |
|
Total contractual obligations |
| $ | 328,813 |
|
| $ | 25,819 |
|
| $ | 9,775 |
|
| $ | 291,255 |
|
| $ | 1,964 |
|
| $ | 818,966 |
|
| $ | 13,396 |
|
| $ | 80,373 |
|
| $ | 639,703 |
|
| $ | 85,494 |
|
The Company believes that its needs for working capital and capital expenditures through 20182024 and beyond will be adequately met by operating cash flow, proceeds from the sale of rental equipment, and bank borrowings.
Please see the Company's Consolidated Statements of Cash Flows on page 6465 for a more detailed presentation of the sources and uses of the Company's cash.
Critical Accounting Policies
In responseThe Company prepares its consolidated financial statements in accordance with GAAP. A summary of the Company’s significant accounting policies are in Note 1 to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” the Company has identified the most critical accounting policies upon which itsCompany’s consolidated financial status depends.statements. The Company determined its critical accounting policies by considering those policies that involve the most complex or subjective decisions assumptions, estimates, and/or assessments.judgment. Material changes in these assumptions, estimates or judgments could have the potential to have a material impact on the Company’s financial results. The Company has identified that its most criticalbelow the accounting policies are those relatedthat it believes could potentially have a material impact on operating results if a change in assumption, estimate and/or judgment were to depreciation, maintenance, repair and refurbishment, impairment of rental equipment and impairment of goodwill and intangible assets. Descriptions of these accounting policies are found in both the notes to the consolidated financial statements and at relevant sections in this Management’s Discussion and Analysis.occur.
Depreciation - The estimated useful lives and estimated residual values used for rental equipment are based on the Company’s experience as to the economic useful life and sale value of its products. Additionally, to the extent information is publicly available, the Company also compares its depreciation policies to other companies with similar rental products for reasonableness.
The lives and residual values of rental equipment are subject to periodic evaluation. For modular equipment, external factors to consider may include, but are not limited to, changes in legislation, regulations, building codes, local permitting, and supply or demand. Internal factors for modulars may include, but are not limited to, change in equipment specifications, condition of equipment, or maintenance policies. For portable storage containers, external factors to consider may include, but are not limited to, the quality of the steel construction, types of materials stored and the frequency of movements and uses. Internal factors for portable storage containers may include, but are not limited to, change in equipment specifications and maintenance policies. For electronic test equipment, external factors to consider may include, but are not limited to, technological advances, changes in manufacturers’ selling prices, and supply or demand. Internal factors for electronic test equipment may include, but are not limited to, change in equipment specifications, condition of equipment, or maintenance policies. For liquid and solid containment tanks and boxes, external factors
To the extent that the useful lives of all of our rental equipment were to consider may include, but are not limiteddecrease or increase by one year, the Company estimates the annual depreciation expense would increase or decrease by approximately $4 million. If the estimated residual values of all of our rental equipment were to change one percentage point, the Company estimates the annual depreciation expense would change by approximately $1 million. Any changes in Federal and State legislation, the typesdepreciation expense as a result of materials stored and the frequency of movements and uses. Internal factors for liquid and solid containment tanks and boxes may include, but are not limited to,a change in equipment specifications and maintenance policies.
Changes in useful lives or residual values will impact depreciation expense and any gainwould result in a proportional increase or loss fromdecrease in the gross profit the Company would recognize upon the ultimate sale of usedthe equipment. Depending on the magnitude of such changes, the impact on the financial statements could be significant.
-54-
Maintenance, Repairrepair and Refurbishmentrefurbishment - Maintenance and repairs are expensed as incurred. The direct material and labor costs of value-added additions or major refurbishment of modular buildings are capitalized to the extent the refurbishment significantly improves the quality and adds value or life to the equipment. Judgment is involved as to when these costs should be capitalized. The Company’s policies narrowly limit the capitalization of value-added items to specific additions such as portable storage office conversions, restrooms, sidewalls and ventilation upgrades. In addition, only major refurbishment costs incurred near the end of the estimated useful life of the rental equipment, which extend its useful life, and are subject to certain limitations, are capitalized. The Company capitalized $16 million in extended life or value added refurbishments in 2023. Changes in these policies to expense these costs as incurred could impact the Company’s financial results.
-53-
Acquisition Accounting - The Company has made acquisitions of businesses in the past and records the assets acquired and liabilities assumed based on their respective fair values at the date of acquisition. Long-lived assets (primarily rental equipment), goodwill and other intangible assets generally represent the largest components of the Company’s acquisitions. Determining the fair value of the assets and liabilities acquired can be judgmental in nature and can involve the use of significant estimates and assumptions. Rental equipment is valued utilizing either a cost, market or income approach, or a combination of certain of these methods, depending on the asset being valued and the availability of market or income data. The intangible assets acquired are primarily comprised of customer relationships, non-compete agreements and trade names. These assets are valued on an excess earnings or income approach based on projected cash flows. The estimated fair values of these intangible assets reflect various assumptions about revenue growth rates, operating margins, projected cash flows, discount rates, customer attrition rates, terminal values, useful lives and other prospective financial information. When appropriate, the Company’s estimates of the fair values of assets and liabilities acquired include assistance from independent third-party valuation firms. Goodwill is calculated as the excess of the cost of the acquired business over the net of the fair value of the assets acquired and the liabilities assumed. The judgments made in determining the estimated fair value assigned to the assets acquired, as well as the estimated life of the assets, can materially impact the Company’s financial results in periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future. As discussed below, we regularly review for impairments.
Impairment of rental equipment - The carrying value of the Company’s rental equipment is its capitalized cost less accumulated depreciation. To the extent events or circumstances indicate that the carrying value cannot be recovered, an impairment loss is recognized to reduce the carrying value to fair value. The Company determinesevaluates the carrying value of rental equipment for impairment whenever events and circumstances have occurred that would indicate the carrying value may not be fully recoverable. Determining fair value based uponincludes estimates and judgments regarding the projected net cash flows considering current and future market conditions including assumptions regarding utilization, rental pricing, the condition of the equipment, and the projected net cash flows from its rentalequipment’s expected remaining life and sale considering current market conditions. Additionally, if the Company decides to sell or otherwise dispose of the rental equipment, it is carried at the lower of cost or fair value less costs to sell or dispose.proceeds. Due to uncertainties inherent in the valuation process and market conditions, it is reasonably possible that actual results of operating and disposing of rental equipment could be materially different than current expectations.
Impairment of goodwill and intangible assets - The Company’s goodwill is not amortized to expense, the Company assesses the carrying amount of its recorded goodwill and intangible assets annually or in interim periods if circumstances indicate an impairment may have occurred. The impairment review is performed by first assessing qualitative factors to determine whether it is more likely than not that the fair value of athe reporting unit is less than its carrying amount as a basis for determining whether it is necessary to performcomplete quantitative impairment assessments. These impairment assessments occur annually, or more frequently if an event occurs, or circumstances change in the two-stepinterim that would indicate that it was more likely than not the fair value had reduced below its carrying value. Application of the goodwill impairment test. The two-step processassessment requires judgement including the identification of reporting units, assignment of assets and liabilities to reporting units, business projections including changes in pricing, rental and sale activity and costs, long term growth rates and discount rates. In 2023, 2022 and 2021 the Company performed qualitative assessments taking into consideration the market value of the Company, any changes in management, to make certain judgments in determining what assumptions to use in the calculation. The first step in the evaluation consists of estimatingkey personnel, strategy and any relevant macroeconomic conditions, concluding that the fair value of the reporting unitunits substantially exceeded the respective reporting units carrying value, including goodwill.
Intangible assets (other than goodwill) acquired are recorded at their estimated fair value at the date of acquisition. Definite lived intangibles are amortized over their expected useful lives, while indefinite lived intangibles are not amortized. The Company monitors conditions related to these assets to determine whether events and circumstances warrant a revision to the remaining amortization period. The Company tests these assets for potential impairment annually and whenever management determines events or changes in circumstances indicate that the carrying value may not be recoverable.
Revenue recognition:
Lease revenue - Rental revenues from operating leases are recognized on a straight-line basis over the term of the lease for all operating segments. Rental billings for periods extending beyond period end are recorded as deferred income and are recognized in the period earned. Rental related services revenues are primarily associated with relocatable modular building and portable storage container leases. For modular building leases, rental related services revenues for modifications, delivery, installation, dismantle and return delivery are lease related because the payments are considered minimum lease payments that are an integral part of the negotiated lease agreement with the customer. These revenues are recognized on a straight-line basis over the term of the lease. Certain leases are accounted for as sales-type leases. For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and the unearned interest is recognized over the lease term on a basis which results in a constant rate of return on the unrecovered lease investment. Other revenues include interest income on sales-type leases and rental income on facility leases.
Non-lease revenue - Sales revenue is recognized upon delivery and installation of the equipment to customers. Certain leases are accounted for as sales-type leases. For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and the unearned interest is recognized over the lease term on a basis which results in a constant rate of return on the unrecovered lease investment. The Company typically recognizes non-lease related revenues at a point in time because the customer does not simultaneously consume the benefits of the Company’s promised goods and services, or performance obligations, and obtain control when delivery and installation are complete. Revenue from contracts that satisfy the criteria for over-time recognition
-54-
are recognized as work is performed by using the input method based on discounted cash flows using revenue and after tax profit estimates. Management then compares itsthe ratio of costs incurred to estimated total contract costs for each contract. For contracts that have multiple performance obligations, the transaction price is allocated to each performance obligation in the contract based on the Company’s best estimate of the fair valuestandalone selling prices of each distinct performance obligation in the reporting unit withcontract. The standalone selling price is typically determined based upon the reporting unit’s carrying amount, which includes goodwillexpected cost plus an estimated margin of each performance obligation. Judgment is involved in determining the performance obligations and intangible assets. Ifstandalone selling prices. To the estimated fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, then goodwill and intangible assets are not impaired and no further testing is required. If the carrying value of the net assets assigned to the reporting unitextent actual results were to exceed its fair value, thendiffer from these estimates, the second step is performed in order to determinetiming of profit recognition could change and impact the implied fair value of the reporting unit’s goodwill and intangible assets and an impairment loss is recorded for an amount equal to the difference between the implied fair value and the carrying value of the goodwill and intangible assets.Company’s financial results.
Impact of Inflation
Although the Company cannot precisely determine the effect of inflation, from time to time it has experienced increases in costs of rental equipment, manufacturing costs, operating expenses and interest. Because a majority of its rentals are relatively short-term, the Company has generally been able to pass on such increased costs through increases in rental rates and selling prices, but there can be no assurance that the Company will be able to continue to pass on increased costs to customers in the future.
Off Balance Sheet Transactions
As of December 31, 2017, the Company did not have any “off-balance-sheet arrangements,” as defined in Item 303(a)(4)(ii) of Regulation S-K.
-55-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to cash flow and fair value risk due to changes in interest rates with respect to its 4.03%2.35%, 3.68%2.57% and 3.84%6.25% senior notes due in 2018, 20212026, 2028 and 2022,2030, respectively, and its revolving lines of credit. Weighted average variable rates are based on implied forward rates in the yield curve at December 31, 2017.2023. The estimate of fair value of the Company’s fixed rate debt is based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities. The table below presents principal cash flows by expected annual maturities, related weighted average interest rates and estimated fair value for the Company’s Series A,E, Series BD and Series CF Senior Notes and the Company’s revolving lines of credit under the Credit Facility and Sweep Service Facility as of December 31, 2017.2023.
(dollar amounts in thousands) |
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| Thereafter |
|
| Total |
|
| Estimated Fair Value |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| 2027 |
|
| 2028 |
|
| Thereafter |
|
| Total |
|
| Estimated |
| ||||||||||||||||
Revolving lines of credit |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 183,473 |
|
| $ | — |
|
| $ | — |
|
| $ | 183,473 |
|
| $ | 183,473 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 588,000 |
|
| $ | — |
|
| $ | — |
|
| $ | 588,000 |
|
| $ | 588,000 |
|
Weighted average interest rate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.64 | % |
|
| — |
|
|
| — |
|
|
| 2.64 | % |
|
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6.63 | % |
|
| — |
|
|
| — |
|
|
| 6.63 | % |
|
|
| |
4.03% Series A senior notes due in 2018 |
| $ | 20,000 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 20,000 |
|
| $ | 20,202 |
| ||||||||||||||||||||||||||||||||
2.35% Series E senior notes due in 2026 |
| $ | — |
|
| $ | — |
|
| $ | 60,000 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 60,000 |
|
| $ | 55,950 |
| ||||||||||||||||||||||||||||||||
Stated interest rate |
|
| 4.03 | % |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4.03 | % |
|
|
|
|
|
| — |
|
|
| — |
|
|
| 2.35 | % |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.35 | % |
|
|
| |
3.68% Series B senior notes due in 2021 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 40,000 |
|
| $ | — |
|
| $ | — |
|
| $ | 40,000 |
|
| $ | 40,826 |
| ||||||||||||||||||||||||||||||||
2.57% Series D senior notes due in 2028 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 40,000 |
|
| $ | — |
|
| $ | 40,000 |
|
| $ | 35,931 |
| ||||||||||||||||||||||||||||||||
Stated interest rate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3.68 | % |
|
| — |
|
|
| — |
|
|
| 3.68 | % |
|
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.57 | % |
|
| — |
|
|
| 2.57 | % |
|
|
| |
3.84% Series C senior notes due in 2022 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 60,000 |
|
| $ | — |
|
| $ | 60,000 |
|
| $ | 59,199 |
| ||||||||||||||||||||||||||||||||
6.25% Series F senior notes due in 2030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 75,000 |
|
| $ | 75,000 |
|
| $ | 77,283 |
| |||||||||||||||||||||||||||||||||||||
Stated interest rate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3.84 | % |
|
| — |
|
|
| — |
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6.25 | % |
|
| 6.25 | % |
|
|
|
The Company formed a wholly owned Canadian subsidiary, TRS-RenTelco Inc., in 2004 in conjunction with the TRS acquisition and a wholly owned Indian subsidiary, TRS-RenTelco India Private Limited, in 2013, which2013. The Company commenced the closure of its Indian operations during 2017. The Canadian and Indian operations of the Company subject it to foreign currency risks (i.e. the possibility that the financial results could be better or worse than planned because of changes in foreign currency exchange rates). Currently, the Company does not use derivative instruments to hedge its economic exposure with respect to assets, liabilities and firm commitments denominated in foreign currencies. In 2017,2023, the Company experienced minimal impact on net income due to foreign exchange rate fluctuations. Although there can be no assurances, given the size of the Canadian and Indian operations, the Company does not expect future foreign exchange gains and losses to be significant.
The Company has no derivative financial instruments that expose the Company to significant market risk.
-56-
-55-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|
| Page | |
Management’s Report on Internal Control over Financial Reporting |
| |
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 248) |
| |
Consolidated Financial Statements | ||
| ||
| ||
| ||
Consolidated Balance Sheets as of December 31, | 61 | |
Consolidated Statements of Income for the Years Ended December 31, | 62 | |
63 | ||
64 | ||
65 | ||
66 |
-56-
-57-
Management’s Report on Internal ControlControl over Financial Reporting
The Company’s management is responsible for the preparation and integrity of the consolidated financial statements appearing in our Annual Report filed on Form 10-K. The consolidated financial statements were prepared in conformity with United States generally accepted accounting principles and include amounts based on management’s estimates and judgments. All other financial information in this report has been presented on a basis consistent with the information included in the consolidated financial statements.
The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company maintains a system of internal control that is designed to provide reasonable assurance as to the reliable preparation and presentation of the consolidated financial statements, as well as to safeguard assets from unauthorized use or disposition.
The Company’s system of internal control over financial reporting is embodied in the Company’s Code of Business Conduct and Ethics. It sets the tone of our organization and includes factors such as integrity and ethical values. Our internal control over financial reporting is supported by formal policies and procedures, which are reviewed, modified and improved as changes occur in business conditions and operations. On February 1, 2023, McGrath RentCorp completed its acquisition of Vesta Modular Housing Solutions Holdings, Inc. ("Vesta Modular"), as discussed in Note 4. Acquisitions. Management has excluded Vesta Modular's internal controls from its assessment of the effectiveness of internal controls over financial reporting as of December 31, 2023. Vesta Modular's revenues and total assets (excluding goodwill and intangible assets) represents approximately 13 and 14 percent, respectively, of the consolidated financial statement amounts as of, and for the fiscal year ended, December 31, 2023.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
The Audit Committee of the Board of Directors, which is composed solely of outside directors, meets periodically with members of management and the independent auditors to review and discuss internal control over financial reporting, as well as accounting and financial reporting matters. The independent auditors report to the Audit Committee and accordingly have full and free access to the Audit Committee at any time.
The Company’s management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 20172023 based on the criteria set forth in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation, management has concluded that, as of December 31, 2017,2023, the Company’s internal control over financial reporting was effective based on those criteria.
-57-
-58-
ReportsReport of Independent RegisteredRegistered Public Accounting Firm
Report on Internal Control over Financial Reporting
Board of Directors and Shareholders of
McGrath RentCorp and Subsidiaries:
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of McGrath RentCorp (a California corporation) and Subsidiariessubsidiaries (the “Company”) as of December 31, 2017,2023, based on criteria established in the 2013 Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2017,2023, and our report dated February 27, 201821, 2024 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.Reporting ("Management's Report"). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of Vesta Housing Solutions Holdings, Inc. (“Vesta Modular”), a wholly-owned subsidiary, whose financial statements reflect total assets and revenues constituting 14 and 13 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2023. As indicated in Management’s Report, Vesta Modular was acquired during 2023. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of Vesta Modular.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Grant ThorntonGRANT THORNTON LLP
San Jose,Francisco, California
February 27, 201821, 2024
-58-
-59-
ReportsReport of Independent Registered Public Accounting Firm(Continued)
Report on Consolidated Financial Statements
Board of Directors and Shareholders of
McGrath RentCorp and Subsidiaries:
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of McGrath RentCorp (a California corporation) and Subsidiariessubsidiaries (the “Company”) as of December 31, 20172023 and 2016,2022, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017,2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2023, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017,2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 27, 201821, 2024 expressed onan unqualified opinion thereon.opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Customer Relationships Intangible Asset Acquired through Vesta Modular Acquisition
As described further in Note 4 to the financial statements, the Company completed the purchase of substantially all of the assets of Vesta Housing Solutions Holdings, Inc. (“Vesta Modular”) for $437.2 million in cash consideration. The acquisition was accounted for as a purchase of a “business” in accordance with criteria in Accounting Standards Certification (ASC) 805 – Business Combinations using the purchase method of accounting. We identified the valuation of the acquired customer relationships asset as a critical audit matter.
The principal considerations for our determination that the Company’s assessment of the fair value of the acquired customer relationships asset represents a critical audit matter is that the judgments and key assumptions made in assessing the fair value of the customer relationship are complex and subjective. The significant assumptions utilized to determine the fair value included projected future cash
-59-
flows, associated discount rates used to calculate present value, customer attrition rates, and other assumptions that form the basis of the forecasted results. These significant assumptions are forward looking and could be affected by future economic and market conditions.
Our audit procedures related to the valuation of the customer relationships asset from the acquisition of Vesta Modular included the following, among others:
• We inspected the purchase agreement and evaluated management’s process for identifying and estimating the fair value of the acquired customer relationships asset.
• We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's controls over its valuation of the acquired customer relationships asset, including determination of the underlying assumptions.
• We evaluated the Company's selection of the valuation methodology and significant assumptions for reasonableness. We compared management’s assumptions used to develop the discount rates to the weighted average cost of capital of guideline public companies. Additionally, we compared the significant assumptions related to prospective financial information to the industry. We also performed a sensitivity analysis of the significant assumptions to evaluate the impact on the concluded fair value that would result from changes in assumptions.
• We reviewed the qualifications of the external third-party valuation specialist engaged by management in the fair value determination.
/s/ Grant ThorntonGRANT THORNTON LLP
We have served as the Company’s auditor since 2002.
San Jose,Francisco, California
February 27, 201821, 2024
-60-
-60-
|
| December 31, |
|
| December 31, |
| ||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2023 |
|
| 2022 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash |
| $ | 2,501 |
|
| $ | 852 |
|
| $ | 877 |
|
| $ | 957 |
|
Accounts receivable, net of allowance for doubtful accounts of $1,920 in 2017 and $2,087 in 2016 |
|
| 105,872 |
|
|
| 96,877 |
| ||||||||
Accounts receivable, net of allowance for credit losses of $2,801 at December 31, 2023 and $2,300 at December 31, 2022 |
|
| 227,368 |
|
|
| 169,937 |
| ||||||||
Rental equipment, at cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Relocatable modular buildings |
|
| 775,400 |
|
|
| 769,190 |
|
|
| 1,291,093 |
|
|
| 938,081 |
|
Portable storage containers |
|
| 236,123 |
|
|
| 185,187 |
| ||||||||
Electronic test equipment |
|
| 262,325 |
|
|
| 246,325 |
|
|
| 377,587 |
|
|
| 398,267 |
|
Liquid and solid containment tanks and boxes |
|
| 309,808 |
|
|
| 308,542 |
| ||||||||
|
|
| 1,347,533 |
|
|
| 1,324,057 |
|
|
| 1,904,803 |
|
|
| 1,521,535 |
|
Less accumulated depreciation |
|
| (485,213 | ) |
|
| (467,686 | ) | ||||||||
Less: accumulated depreciation |
|
| (575,480 | ) |
|
| (531,218 | ) | ||||||||
Rental equipment, net |
|
| 862,320 |
|
|
| 856,371 |
|
|
| 1,329,323 |
|
|
| 990,317 |
|
Property, plant and equipment, net |
|
| 119,170 |
|
|
| 112,190 |
|
|
| 169,114 |
|
|
| 138,713 |
|
Prepaid expenses and other assets |
|
| 22,459 |
|
|
| 25,583 |
|
|
| 102,789 |
|
|
| 69,837 |
|
Intangible assets, net |
|
| 7,724 |
|
|
| 8,595 |
|
|
| 64,588 |
|
|
| 35,431 |
|
Goodwill |
|
| 27,808 |
|
|
| 27,808 |
|
|
| 323,224 |
|
|
| 106,403 |
|
Assets of discontinued operations |
|
| — |
|
|
| 196,249 |
| ||||||||
Total assets |
| $ | 1,147,854 |
|
| $ | 1,128,276 |
|
| $ | 2,217,283 |
|
| $ | 1,707,844 |
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
| ||||||||
Liabilities and Shareholders' Equity |
|
|
|
|
|
| ||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Notes payable |
| $ | 303,414 |
|
| $ | 326,266 |
|
| $ | 762,975 |
|
| $ | 413,742 |
|
Accounts payable and accrued liabilities |
|
| 86,408 |
|
|
| 78,205 |
|
|
| 167,523 |
|
|
| 151,208 |
|
Deferred income |
|
| 39,219 |
|
|
| 37,499 |
|
|
| 111,428 |
|
|
| 82,417 |
|
Deferred income taxes, net |
|
| 194,629 |
|
|
| 292,019 |
|
|
| 241,555 |
|
|
| 203,361 |
|
Liabilities of discontinued operations |
|
| — |
|
|
| 53,171 |
| ||||||||
Total liabilities |
|
| 623,670 |
|
|
| 733,989 |
|
|
| 1,283,481 |
|
|
| 903,899 |
|
Commitments and contingencies (Note 7) |
|
|
|
|
|
|
|
| ||||||||
Commitments and contingencies (Note 12) |
|
|
|
|
|
| ||||||||||
Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Common Stock, no par value - Authorized 40,000 shares |
|
|
|
|
|
|
|
| ||||||||
Issued and outstanding - 24,052 shares as of December 31, 2017 and 23,948 shares as of December 31, 2016 |
|
| 102,947 |
|
|
| 101,821 |
| ||||||||
Common stock, no par value - Authorized 40,000 shares |
|
|
|
|
|
| ||||||||||
Issued and outstanding - 24,496 shares as of December 31, 2023 and 24,388 shares as of December 31, 2022 |
|
| 111,122 |
|
|
| 110,080 |
| ||||||||
Retained earnings |
|
| 421,405 |
|
|
| 292,521 |
|
|
| 822,796 |
|
|
| 693,943 |
|
Accumulated other comprehensive loss |
|
| (168 | ) |
|
| (55 | ) |
|
| (116 | ) |
|
| (78 | ) |
Total shareholders’ equity |
|
| 524,184 |
|
|
| 394,287 |
|
|
| 933,802 |
|
|
| 803,945 |
|
Total liabilities and shareholders’ equity |
| $ | 1,147,854 |
|
| $ | 1,128,276 |
|
| $ | 2,217,283 |
|
| $ | 1,707,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-61-
-61-
Consolidated Statements of Income
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
(in thousands, except per share amounts) |
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Rental |
| $ | 289,417 |
|
| $ | 271,388 |
|
| $ | 273,696 |
|
| $ | 474,336 |
|
| $ | 389,663 |
|
| $ | 333,988 |
|
Rental related services |
|
| 78,068 |
|
|
| 75,859 |
|
|
| 73,314 |
|
|
| 138,160 |
|
|
| 94,963 |
|
|
| 75,210 |
|
Rental operations |
|
| 367,485 |
|
|
| 347,247 |
|
|
| 347,010 |
|
|
| 612,496 |
|
|
| 484,626 |
|
|
| 409,198 |
|
Sales |
|
| 91,500 |
|
|
| 74,410 |
|
|
| 55,385 |
|
|
| 207,165 |
|
|
| 147,720 |
|
|
| 122,305 |
|
Other |
|
| 3,049 |
|
|
| 2,423 |
|
|
| 2,149 |
|
|
| 12,181 |
|
|
| 3,319 |
|
|
| 3,088 |
|
Total revenues |
|
| 462,034 |
|
|
| 424,080 |
|
|
| 404,544 |
|
|
| 831,842 |
|
|
| 635,665 |
|
|
| 534,591 |
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Direct costs of rental operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Depreciation of rental equipment |
|
| 69,908 |
|
|
| 72,197 |
|
|
| 75,213 |
|
|
| 88,912 |
|
|
| 80,425 |
|
|
| 75,445 |
|
Rental related services |
|
| 60,029 |
|
|
| 59,044 |
|
|
| 57,144 |
|
|
| 96,628 |
|
|
| 68,846 |
|
|
| 55,722 |
|
Other |
|
| 65,472 |
|
|
| 60,130 |
|
|
| 58,511 |
|
|
| 114,942 |
|
|
| 104,358 |
|
|
| 79,577 |
|
Total direct costs of rental operations |
|
| 195,409 |
|
|
| 191,371 |
|
|
| 190,868 |
|
|
| 300,482 |
|
|
| 253,629 |
|
|
| 210,744 |
|
Cost of sales |
|
| 60,280 |
|
|
| 48,542 |
|
|
| 36,769 |
| ||||||||||||
Costs of sales |
|
| 137,727 |
|
|
| 91,828 |
|
|
| 76,525 |
| ||||||||||||
Total costs of revenues |
|
| 255,689 |
|
|
| 239,913 |
|
|
| 227,637 |
|
|
| 438,209 |
|
|
| 345,457 |
|
|
| 287,269 |
|
Gross profit |
|
| 206,345 |
|
|
| 184,167 |
|
|
| 176,907 |
|
|
| 393,633 |
|
|
| 290,208 |
|
|
| 247,322 |
|
Selling and administrative expenses |
|
| 111,605 |
|
|
| 104,908 |
|
|
| 99,950 |
|
|
| (207,539 | ) |
|
| (142,914 | ) |
|
| (123,058 | ) |
Other income |
|
| 3,618 |
|
|
| — |
|
|
| — |
| ||||||||||||
Income from operations |
|
| 94,740 |
|
|
| 79,259 |
|
|
| 76,957 |
|
|
| 189,712 |
|
|
| 147,294 |
|
|
| 124,264 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Interest expense |
|
| (11,622 | ) |
|
| (12,207 | ) |
|
| (10,092 | ) |
|
| (40,560 | ) |
|
| (12,230 | ) |
|
| (8,244 | ) |
Foreign currency exchange gain (loss) |
|
| 334 |
|
|
| (121 | ) |
|
| (488 | ) |
|
| 310 |
|
|
| (378 | ) |
|
| (210 | ) |
Income before provision for income taxes |
|
| 83,452 |
|
|
| 66,931 |
|
|
| 66,377 |
| ||||||||||||
(Benefit) provision for income taxes |
|
| (70,468 | ) |
|
| 28,680 |
|
|
| 25,907 |
| ||||||||||||
Income from continuing operations before provision for income taxes |
|
| 149,462 |
|
|
| 134,686 |
|
|
| 115,810 |
| ||||||||||||
Provision for income taxes from continuing operations |
|
| 37,610 |
|
|
| 31,377 |
|
|
| 30,725 |
| ||||||||||||
Income from continuing operations |
|
| 111,852 |
|
|
| 103,309 |
|
|
| 85,085 |
| ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Discontinued operations: |
|
|
|
|
|
|
| |||||||||||||||||
Income from discontinued operations before provision for income taxes |
|
| 1,709 |
|
|
| 15,334 |
|
|
| 5,946 |
| ||||||||||||
Provision for income taxes from discontinued operations |
|
| 453 |
|
|
| 3,505 |
|
|
| 1,326 |
| ||||||||||||
Gain on sale of discontinued operations, net of tax |
|
| 61,513 |
|
|
| — |
|
|
| — |
| ||||||||||||
Income from discontinued operations |
|
| 62,769 |
|
|
| 11,829 |
|
|
| 4,620 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income |
| $ | 153,920 |
|
| $ | 38,251 |
|
| $ | 40,470 |
|
| $ | 174,621 |
|
| $ | 115,138 |
|
| $ | 89,705 |
|
|
|
|
|
|
|
|
| |||||||||||||||||
Earnings per share from continuing operations: |
|
|
|
|
|
|
| |||||||||||||||||
Basic |
| $ | 4.57 |
|
| $ | 4.24 |
|
| $ | 3.51 |
| ||||||||||||
Diluted |
| $ | 4.56 |
|
| $ | 4.21 |
|
| $ | 3.47 |
| ||||||||||||
Earnings per share from discontinued operations: |
|
|
|
|
|
|
| |||||||||||||||||
Basic |
| $ | 2.57 |
|
| $ | 0.49 |
|
| $ | 0.19 |
| ||||||||||||
Diluted |
| $ | 2.56 |
|
| $ | 0.48 |
|
| $ | 0.19 |
| ||||||||||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Basic |
| $ | 6.41 |
|
| $ | 1.60 |
|
| $ | 1.60 |
|
| $ | 7.14 |
|
| $ | 4.73 |
|
| $ | 3.70 |
|
Diluted |
| $ | 6.34 |
|
| $ | 1.60 |
|
| $ | 1.59 |
|
| $ | 7.12 |
|
| $ | 4.70 |
|
| $ | 3.66 |
|
Shares used in per share calculations: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Shares used in per share calculation: |
|
|
|
|
|
|
| |||||||||||||||||
Basic |
|
| 23,999 |
|
|
| 23,900 |
|
|
| 25,369 |
|
|
| 24,469 |
|
|
| 24,353 |
|
|
| 24,220 |
|
Diluted |
|
| 24,269 |
|
|
| 23,976 |
|
|
| 25,457 |
|
|
| 24,529 |
|
|
| 24,519 |
|
|
| 24,515 |
|
Cash dividends declared per share |
| $ | 1.04 |
|
| $ | 1.02 |
|
| $ | 1.00 |
|
| $ | 1.86 |
|
| $ | 1.82 |
|
| $ | 1.74 |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-62-
-62-
Consolidated Statements of COMPREHENSIVE Income
|
| Year Ended December 31, |
| |||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Net income |
| $ | 153,920 |
|
| $ | 38,251 |
|
| $ | 40,470 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| (174 | ) |
|
| 24 |
|
|
| 55 |
|
Tax benefit (provision) |
|
| 61 |
|
|
| (12 | ) |
|
| (20 | ) |
Comprehensive income |
| $ | 153,807 |
|
| $ | 38,263 |
|
| $ | 40,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
|
| Year Ended December 31, |
| |||||||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Net income |
| $ | 174,621 |
|
| $ | 115,138 |
|
| $ | 89,705 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
| |||
Foreign currency translation adjustment, net of tax impact |
|
| (38 | ) |
|
| (24 | ) |
|
| 50 |
|
Comprehensive income |
| $ | 174,583 |
|
| $ | 115,114 |
|
| $ | 89,755 |
|
|
|
|
|
|
|
|
|
|
|
-63-
Consolidated Statements of Shareholders' Equity
|
| Common Stock |
|
| Retained |
|
| Accumulated Other Comprehensive |
|
| Total Shareholders’ |
| ||||||||
(in thousands, except per share amounts) |
| Shares |
|
| Amount |
|
| Earnings |
|
| Income (Loss) |
|
| Equity |
| |||||
Balance at December 31, 2014 |
|
| 26,051 |
|
| $ | 106,469 |
|
| $ | 318,164 |
|
| $ | (102 | ) |
| $ | 424,531 |
|
Net income |
|
| — |
|
|
| — |
|
|
| 40,470 |
|
|
| — |
|
|
| 40,470 |
|
Share-based compensation |
|
| — |
|
|
| 3,399 |
|
|
| — |
|
|
| — |
|
|
| 3,399 |
|
Common stock issued under stock plans, net of shares withheld for employee taxes |
|
| 208 |
|
|
| 2,149 |
|
|
| — |
|
|
| — |
|
|
| 2,149 |
|
Common stock repurchased |
|
| (2,408 | ) |
|
| (9,119 | ) |
|
| (54,834 | ) |
|
| — |
|
|
| (63,953 | ) |
Tax shortfall from equity awards |
|
| — |
|
|
| (292 | ) |
|
| — |
|
|
| — |
|
|
| (292 | ) |
Taxes paid related to net share settlement of stock awards |
|
| — |
|
|
| (1,560 | ) |
|
| — |
|
|
| — |
|
|
| (1,560 | ) |
Dividends accrued of $1.00 per share |
|
| — |
|
|
| — |
|
|
| (25,092 | ) |
|
| — |
|
|
| (25,092 | ) |
Other comprehensive gain |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 35 |
|
|
| 35 |
|
Balance at December 31, 2015 |
|
| 23,851 |
|
|
| 101,046 |
|
|
| 278,708 |
|
|
| (67 | ) |
|
| 379,687 |
|
Net income |
|
| — |
|
|
| — |
|
|
| 38,251 |
|
|
| — |
|
|
| 38,251 |
|
Share-based compensation |
|
| — |
|
|
| 3,091 |
|
|
| — |
|
|
| — |
|
|
| 3,091 |
|
Common stock issued under stock plans, net of shares withheld for employee taxes |
|
| 97 |
|
|
| 37 |
|
|
| — |
|
|
| — |
|
|
| 37 |
|
Tax shortfall from equity awards |
|
| — |
|
|
| (1,066 | ) |
|
| — |
|
|
| — |
|
|
| (1,066 | ) |
Taxes paid related to net share settlement of stock awards |
|
| — |
|
|
| (1,287 | ) |
|
| — |
|
|
| — |
|
|
| (1,287 | ) |
Dividends accrued of $1.02 per share |
|
| — |
|
|
| — |
|
|
| (24,438 | ) |
|
| — |
|
|
| (24,438 | ) |
Other comprehensive gain |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
|
| 12 |
|
Balance at December 31, 2016 |
|
| 23,948 |
|
|
| 101,821 |
|
|
| 292,521 |
|
|
| (55 | ) |
|
| 394,287 |
|
Net income |
|
| — |
|
|
| — |
|
|
| 153,920 |
|
|
| — |
|
|
| 153,920 |
|
Share-based compensation |
|
| — |
|
|
| 3,198 |
|
|
| — |
|
|
| — |
|
|
| 3,198 |
|
Common stock issued under stock plans, net of shares withheld for employee taxes |
|
| 104 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Taxes paid related to net share settlement of stock awards |
|
| — |
|
|
| (2,072 | ) |
|
| — |
|
|
| — |
|
|
| (2,072 | ) |
Dividends accrued of $1.04 per share |
|
| — |
|
|
| — |
|
|
| (25,036 | ) |
|
| — |
|
|
| (25,036 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (113 | ) |
|
| (113 | ) |
Balance at December 31, 2017 |
|
| 24,052 |
|
|
| 102,947 |
|
|
| 421,405 |
|
|
| (168 | ) |
|
| 524,184 |
|
The accompanying notes are an integral part of these consolidated financial statements.
-63-
-64-
|
| Year Ended December 31, |
| |||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 153,920 |
|
| $ | 38,251 |
|
| $ | 40,470 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 78,416 |
|
|
| 81,179 |
|
|
| 84,280 |
|
Impairment of rental assets |
|
| 1,639 |
|
| — |
|
| — |
| ||
Provision for doubtful accounts |
|
| 1,480 |
|
|
| 1,892 |
|
|
| 2,149 |
|
Share-based compensation |
|
| 3,198 |
|
|
| 3,091 |
|
|
| 3,399 |
|
Gain on sale of used rental equipment |
|
| (17,733 | ) |
|
| (13,739 | ) |
|
| (11,902 | ) |
Foreign currency exchanges (gain) loss |
|
| (334 | ) |
|
| 121 |
|
|
| 488 |
|
Amortization of debt issuance costs |
|
| 50 |
|
|
| 51 |
|
|
| 52 |
|
Change in: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (10,475 | ) |
|
| (3,752 | ) |
|
| 3,628 |
|
Income taxes receivable |
|
| — |
|
|
| 11,000 |
|
|
| (11,000 | ) |
Prepaid expenses and other assets |
|
| 3,124 |
|
|
| 3,219 |
|
|
| 12,910 |
|
Accounts payable and accrued liabilities |
|
| 4,015 |
|
|
| 10,426 |
|
|
| (1,812 | ) |
Deferred income |
|
| 1,720 |
|
|
| 1,211 |
|
|
| 7,149 |
|
Deferred income taxes |
|
| (96,631 | ) |
|
| 7,745 |
|
|
| 14,449 |
|
Net cash provided by operating activities |
|
| 122,389 |
|
|
| 140,695 |
|
|
| 144,260 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of rental equipment |
|
| (94,579 | ) |
|
| (79,038 | ) |
|
| (131,037 | ) |
Purchases of property, plant and equipment |
|
| (14,617 | ) |
|
| (10,548 | ) |
|
| (9,321 | ) |
Proceeds from sales of used rental equipment |
|
| 38,344 |
|
|
| 29,406 |
|
|
| 26,214 |
|
Net cash used in investing activities |
|
| (70,852 | ) |
|
| (60,180 | ) |
|
| (114,144 | ) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) under bank lines of credit |
|
| (2,902 | ) |
|
| (35,066 | ) |
|
| 18,963 |
|
Principal payments on Series A senior notes |
|
| (20,000 | ) |
|
| (20,000 | ) |
|
| (20,000 | ) |
Borrowings under Series C senior notes |
| — |
|
| — |
|
|
| 60,000 |
| ||
Proceeds from the exercise of stock options |
|
| — |
|
|
| 37 |
|
|
| 2,149 |
|
Taxes paid related to net share settlement of stock awards |
|
| (2,072 | ) |
|
| (1,287 | ) |
|
| (1,560 | ) |
Repurchase of common stock |
| — |
|
| — |
|
|
| (63,953 | ) | ||
Payment of dividends |
|
| (24,876 | ) |
|
| (24,448 | ) |
|
| (25,779 | ) |
Net cash used in financing activities |
|
| (49,850 | ) |
|
| (80,764 | ) |
|
| (30,180 | ) |
Effect of foreign currency exchange rate changes on cash |
|
| (38 | ) |
|
| (2 | ) |
| — |
| |
Net increase (decrease) in cash |
|
| 1,649 |
|
|
| (251 | ) |
|
| (64 | ) |
Cash balance, beginning of period |
|
| 852 |
|
|
| 1,103 |
|
|
| 1,167 |
|
Cash balance, end of period |
| $ | 2,501 |
|
| $ | 852 |
|
| $ | 1,103 |
|
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, during the period |
| $ | 11,825 |
|
| $ | 12,436 |
|
| $ | 10,041 |
|
Net income taxes paid, during the period |
| $ | 29,504 |
|
| $ | 15,555 |
|
| $ | 2,498 |
|
Dividends accrued during the period, not yet paid |
| $ | 6,260 |
|
| $ | 6,147 |
|
| $ | 6,019 |
|
Rental equipment acquisitions, not yet paid |
| $ | 6,405 |
|
| $ | 2,876 |
|
| $ | 7,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
|
| Retained |
|
| Accumulated |
|
| Total |
| ||||||||
(in thousands, except per share amounts) |
| Shares |
|
| Amount |
|
| Earnings |
|
| Income (Loss) |
|
| Equity |
| |||||
Balance at December 31, 2020 |
|
| 24,128 |
|
| $ | 106,289 |
|
| $ | 576,419 |
|
| $ | (104 | ) |
| $ | 682,604 |
|
Net income |
|
| — |
|
|
| — |
|
|
| 89,705 |
|
|
| — |
|
|
| 89,705 |
|
Share-based compensation |
|
| — |
|
|
| 7,666 |
|
|
| — |
|
|
| — |
|
|
| 7,666 |
|
Common stock issued under stock plans, net of shares |
|
| 132 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Taxes paid related to net share settlement of stock awards |
|
| — |
|
|
| (5,345 | ) |
|
| — |
|
|
| — |
|
|
| (5,345 | ) |
Dividends accrued at $1.74 per share |
|
| — |
|
|
| — |
|
|
| (42,659 | ) |
|
| — |
|
|
| (42,659 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 50 |
|
|
| 50 |
|
Balance at December 31, 2021 |
|
| 24,260 |
|
|
| 108,610 |
|
|
| 623,465 |
|
|
| (54 | ) |
|
| 732,021 |
|
Net income |
|
| — |
|
|
| — |
|
|
| 115,138 |
|
|
| — |
|
|
| 115,138 |
|
Share-based compensation |
|
| — |
|
|
| 8,009 |
|
|
| — |
|
|
| — |
|
|
| 8,009 |
|
Common stock issued under stock plans, net of shares |
|
| 128 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Taxes paid related to net share settlement of stock awards |
|
| — |
|
|
| (6,539 | ) |
|
| — |
|
|
| — |
|
|
| (6,539 | ) |
Dividends accrued at $1.82 per share |
|
| — |
|
|
| — |
|
|
| (44,660 | ) |
|
| — |
|
|
| (44,660 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (24 | ) |
|
| (24 | ) |
Balance at December 31, 2022 |
|
| 24,388 |
|
|
| 110,080 |
|
|
| 693,943 |
|
|
| (78 | ) |
|
| 803,945 |
|
Net income |
|
| — |
|
|
| — |
|
|
| 174,621 |
|
|
| — |
|
|
| 174,621 |
|
Share-based compensation |
|
| — |
|
|
| 8,275 |
|
|
| — |
|
|
| — |
|
|
| 8,275 |
|
Common stock issued under stock plans, net of shares |
|
| 108 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Taxes paid related to net share settlement of stock awards |
|
| — |
|
|
| (7,233 | ) |
|
| — |
|
|
| — |
|
|
| (7,233 | ) |
Dividends accrued at $1.86 per share |
|
| — |
|
|
| — |
|
|
| (45,768 | ) |
|
| — |
|
|
| (45,768 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (38 | ) |
|
| (38 | ) |
Balance at December 31, 2023 |
|
| 24,496 |
|
| $ | 111,122 |
|
| $ | 822,796 |
|
| $ | (116 | ) |
| $ | 933,802 |
|
The accompanying notes are an integral part of these consolidated financial statements.
-64-
McGrath RentCorp
Consolidated Statements of Cash Flows
|
| Year Ended December 31, |
| |||||||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
| |||
Net income |
| $ | 174,621 |
|
| $ | 115,138 |
|
| $ | 89,705 |
|
Adjustments to reconcile net income to net cash provided by |
|
|
|
|
|
|
|
|
| |||
Depreciation and amortization |
|
| 109,375 |
|
|
| 111,344 |
|
|
| 106,695 |
|
Deferred income taxes |
|
| (16,952 | ) |
|
| 4,486 |
|
|
| 26,348 |
|
Provision for credit losses |
|
| 2,633 |
|
|
| 837 |
|
|
| 451 |
|
Share-based compensation |
|
| 8,275 |
|
|
| 8,009 |
|
|
| 7,666 |
|
Gain on sale of property, plant and equipment |
|
| (3,618 | ) |
|
| — |
|
|
| — |
|
Gain on sale of discontinued operations |
|
| (61,513 | ) |
|
| — |
|
|
| — |
|
Gain on sale of used rental equipment |
|
| (31,642 | ) |
|
| (37,979 | ) |
|
| (25,441 | ) |
Foreign currency exchange (gain) loss |
|
| (310 | ) |
|
| 378 |
|
|
| 210 |
|
Amortization of debt issuance costs |
|
| 8 |
|
|
| 16 |
|
|
| 15 |
|
Change in: |
|
|
|
|
|
|
|
|
| |||
Accounts receivable |
|
| (37,776 | ) |
|
| (31,361 | ) |
|
| (24,397 | ) |
Prepaid expenses and other assets |
|
| (29,326 | ) |
|
| (16,484 | ) |
|
| (6,816 | ) |
Accounts payable and accrued liabilities |
|
| (32,526 | ) |
|
| 16,347 |
|
|
| 12,225 |
|
Deferred income |
|
| 14,094 |
|
|
| 23,701 |
|
|
| 9,082 |
|
Net cash provided by operating activities |
|
| 95,343 |
|
|
| 194,432 |
|
|
| 195,743 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
| |||
Proceeds from sale of discontinued operations |
|
| 268,012 |
|
|
| — |
|
|
| — |
|
Purchases of rental equipment |
|
| (229,679 | ) |
|
| (187,689 | ) |
|
| (114,145 | ) |
Purchases of property, plant and equipment |
|
| (43,989 | ) |
|
| (17,617 | ) |
|
| (2,680 | ) |
Cash paid for acquisition of businesses |
|
| (458,315 | ) |
|
| — |
|
|
| (283,124 | ) |
Cash paid for acquisition of business assets |
|
| (3,767 | ) |
|
| — |
|
|
| (6,585 | ) |
Cash paid for acquisition of non-compete agreements |
|
| — |
|
|
| — |
|
|
| (2,500 | ) |
Proceeds from sales of used rental equipment |
|
| 66,168 |
|
|
| 73,879 |
|
|
| 57,337 |
|
Proceeds from sales of property, plant and equipment |
|
| 9,702 |
|
|
| — |
|
|
| — |
|
Net cash used in investing activities |
|
| (391,868 | ) |
|
| (131,427 | ) |
|
| (351,696 | ) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
| |||
Net borrowings under bank lines of credit |
|
| 274,225 |
|
|
| 47,275 |
|
|
| 143,729 |
|
Borrowings under senior note purchase agreement |
|
| 75,000 |
|
|
| — |
|
|
| 100,000 |
|
Principal payment of Series C senior notes |
|
| — |
|
|
| (60,000 | ) |
|
| — |
|
Principal payment of Series B senior notes |
|
| — |
|
|
| — |
|
|
| (40,000 | ) |
Taxes paid related to net share settlement of stock awards |
|
| (7,233 | ) |
|
| (6,539 | ) |
|
| (5,345 | ) |
Payment of dividends |
|
| (45,556 | ) |
|
| (44,269 | ) |
|
| (42,182 | ) |
Net cash provided by (used in) financing activities |
|
| 296,436 |
|
|
| (63,533 | ) |
|
| 156,202 |
|
Effect of foreign currency exchange rate changes on cash |
|
| 9 |
|
|
| (6 | ) |
|
| 4 |
|
Net increase (decrease) in cash |
|
| (80 | ) |
|
| (534 | ) |
|
| 253 |
|
Cash balance, beginning of period |
|
| 957 |
|
|
| 1,491 |
|
|
| 1,238 |
|
Cash balance, end of period |
| $ | 877 |
|
| $ | 957 |
|
| $ | 1,491 |
|
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
| |||
Interest paid, during the period |
| $ | 38,603 |
|
| $ | 14,775 |
|
| $ | 10,326 |
|
Net income taxes paid, during the period |
| $ | 91,565 |
|
| $ | 27,362 |
|
| $ | 9,087 |
|
Dividends accrued during the period, not yet paid |
| $ | 12,010 |
|
| $ | 11,227 |
|
| $ | 11,280 |
|
Rental equipment acquisitions, not yet paid |
| $ | 16,653 |
|
| $ | 13,220 |
|
| $ | 5,750 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-65-
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Organization
McGrath RentCorp and its wholly-owned subsidiaries (the “Company”) is a California corporation organized in 1979. The Company is a diversified business to business rental company with fourthree rental divisions; relocatable modular buildings, portable storage containers and electronic test equipment and liquid and solid containment tanks and boxes.equipment. Although the Company’s primary emphasis is on equipment rentals, sales of equipment occur in the normal course of business. TheAt December 31, 2023, the Company iswas comprised of four reportable business segments: modular building andsegment ("Mobile Modular"), portable storage container segment (“Mobile Modular”Portable Storage”), electronic test equipment segment (“TRS-RenTelco”), containment solutions for the storage of hazardous and non-hazardous liquids and solids segment (“Adler Tanks”) and classroom manufacturing division selling modular classrooms in California (“Enviroplex”).
Agreement and Plan of Merger with WillScot Mobile Mini Holdings Corp.
On January 28, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), with WillScot Mobile Mini Holdings Corp., a Delaware corporation ("WillScot Mobile Mini”), Brunello Merger Sub I, Inc., a California corporation and a direct wholly owned subsidiary of WillScot Mobile Mini (“Merger Sub I”), and Brunello Merger Sub II, LLC, a Delaware limited liability company and direct wholly owned subsidiary of WillScot Mobile Mini (“Merger Sub II”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub I will merge with and into the Company (the “First-Step Merger”), with the Company surviving the First-Step Merger and, immediately thereafter, the Company will merge with and into Merger Sub II (the “Second-Step Merger” and together with the First-Step Merger, the “Transaction”), with Merger Sub II surviving the Second-Step Merger as a wholly owned subsidiary of WillScot Mobile Mini. Each of the parties to the Merger Agreement intends that the Transaction will be treated as a single integrated transaction that qualifies as a “reorganization” within the meaning of Section 368(a) of the U.S. Internal Revenue Code of 1986, as amended. Consummation of the Transaction is subject to the approval of the Company’s shareholders, the receipt of required regulatory approvals, and satisfaction or waiver of other customary closing conditions. The First-Step Merger and the Second-Step Merger will be consummated on the same day.
On the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the First-Step Merger (the “Effective Time”), each share of common stock, no par value, of the Company (the “Company Common Stock”) issued and outstanding immediately prior to the Effective Time, other than shares of Company Common Stock owned by WillScot Mobile Mini or any subsidiary of WillScot Mobile Mini or the Company, and shares held by shareholders who did not vote in favor of the Transaction (or consent thereto in writing) and who are entitled to demand and properly demands appraisal of such shares, will be automatically converted into the right to receive either (1) $123 in cash (the “Per Share Cash Consideration”) or (2) 2.8211 (the “Exchange Ratio”) shares of validly issued, fully paid and nonassessable shares of common stock, par value $0.0001, of WillScot Mobile Mini (the “WillScot Mobile Mini Common Stock”) (the “Per Share Stock Consideration” together with the Per Share Cash Consideration, the “Merger Consideration”), as determined pursuant to the election and allocation procedures in the Merger Agreement. The Company’s shareholders will have the opportunity to elect to receive either the Per Share Cash Consideration or the Per Share Stock Consideration in respect of their Company Common Stock, provided that 60% of the Company Common Stock will be converted into the cash consideration and 40% of the Company Common Stock will be converted into the stock consideration. Pursuant to the terms of the Merger Agreement, the closing of the Merger Agreement is subject to the satisfaction of customary closing conditions, including adoption of the Merger Agreement by the Company’s shareholders and receipt of regulatory approvals. The closing of the Transaction is not subject to any financing condition.
Principles of Consolidation
The consolidated financial statements include the accounts of McGrath RentCorp and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Revenue Recognition
Lease revenues - Rental revenuerevenues from operating leases isare recognized on a straight-line basis over the term of the lease.lease for all operating segments. Rental billings for periods extending beyond period end are recorded as deferred income and are recognized whenin the period earned. Rental related services revenue isrevenues are primarily associated with relocatable modular building and liquid and solid containment tanks and boxesportable storage container leases. For modular building leases, rental related services revenue consists of billings to customersrevenues for modifications, delivery, installation, additional site-related work, and dismantle and return delivery. For modular building leases, revenue related to delivery, installation, dismantle and return delivery are lease related because the payments are considered minimum lease payments that are an integral part of the negotiated lease agreement with customers andthe customer. These revenues are recognized on a straight-line basis over the term of the lease. Certain leases are accounted for as sales-type leases. For liquidthese leases, sales revenue and solid containment solutions, rentalthe related services revenue consists of billings foraccounts receivable are recognized upon delivery removal and cleaninginstallation of the tanksequipment and boxes. Thesethe unearned interest is recognized over the lease term on a basis which results in a constant rate of
-66-
return on the unrecovered lease investment. Other revenues are recognized in the period performed.include interest income on sales-type leases and rental income on facility leases.
Non-lease revenues - Sales revenue is recognized upon delivery and installation of the equipment to customers. Certain leases are accounted for as sales-type leases. For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and the unearned interest is recognized over the lease term on a basis which results in a constant rate of return on the unrecovered lease investment. Revenue from contracts that satisfy the criteria for over-time recognition are recognized as work is performed by using the input method based on the ratio of costs incurred to estimated total contract costs for each contract. The majority of revenue for these contracts is derived from long-term projects which typically span multiple quarters. The Company uses third parties to provide certain services as part of its contracts with customers. The Company is considered the principal (vs. an agent) as the Company is responsible for the fulfillment of all service elements and risks associated with the underlying performance obligation. Revenue for these services is recognized on a gross basis.
Other revenue is recognized when earned and primarily includes interest income on sales-type leases, rental income on facility leases and certain logistics services.
Sales taxes charged to customers are reported on a net basis and are excluded from revenues and expenses.
Depreciation of Rental Equipment
Rental equipment is depreciated on a straight-line basis for financial reporting purposes and on an accelerated basis for income tax purposes. The costs of major refurbishment of relocatable modular buildings and portable storage containers and tanks and boxes are capitalized to the extent the refurbishment significantly adds value to, or extends the life of the equipment. Maintenance and repairs are expensed as incurred.
The estimated useful lives and residual values of the Company’s rental equipment used for financial reporting purposes are as follows:
Relocatable modular buildings | 18 years, 50% residual value | |
Relocatable modular accessories | 3 to 18 years, no residual value | |
|
| |
Portable storage containers | 25 years, 62.5% residual value | |
Electronic test equipment and accessories | 1 to 8 years, no residual value | |
|
|
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Costs of Rental Related Services
Costs of rental related services are primarily associated with relocatable modular building leases and liquid and solid containment tank and boxes.portable storage container leases. Modular building leases primarily consist of costs for services to be provided under the negotiated lease agreement for delivery, installation, modifications, skirting, additional site-related work, and dismantle and return delivery. Costs related to these services are recognized on a straight-line basis over the term of the lease. Costs of rental related services associated with liquid and solid containment solutionsportable storage containers consists of costs of delivery, removal and cleaning of the tanks and boxes.containers. These costs are recognized in the period the service is performed.
Impairment of Long-Lived Assets
The Company evaluates the carrying value of rental equipment and identifiable definite lived intangible assets for impairment whenever events or circumstances have occurred that would indicate the carrying amount may not be fully recoverable. A key element in determining the recoverability of long-lived assets is the Company’s outlook as to the future market conditions for its rental equipment. If the carrying amount is not fully recoverable, an impairment loss is recognized to reduce the carrying amount to fair value. The Company determines fair value based upon the condition of the rental equipment and the projected net cash flows from its rental and sale considering current market conditions. Goodwill and identifiable indefinite lived assets are evaluated for potential impairment annually or when circumstances indicate potential impairment may have occurred. Impairment losses, if any, are determined based upon the excess of carrying value over the estimated fair value of the asset. The Company recorded an impairment of modular rental equipment of $1.6 million for the year ended December 31, 2017. There were no impairments of long-lived assets during the years ended December 31, 20162023, 2022 and 2015.2021.
Other Direct Costs of Rental Operations
Other direct costs of rental operations include direct labor, supplies, repairs, insurance, property taxes, license fees, impairment of rental equipment and certain modular lease costs charged to customers in the negotiated rental rate, which are recognized on a straight-line basis over the term of the lease.
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Cost of Sales
Cost of sales in the Consolidated Statementsconsolidated statements of Incomeincome includes the carrying value of the equipment sold and all direct costs associated with the sale.
Warranty Reserves
Sales of new relocatable modular buildings, portable storage containers, electronic test equipment and related accessories and liquid and solid containment tanks and boxes not manufactured by the Company are typically covered by warranties provided by the manufacturer of the products sold. The Company typically provides limited 90-day90-day warranties for certain sales of used rental equipment and one-year warranties on equipment manufactured by Enviroplex. Although the Company’s policy is to provide reserves for warranties when required for specific circumstances, the Company has not found it necessary to establish such reserves to date as warranty costs have not been significant.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is recognized on a straight-line basis for financial reporting purposes, and on an accelerated basis for income tax purposes. Depreciation expensesexpense for property, plant and equipment is included in “Selling and administrative expenses” and “Rental related services” in the Consolidated Statements of Income. Maintenance and repairs are expensed as incurred.
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Property, plant and equipment from continuing operations consist of the following:
(dollar amounts in thousands) |
| Estimated useful life |
|
| December 31, |
|
| Estimated |
| December 31, |
| |||||||||||
|
| in years |
|
| 2017 |
|
| 2016 |
|
| in years |
| 2023 |
|
| 2022 |
| |||||
Land |
| Indefinite |
|
| $ | 50,689 |
|
| $ | 45,928 |
|
| Indefinite |
| $ | 75,143 |
|
| $ | 61,487 |
| |
Land improvements |
| 20 – 50 |
|
|
| 43,337 |
|
|
| 42,677 |
|
| 20 – 50 |
|
| 65,931 |
|
|
| 65,451 |
| |
Buildings |
|
| 30 |
|
|
| 26,862 |
|
|
| 26,105 |
|
| 30 |
|
| 35,360 |
|
|
| 34,055 |
|
Furniture, office and computer equipment |
| 3 – 10 |
|
|
| 32,118 |
|
|
| 35,215 |
| |||||||||||
Furniture, office equipment and software |
| 3 – 10 |
|
| 30,039 |
|
|
| 33,845 |
| ||||||||||||
Vehicles and machinery |
| 5 – 25 |
|
|
| 34,597 |
|
|
| 30,416 |
|
| 5 – 25 |
|
| 35,233 |
|
|
| 27,419 |
| |
|
|
|
|
|
|
| 187,603 |
|
|
| 180,341 |
|
|
| 241,706 |
|
|
| 222,257 |
| ||
Less accumulated depreciation |
|
|
|
|
|
| (70,034 | ) |
|
| (68,854 | ) | ||||||||||
Less: accumulated depreciation |
|
| (87,399 | ) |
|
| (84,447 | ) | ||||||||||||||
|
|
|
|
|
|
| 117,569 |
|
|
| 111,487 |
|
|
| 154,307 |
|
|
| 137,810 |
| ||
Construction in progress |
|
|
|
|
|
| 1,601 |
|
|
| 703 |
|
|
| 14,807 |
|
|
| 903 |
| ||
|
|
|
|
|
| $ | 119,170 |
|
| $ | 112,190 |
|
| $ | 169,114 |
|
| $ | 138,713 |
|
Property, plant and equipment depreciation expense was $7.6$9.7 million, $8.1$9.0 million and $8.2$8.9 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively. Construction in progress at December 31, 20172023 and 20162022 consisted primarily of costs related to acquisition of land and land improvementsimprovements. For information on the property, plant and information technology upgrades.equipment from discontinued operations, refer to Note 5.
Capitalized Software Costs
The Company capitalizes certain development costs incurred in connection with its internal use software. Costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, direct internal and external costs are capitalized until the software is substantially complete and ready for its intended use. These costs generally include external direct costs of materials and services consumed in the project and internal costs, such as payroll and benefits of those employees directly associated with the development of the software. Maintenance, training and post implementation costs are expensed as incurred. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Capitalized software costs are included in property, plant and equipment. The Company capitalized $0.8less than $0.2 million and $0.2$0.1 million in internal use software during the years ended December 31, 20172023 and 2016,2022, respectively.
Shipping Costs
The Company includes third party costs to deliver rental equipment to customers in costs of rental related services and costs of sales.
Advertising Costs
Advertising costs are expensed as incurred. Total advertising expenses were $2.9$5.9 million, $2.9$5.0 million and $2.8$5.1 million for the years ended December 31, 2017, 20162023, 2022 and 2015.2021.
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Income Taxes
Income taxes are accounted for using an asset and liability approach. Deferred tax assets and liabilities are recorded for the effect of temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and deferred tax liabilities are adjusted to the extent necessary to reflect tax rates expected to be in effect when temporary differences reverse. Adjustments may be required to deferred tax assets and deferred tax liabilities due to changes in tax laws and audit adjustments by tax authorities. A valuation allowance would be established if, based on the weight of available evidence, management believes that it is more likely than not that some portion or all of a recorded deferred tax asset would not be realized in future periods. To the extent adjustments are required in any given period, the adjustments would be included within the “Provision for income taxes” in the Consolidated Statements of Income.
Goodwill and Intangible Assets
Purchase prices of acquired businesses have beenare allocated to the assets and liabilities acquired based on the estimated fair values on the respective acquisition dates. Based on these values, the excess purchase prices over the fair value of the net assets acquired wereare allocated to goodwill and other intangible assets. Intangible assets related to customer relationships are amortized over eleven years.goodwill. At December 31, 20172023 and 2016,2022, goodwill and trade name intangible assets from continuing operations which have indefinite lives totaled $33.5 million.$323.2 million and $106.4 million, respectively. For information on goodwill and trade name intangible assets from discontinued operations, refer to Note 5.
The Company assesses potential impairment of its goodwill and intangible assets when there is evidence that events or circumstances have occurred that would indicate the recovery of an asset’s carrying value is unlikely. The Company also assesses
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potential impairment of its goodwill and intangible assets with indefinite lives on an annual basis regardless of whether there is evidence of impairment. If indicators of impairment were to be present in intangible assets used in operations and future discounted cash flows were not expected to be sufficient to recover the assets’ carrying amount, an impairment loss would be charged to expense in the period identified. The amount of an impairment loss would be recognized as the excess of the asset’s carrying value over its fair value. Factors the Company considers important, which may cause impairment include, among others, significant changes in the manner of use of the acquired asset, negative industry or economic trends, and significant underperformance relative to historical or projected operating results.
The impairment review of the Company’s goodwill and indefinite lived assets is performed by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. In the first step, theamount. The fair value of the reporting unit is compared to its carrying value to determine if the goodwill and intangible assets areis impaired. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, then goodwill and intangible assets areis not impaired and no further testing is required.impaired. If the carrying value of the net assets assigned to the reporting unit were to exceed its fair value, then the second step is performed in order to determine the implied fair value of the reporting unit’sa goodwill and intangible assets and an impairment loss is recorded for anthe amount equal to the difference between the implied fair value and thereporting unit’s carrying value ofexceeds the goodwill and intangible assets.estimated fair value.
The Company conducted its annual impairment analysis in the fourth quarter of its fiscal year.2023. The impairment analysis did notnot result in an impairment charge for the fiscal yearsyear ended 2017, 20162023. There were no impairment charges in 2022 or 2015.2021. Determining the fair value of a reporting unit is judgmental and involves the use of significant estimates and assumptions. The Company based its fair value estimates on assumptions that it believes are reasonable but are uncertain and subject to changes in market conditions.
Earnings Per Share
Basic earnings per share (“EPS”) is computed as net income divided by the weighted average number of shares of common stock outstanding for the period. Diluted EPS is computed assuming conversion of all potentially dilutive securities including the dilutive effects of stock options, unvested restricted stock awards and other potentially dilutive securities. The table below presents the weighted-average common stock used to calculate basic and diluted earnings per share:
(in thousands) |
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Weighted-average common stock for calculating basic earnings per share |
|
| 23,999 |
|
|
| 23,900 |
|
|
| 25,369 |
|
|
| 24,469 |
|
|
| 24,353 |
|
|
| 24,220 |
|
Effect of potentially dilutive securities from equity-based compensation |
|
| 270 |
|
|
| 76 |
|
|
| 88 |
|
|
| 60 |
|
|
| 166 |
|
|
| 295 |
|
Weighted-average common stock for calculating diluted earnings per share |
|
| 24,269 |
|
|
| 23,976 |
|
|
| 25,457 |
|
|
| 24,529 |
|
|
| 24,519 |
|
|
| 24,515 |
|
The following securities-69-
In 2023, 2022 and 2021, there were not included inno shares having an anti-dilutive effect requiring exclusion from the computation of diluted earnings per share as their effect would have been anti-dilutive:share.
(in thousands) |
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Options to purchase common stock |
|
| 7 |
|
|
| 661 |
|
|
| 746 |
|
In May 2008, the Company’s Board of Directors authorized the Company to repurchase an aggregate of 2,000,000 shares of the Company's outstanding common stock. The Company has in the past made purchases of shares of its common stock from time to time in over-the-counter market (NASDAQ) transactions, through privately negotiated, large block transactions and through a share repurchase plan, in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. In August 2015, the Company’s Board of Directors authorized the Company to repurchase an additional up to 2,000,000 shares of the Company's outstanding common stock.stock (the “Repurchase Plan”). The amount and time of the specific repurchases are subject to prevailing market conditions, applicable legal requirements and other factors, including management’s discretion. All shares repurchased by the Company are canceled and returned to the status of authorized but unissued shares of common stock. There can be no assurance that any authorized shares will be repurchased and the repurchase programRepurchase Plan may be modified, extended or terminated by the Board of Directors at any time. There were no repurchases of common stock duringIn the twelve months ended December 31, 20172023, 2022 and 2016.2021 there were no shares of common stock repurchased. As of December 31, 2017, 1,592,0262023, 1,309,805 shares remain authorized for repurchase.
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Accounts Receivable and Concentration of Credit Risk
The Company’s accounts receivable consist of amounts due from customers for rentals, sales, financed sales and unbilled amounts for the portion of modular building end-of-lease services earned, which were negotiated as part of the lease agreement. Unbilled receivables related to end-of-lease services, which consists of dismantle and return delivery of buildings, were $30.1$59.5 million at December 31, 20172023 and $28.1$52.6 million at December 31, 2016.2022. The Company sells primarily on 30-day30-day terms, individually performs credit evaluation procedures on its customers on each transaction and will require security deposits from its customers when a significant credit risk is identified. The Company records an allowance for doubtful accountscredit losses in amounts equal to the estimated losses expected to be incurred in the collection of the accounts receivable. The estimated losses are based on historical collection experience in conjunction with an evaluation of the current status of the existing accounts. Customer accounts are written off against the allowance for doubtful accountscredit losses when an account is determined to be uncollectable. The allowance for doubtfulcredit losses is based on the Company’s assessment of the collectability of customer accounts receivable from operating lease and non-lease revenues. The Company regularly reviews the allowance by considering factors such as historical payment experience and trends, the age of the accounts receivable balances, the Company’s operating segment, customer industry, credit quality and current economic conditions that may affect a customer’s ability to pay. The Company recognized credit losses of $2.6 million, $0.8 million and $0.5 million for the twelve months ended December 31, 2023, 2022 and 2021, respectively. The allowance for credit losses was $2.8 million, $2.3 million and $2.1 million for the years ended December 31, 2023, 2022 and 2021, respectively.
The allowance for credit loss activity was as follows:
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Beginning balance, January 1 |
| $ | 2,300 |
|
| $ | 2,125 |
|
Provision for credit losses |
|
| 2,633 |
|
|
| 837 |
|
Acquired reserve from Vesta Modular (see Note 4) |
|
| 250 |
|
|
| — |
|
Derecognition of reserve from discontinued operations (see Note 5) |
|
| (450 | ) |
|
| — |
|
Write-offs, net of recoveries |
|
| (1,932 | ) |
|
| (662 | ) |
Ending balance, December 31 |
| $ | 2,801 |
|
| $ | 2,300 |
|
(in thousands) |
| 2017 |
|
| 2016 |
| ||
Beginning balance, January 1 |
| $ | 2,087 |
|
| $ | 2,087 |
|
Provision for doubtful accounts |
|
| 1,480 |
|
|
| 1,892 |
|
Write-offs, net of recoveries |
|
| (1,647 | ) |
|
| (1,892 | ) |
Ending balance, December 31 |
| $ | 1,920 |
|
| $ | 2,087 |
|
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade accounts receivable. From time to time, the Company maintains cash balances in excess of the Federal Deposit Insurance Corporation limits.
Net Investment in Sales-Type Leases
The Company enters into sales-type leases with certain qualified customers to purchase its rental equipment, primarily at its TRS-RenTelco operating segment. Sales-type leases have terms that generally range from 12 to 36 months and are collateralized by a security interest in the underlying rental asset. The net investment in sales-type leases was $3.7 million at December 31, 2023 and $4.5 million at December 31, 2022. The Company’s assessment of current expected losses on these receivables was not material and no credit loss expense was provided as of December 31, 2023. The Company regularly reviews the allowance by considering factors such as historical payment experience, the age of the lease receivable balances, credit quality and current economic conditions that may affect a customer's ability to pay. Lease receivables are considered past due 90 days after invoice. The Company manages the credit risk in net investment in sales-type leases, on an ongoing basis, using a number of factors, including, but not limited to the following: historical payment history, credit score, size of operations, length of time in business, industry, historical profitability, historical cash flows, liquidity and past due amounts. The Company uses credit scores obtained from external credit bureaus as a key indicator for the purposes of determining credit quality of its new customers. The Company does not own available for sale debt securities or other financial assets at December 31, 2023.
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Fair Value of Financial Instruments
The Company believes that the carrying amounts for cash, accounts receivable, accounts payable and notes payable approximate their fair values except for fixed rate debt included in notes payable which has an estimated fair value of $120.2$169.2 million and $140.7$89.3 million compared to the recorded value of $120.0$175.0 million and $140.0$100.0 million as of December 31, 20172023 and 2016,2022, respectively. The estimates of fair value of the Company’s fixed rate debt are based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities.
Foreign Currency Transactions and Translation
The Company's Canadian subsidiary, TRS-RenTelco Inc., a British Columbia corporation (“TRS-Canada”), functions as a branch sales office for TRS-RenTelco in Canada. The functional currency for TRS-Canada is the U.S. dollar. Foreign currency transaction gains and losses of TRS-Canada are reported in the results of operations in the period in which they occur.
The Company’s Indian subsidiary, TRS-RenTelco India Private Limited (“TRS-India”), functionsfunctioned as a rental and sales office for TRS-RenTelco in India, which commenced its closure during 2017. The functional currency for TRS-India is the Indian Rupee. All assets and liabilities of TRS-India are translated into U.S. dollars at period-end exchange rates and all income statement amounts are translated at the average exchange rate for each month within the year.
Currently, the Company does not use derivative instruments to hedge its economic exposure with respect to assets, liabilities and firm commitments as the foreign currency transactions and risks to date have not been significant.
Share-Based Compensation
The Company measures and recognizes the compensation expense for all share-based awards made to employees and directors, including stock options, stock appreciation rights (“SARs”) and restricted stock units (“RSUs”), based upon estimated fair values. The fair value of stock options and SARs is estimated on the date of grant using the Black-Scholes option pricing model and for RSUs based upon the fair market value of the underlying shares of common stock as of the date of grant. The Company recognizes share-based compensation cost ratably on a straight-line basis over the requisite service period, which generally equals the vesting period. For performance-based RSUs, compensation costs are recognized when it is probable that vesting conditions arewill be met. In addition, the Company estimates the probable number of shares of common stock that will be earned and the corresponding compensation cost until the achievement of the performance goal is known.The Company recognizes forfeitures based on actual forfeitures when they occur. The Company records share-based compensation costs in “Selling and administrative expenses” in the Consolidated Statements of Income. The Company recognizes a benefit from share-based compensation in the Consolidated Statements of Shareholders’ Equity if an incremental tax benefit is realized. Further information regarding share-based compensation can be found in “Note 5 –Benefit Plans”.Note 10.
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The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in determining reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during each period presented. Actual results could differ from those estimates. The most significant estimates included in the financial statements are the future cash flows and fair values used to determine the recoverability of the rental equipment and identifiable definite and indefinite lived intangible assets carrying value, the various assets’ useful lives and residual values, and the allowance for doubtful accounts.credit losses. In addition, determining the fair value of the assets and liabilities acquired in a business or asset acquisition can be judgmental in nature and can involve the use of significant estimates and assumptions.
NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS
Reclassification
In order to conform to our current year presentation, $2.7 million and $2.4 million were reclassified in 2016 and 2015, respectively, from other to rental related services within the direct costs of rental operations on the Condensed Consolidated Statements of Income. These reclassifications had no impact on net income, earnings per share or operating cash flows.
New Accounting Pronouncements
In May 2014,On March 27, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”("ASU") No. 2014-09, Revenue from Contracts with Customers2023-01, Leases (Topic 606). The objective842): Common Control Arrangements, which requires a lessee involved in a common control lease agreement to amortize leasehold improvements over the useful life of this guidance isthe improvements to establish the principles for reporting useful information to userscommon control group, regardless of financial statements about the nature, timing and uncertaintylease term, as long as the lessee controls the use of revenue from contracts with customers. The new standard is effective for the interim and annual reporting periods beginning after December 31, 2017. The new standard permits two methods of adoption: retrospectively to each prior period presented (full retrospective method), or retrospectively withunderlying asset. If the cumulative effect of initially applyinglessor obtains the guidance recognized at the date of initial application (modified retrospective method). The Company will adopt the guidance effective January 1, 2018 using the modified retrospective method. The Company believes the majority of its revenue, as such revenue relates to rental contractual revenue, is excluded from the scope of this standard, and the remaining revenue streams will not be materially affected. The Company does not anticipate the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Subtopic 842-10). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) on the commencement date: a) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and b) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of the underlying asset through a specified assetlease with another entity not within the same control group, the amortization period cannot exceed the period of the common control group. Furthermore, the ASU requires the accounting for a transfer between entities under common control through an adjustment to equity when the lease term. Underlessee no longer controls the new guidance, lessor accountinguse of the underlying asset. The ASU is largely unchanged. The amendments are effective for fiscal years beginning after December 15, 2018,2023. The Company is in the process of evaluating the financial statement impact of this ASU.
In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures (Topic 280), which will require public companies to provide more transparency in both quarterly and annual reports about the expenses they incur from revenue generating reportable business segments. In addition, the ASU requires that a public entity disclose significant segment expenses that are regularly provided to the chief operating decision maker, an amount for
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other segment items by reportable business segment, including a description of its composition, and the primary measures of a business segment's profit or loss in assessing segment performance. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. While the Company is still evaluating the potential impact of this guidance, as a lessor the Company does not believe the accounting for operating lease revenues will be materially affected by this standard. The Company anticipates the lessee accounting to increase its total assets and liabilities; however, the Company is currently evaluating the magnitude of the impact the adoption of this guidance will have on the Company’s consolidated financial statements.
During the first quarter 2017, the Company adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). As a result of the adoption, the Company recognized $869,000 of excess tax benefits related to share-based payments as a reduction to the provision for income taxes for the year ended December 31, 2017. These tax benefits, or shortfalls, were historically recorded in equity. In addition, cash flows related to excess tax benefits, or shortfalls, are now classified as an operating activity with the prior period adjusted accordingly. Cash paid on employees’ behalf related to shares withheld for tax purposes is classified as a financing activity, consistent with prior year’s presentation. Retrospective application of the cash flow presentation requirements resulted in decreases to both net cash provided by operations and net cash used in financing activities of $1,066,000 for the twelve months ended December 31, 2016. The Company’s compensation expense for each period continues to reflect forfeitures as they occur, rather than based upon estimated expected forfeitures.
In May 2017, the FASB issued ASU No. 2017-09, Compensation, Stock Compensation (Topic 718). The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification unless all of the following are met: 1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; 2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified and; 3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments of this update are effective for the interim and annual periodsyears beginning after December 15, 2017.2024. The Company is in the process of evaluating the financial statement impact of this ASU.
In December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes—Improvements to Income Tax Disclosures (Topic 740), which will require Companies to disclose annually the specific categories in income tax rate reconciliations, provide additional information for reconciling items which meet a quantitative threshold, and disaggregate domestic and foreign income or loss from continuing operations. Additionally, this ASU will also require the disclosure of income tax expense or benefit from continuing operations disaggregated by federal, state and foreign. This ASU is effective for fiscal years beginning after December 15, 2024, and applied on a prospective basis. The Company is in the process of evaluating the financial statement impact of this ASU.
NOTE 3. IMPLEMENTED ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2023, the Company adopted the Financial Accounting Standards Board's Accounting Standards Update (“ASU”) 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminated the separate recognition and measurement guidance for troubled debt restructurings by creditors. In addition, the ASU requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of FASB ASC 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. The adoption of this new guidance isdid not expected to have a material impact on the Company’sCompany's consolidated financial statements.
Effective January 1, 2023, the Company adopted the ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. Additionally, the ASU requires revenue contracts, including contract assets and liabilities, to be evaluated on the acquisition date and reported as if the contracts had originated with the acquirer, resulting in a measurement consistent with the recognition on the acquiree's financial statements. The adoption of this new guidance did not have a material impact on the Company's consolidated financial statements.
NOTE 4. ACQUISITIONS
On February 1, 2023, the Company completed the acquisition of Vesta Housing Solutions Holdings, Inc. (“Vesta Modular”), a portfolio company of Kinderhook Industries, for $437.2 million cash consideration on the closing date, which included certain adjustments, including net working capital and certain qualified capital expenditures. In connection with the acquisition, the Company purchased a representation and warranty insurance policy to provide certain recourse in the event of breaches of representations and warranties of Vesta Modular and the seller of Vesta Modular under the stock purchase agreement. Vesta Modular was a leading provider of temporary and permanent modular space solutions serving customers between its modular leasing and modular construction divisions. The acquisition was accounted for as a purchase of a “business” in accordance with criteria in Accounting Standards Codification ("ASC") 805, Business Combinations, using the purchase method of accounting. Under the purchase method of accounting, the total purchase price is assigned to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values on the closing date. The excess of the purchase price over those fair values is recorded as goodwill. The financial results of Vesta Modular were a part of the Mobile Modular segment since February 1, 2023, including $7.7 million of acquisition related transaction costs incurred during the current year as a result of the acquisition.
On March 1, 2023, the Company completed the acquisition of Jerald R. Brekke, Inc., DBA Brekke Storage ("Brekke Storage"), for a total purchase price of $16.4 million. Brekke Storage was a regional provider of portable storage solutions in the Colorado market. The acquisition expanded the Portable Storage fleet by approximately 2,700 units and provided a new regional operation to serve the Colorado market. The acquisition was accounted for as a purchase of a “business” in accordance with criteria in ASC 805 using the purchase method of accounting. The financial results of Brekke Storage were a part of the Portable Storage segment since March 1, 2023, including $0.2 million of transaction costs.
On April 1, 2023, the Company completed the acquisition of Dixie Temporary Storage, LLC ("Dixie Storage"), for a purchase price of $4.9 million. Dixie Storage was a regional provider of portable storage solutions in the South Carolina market and is highly complementary to the Company's Portable Storage business segment. The acquisition expanded the Portable Storage fleet by approximately 800 units and provided a new regional operation to serve the South Carolina market. The acquisition was accounted for as a purchase of a “business” in accordance with criteria in ASC 805 using the purchase method of accounting. The financial results of Dixie Storage were a part of the Portable Storage segment since April 1, 2023, including $0.1 million of transaction costs.
-72-
On July 1, 2023, the Company completed the purchase of assets of Inland Leasing and Storage, LLC ("Inland Leasing"), for a purchase price of $3.8 million. Inland Leasing was a regional provider of portable storage solutions in the Colorado market and is highly complementary to the Company's Portable Storage business segment. The acquisition grew the Portable Storage fleet by approximately 600 units, which will further support the Colorado market. The acquisition was accounted for as a purchase of "assets" in accordance with criteria in ASC 805 and the assessment of the fair value of the purchased assets was allocated primarily to rental equipment totaling $3.0 million and intangible assets totaling $0.7 million. Supplemental pro forma information has not been provided as the historical financial results of Inland Leasing were not significant. Incremental transaction costs associated with the asset purchase were not significant.
The following tables summarize the purchase price allocations reflecting estimated fair values of assets acquired and liabilities assumed in the Vesta Modular, Brekke Storage and Dixie Storage business acquisitions, with excess amounts allocated to goodwill. The estimated fair values of the assets acquired and liabilities assumed at the acquisition date are determined based on preliminary valuations and analyses. Accordingly, the Company has made provisional estimates for the assets acquired and liabilities assumed. The valuation of intangible assets acquired is based on certain valuation assumptions including cash flow projections, discount rates, contributory asset charges and other valuation model inputs. The valuation of tangible long-lived assets acquired is dependent upon various analyses including an analysis of the condition and estimated remaining economic lives of the assets acquired.
Vesta Modular:
(dollar amounts in thousands) |
|
|
| |
Rental equipment |
| $ | 212,639 |
|
Intangible assets: |
|
|
| |
Goodwill |
|
| 211,178 |
|
Customer relationships |
|
| 29,900 |
|
Non-compete |
|
| 7,100 |
|
Trade name |
|
| 800 |
|
Cash |
|
| 11 |
|
Accounts receivable |
|
| 22,666 |
|
Property, plant and equipment |
|
| 1,437 |
|
Prepaid expenses and other assets |
|
| 3,550 |
|
Accounts payable and accrued liabilities |
|
| (26,202 | ) |
Deferred income |
|
| (14,273 | ) |
Deferred income taxes |
|
| (11,596 | ) |
Total purchase price |
| $ | 437,210 |
|
Brekke Storage:
(dollar amounts in thousands) |
|
|
| |
Rental equipment |
| $ | 10,798 |
|
Intangible assets: |
|
|
| |
Goodwill |
|
| 4,083 |
|
Customer relationships |
|
| 949 |
|
Non-compete |
|
| 59 |
|
Property, plant and equipment |
|
| 875 |
|
Deferred income |
|
| (382 | ) |
Total purchase price |
| $ | 16,382 |
|
Dixie Storage:
(dollar amounts in thousands) |
|
|
| |
Rental equipment |
| $ | 2,758 |
|
Intangible assets: |
|
|
| |
Goodwill |
|
| 1,555 |
|
Customer relationships |
|
| 259 |
|
Non-compete |
|
| 22 |
|
Property, plant and equipment |
|
| 318 |
|
Deferred income |
|
| (161 | ) |
Total purchase price |
| $ | 4,751 |
|
-73-
The value assigned to identifiable intangible assets was determined based on discounted estimated future cash flows associated with such assets to their present value. The combined acquired goodwill of $216.8 million reflects the strategic fit of Vesta Modular, Brekke Storage and Dixie Storage with the Company’s modular and portable storage business operations. The Company amortizes the acquired customer relationships over their expected useful lives of 11 years for Vesta Modular, 8 years for Brekke Storage and 9 years for Dixie Storage. The expected useful life for the non-compete agreements is 5 years. The trade name intangible acquired from the Vesta Modular acquisition will be amortized over it's useful life of nine months. Goodwill is expected to have an indefinite life and will be subject to future impairment testing. The goodwill is deductible for tax purposes over 15 years.
The following unaudited supplemental pro forma financial information shows the combined results of continuing operations of the Company and Vesta Modular as if the acquisition occurred as of the beginning of the periods presented. The pro forma results include the effects of the amortization of the purchased intangible assets and depreciation expense of acquired rental equipment valuation step up, interest expense on the debt incurred to finance the acquisitions. A pro forma adjustment has been made to reflect the income taxes that would have been recorded at the combined federal and state statutory rate of 26.5% on the acquisitions’ combined net income. The pro forma results for the years ended December 31, 2023 and 2022, have been adjusted to include transaction related costs. This pro forma data is presented for informational purposes only and does not purport to be indicative of the results of the future operations or the results that would have occurred had the acquisitions taken place in the periods noted below:
|
| (Unaudited) |
| |||||
|
| Year Ended December 31, |
| |||||
(dollar amounts in thousands, except for per share amounts) |
| 2023 |
|
| 2022 |
| ||
Pro-forma total revenues |
| $ | 839,485 |
|
| $ | 765,916 |
|
Pro-forma net income |
| $ | 174,325 |
|
| $ | 110,210 |
|
Pro-forma basic earnings per share |
| $ | 4.56 |
|
| $ | 4.04 |
|
Pro-forma diluted earnings per share |
| $ | 4.55 |
|
| $ | 4.01 |
|
|
|
|
|
|
|
| ||
Vesta Modular |
|
|
|
|
|
| ||
Actual total revenues |
| $ | 110,504 |
|
|
|
| |
Actual net income |
| $ | 21,458 |
|
|
|
| |
Actual basic earnings per share |
| $ | 0.88 |
|
|
|
| |
Actual diluted earnings per share |
| $ | 0.87 |
|
|
|
|
NOTE 5. DISCONTINUED OPERATIONS
-71-On February 1, 2023, the Company completed the sale of Adler Tank Rentals, LLC to Ironclad Environmental Solutions, Inc. ("Ironclad"), a portfolio company of Kinderhook Industries, for a sale price of $268.0 million. The total transaction costs incurred from the divestiture was $6.7 million and $2.1 million during the years ended December 31, 2023 and 2022, respectively. The divestiture of the Company's Adler Tanks business represents the Company's strategic shift to concentrate its operations on its core modular and storage businesses. The sale price was subject to certain adjustments, including net working capital, certain qualified capital expenditures and certain transaction expenses to be borne by the Company. In connection with the sale, the Company entered into a number of ancillary agreements, including an escrow agreement associated with net working capital adjustments, a restricted covenant agreement, a transition services agreement, and a number of leases whereby Ironclad or one of its affiliates would be a lessee to certain properties owned by the Company that the Adler Tanks business would continue to utilize after the sale. These ancillary agreements do not provide for continued involvement by the Company in Adler Tanks. In accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations and ASC 360, Property, Plant and Equipment, the Company determined that the criteria for the presentation of discontinued operations and held-for-sale, respectively, were met during the first quarter of 2023.
The following table presents the results of Adler Tanks as reported in income from discontinued operations within the Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021:
-74-
(dollar amounts in thousands) |
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Revenues |
|
|
|
|
|
|
|
|
| |||
Rental |
| $ | 6,520 |
|
| $ | 66,366 |
|
| $ | 56,025 |
|
Rental related services |
|
| 2,584 |
|
|
| 27,654 |
|
|
| 22,851 |
|
Rental operations |
|
| 9,104 |
|
|
| 94,020 |
|
|
| 78,876 |
|
Sales |
|
| 269 |
|
|
| 2,933 |
|
|
| 2,930 |
|
Other |
|
| 65 |
|
|
| 1,205 |
|
|
| 436 |
|
Total revenues |
|
| 9,438 |
|
|
| 98,158 |
|
|
| 82,242 |
|
Costs and Expenses |
|
|
|
|
|
|
|
|
| |||
Direct costs of rental operations: |
|
|
|
|
|
|
|
|
| |||
Depreciation of rental equipment |
|
| 1,325 |
|
|
| 16,004 |
|
|
| 16,442 |
|
Rental related services |
|
| 2,020 |
|
|
| 20,947 |
|
|
| 18,534 |
|
Other |
|
| 1,270 |
|
|
| 12,422 |
|
|
| 11,492 |
|
Total direct costs of rental operations |
|
| 4,614 |
|
|
| 49,373 |
|
|
| 46,468 |
|
Costs of sales |
|
| 159 |
|
|
| 2,085 |
|
|
| 2,075 |
|
Total costs of revenues |
|
| 4,773 |
|
|
| 51,458 |
|
|
| 48,543 |
|
Gross Profit |
|
|
|
|
|
|
|
|
| |||
Rental |
|
| 3,926 |
|
|
| 37,940 |
|
|
| 28,091 |
|
Rental related services |
|
| 564 |
|
|
| 6,707 |
|
|
| 4,317 |
|
Rental operations |
|
| 4,490 |
|
|
| 44,647 |
|
|
| 32,408 |
|
Sales |
|
| 110 |
|
|
| 848 |
|
|
| 855 |
|
Other |
|
| 65 |
|
|
| 1,205 |
|
|
| 436 |
|
Total gross profit |
|
| 4,665 |
|
|
| 46,700 |
|
|
| 33,699 |
|
Selling and administrative expenses |
|
| (2,582 | ) |
|
| (28,428 | ) |
|
| (25,542 | ) |
Income from operations |
|
| 2,083 |
|
|
| 18,272 |
|
|
| 8,157 |
|
Interest expense allocation |
|
| (374 | ) |
|
| (2,938 | ) |
|
| (2,211 | ) |
Income from discontinued operations before provision for income taxes |
|
| 1,709 |
|
|
| 15,334 |
|
|
| 5,946 |
|
Provision for income taxes from discontinued operations |
|
| 453 |
|
|
| 3,505 |
|
|
| 1,326 |
|
Income from discontinued operations |
| $ | 1,256 |
|
| $ | 11,829 |
|
| $ | 4,620 |
|
The following table presents the carrying value of the divested business' assets and liabilities as presented within assets and liabilities of discontinued operations on the Consolidated Balance Sheets as of December 31, 2022:
|
|
|
| December 31, |
| |
(in thousands) |
|
|
| 2022 |
| |
Assets |
|
|
|
|
| |
Accounts receivable, net of allowance for credit losses of $450 |
|
|
| $ | 20,086 |
|
Rental equipment, net |
|
|
|
| 137,738 |
|
Property, plant and equipment, net |
|
|
|
| 6,632 |
|
Prepaid expenses and other assets |
|
|
|
| 191 |
|
Intangible assets, net |
|
|
|
| 5,700 |
|
Goodwill |
|
|
|
| 25,902 |
|
Total assets of discontinued operations |
|
|
| $ | 196,249 |
|
Liabilities |
|
|
|
|
| |
Accounts payable and accrued liabilities |
|
|
| $ | 9,621 |
|
Deferred income taxes, net |
|
|
|
| 43,550 |
|
Total liabilities of discontinued operations |
|
|
| $ | 53,171 |
|
|
|
|
|
|
|
For the years ended December 31, 2023 and 2022, significant operating and investing items related to Adler Tanks were as follows:
-75-
|
| December 31, |
|
| December 31, |
| ||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Operating activities of discontinued operations: |
|
|
|
|
|
| ||
Depreciation and amortization |
| $ | 1,457 |
|
| $ | 17,704 |
|
Gain on sale of used rental equipment |
|
| (111 | ) |
|
| (704 | ) |
Investing activities of discontinued operations: |
|
|
|
|
|
| ||
Proceeds from sales of used rental equipment |
|
| 269 |
|
|
| 2,374 |
|
Purchases of rental equipment |
|
| (25 | ) |
|
| (3,624 | ) |
Purchases of property, plant and equipment |
|
| (40 | ) |
|
| (10,255 | ) |
|
|
|
|
|
|
|
NOTE 2. FINANCED LEASE RECEIVABLES6. LEASES
Lessee
The Company leases real estate for certain of its branch offices and rental equipment storage yards, vehicles and equipment used in its rental operations. The Company determines if an arrangement is a lease at inception. The Company has leases with lease and non-lease components, which are accounted for separately. Right-Of-Use (“ROU”) assets and liabilities are recognized on the commencement date based on the present value of lease payments over the lease term. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred, which are not material. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company uses the interest rate stated in the lease as the discount rate. If the interest rate is not stated, the Company uses its incremental borrowing rate based on information available on lease commencement date in determining the present value of lease payments. Many of the Company’s real estate lease agreements include options to extend the lease, which are not included in the minimum lease terms unless they are reasonably certain to be exercised. These leases include one or more options to renew, with renewal terms that may extend the lease term from one to three years. The amount of payments associated with such options is not material. Short-term leases are leases having a term of twelve months or less and exclude leases with a lease term of one month or less. The Company recognizes short-term leases on a straight-line basis and does not record a related ROU asset or liability for such leases. At December 31, 2023 and 2022 the Company’s ROU assets and operating lease liabilities were $14.8 million and $11.6 million, respectively, which are recorded in Prepaid expenses and other assets and Accounts payable and accrued liabilities on the Company’s Consolidated Balance Sheets.
During the year ended December 31, 2023, operating lease expense was $6.7 million, which includes short term lease expense of $0.1 million. At December 31, 2023, the weighted-average remaining lease term for operating leases was 3.5 years and the weighted average discount rate was 4.94%. The Company had no sub-lease income during the year ended December 31, 2023, and did not have any finance leases as of December 31, 2023.
Supplemental cash flow information related to leases was as follows:
(in thousands) |
| Year Ended December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
| ||
Operating cash flows from operating leases |
| $ | 6,441 |
|
| $ | 5,863 |
|
|
|
|
|
|
|
| ||
Right of use assets obtained in exchange for lease obligations: |
|
|
|
|
|
| ||
Operating leases |
| $ | 10,058 |
|
| $ | 3,284 |
|
As of December 31, 2023, maturities of operating lease liabilities were as follows:
-76-
(in thousands) |
|
|
| |
Year ended December 31, |
|
|
| |
2024 |
| $ | 6,857 |
|
2025 |
|
| 4,940 |
|
2026 |
|
| 2,282 |
|
2027 |
|
| 575 |
|
2028 |
|
| 270 |
|
Thereafter |
|
| 1,119 |
|
Total lease payments |
|
| 16,043 |
|
Less: imputed interest |
|
| (1,270 | ) |
|
| $ | 14,773 |
|
Lessor
The Company’s equipment rentals for each of its operating segments are governed by agreements that detail the lease terms and conditions. The determination of whether these contracts with customers contain a lease generally does not require significant judgement. The Company accounts for these rentals as operating leases. These leases do not include material amounts of variable payments and the Company has made the accounting policy election to exclude all taxes assessed by a governmental authority. The Company generally does not provide an option for the lessee to purchase the rented equipment at the end of the lease term, thus, does not generate material revenue from sales of equipment under such options. Initial lease terms vary in length based upon customer needs and generally range from one to sixty months. Customers have the option to keep equipment on rent beyond the initial lease term on a month-to month basis based upon their needs. All of the Company’s rental products have long useful lives relative to the typical rental term with the original investment typically recovered in approximately three to five years. The rental products are typically rented for a majority of the time owned and a significant portion of the original investment is recovered when sold from inventory. The Company’s lease agreements do not contain residual value guarantees or restrictive covenants.
As of December 31, 2023, maturities of operating lease payments to be received in 2024 and thereafter were as follows:
(in thousands) |
|
|
| |
Year Ended December 31, |
|
|
| |
2024 |
| $ | 174,339 |
|
2025 |
|
| 59,505 |
|
2026 |
|
| 21,986 |
|
2027 |
|
| 9,738 |
|
2028 |
|
| 2,335 |
|
Thereafter |
|
| 1,097 |
|
|
| $ | 269,000 |
|
In the year ended December 31, 2023, the Company’s lease revenues from continuing operations were $564.1 million, consisting of $561.5 million of operating lease revenues and $2.6 million of finance lease revenues. The Company has entered into sales-typefinance leases to finance certain equipment sales to customers. The lease agreements have a bargain purchase option at the end of the lease term. For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and the unearned interest is recognized over the lease term on a basis which results in a constant rate of return on the unrecovered lease investment. For the year ended December 31, 2023, the Company’s finance lease revenues included $2.2 million of sales revenues and $0.4 million of interest income. The minimum lease payments receivable and the net investment are included in accountsAccounts receivable on the Company’s Consolidated Balance Sheet for such leases, arewhich were as follows:
(in thousands) |
| December 31, |
|
| December 31, 2023 |
| ||||||
|
| 2017 |
|
| 2016 |
| ||||||
Gross minimum lease payments receivable |
| $ | 2,150 |
|
| $ | 3,252 |
|
| $ | 4,004 |
|
Less – unearned interest |
|
| (201 | ) |
|
| (301 | ) |
|
| (352 | ) |
Net investment in sales type lease receivables |
| $ | 1,949 |
|
| $ | 2,951 |
| ||||
Net investment in finance lease receivables |
| $ | 3,652 |
|
As of December 31, 2017,2023, the future minimum lease payments under non-cancelable sales-typefinance leases to be received in 20182024 and thereafter arewere as follows:
(in thousands) |
|
|
|
|
Year Ended December 31, |
|
|
|
|
2018 |
| $ | 1,354 |
|
2019 |
|
| 633 |
|
2020 |
|
| 163 |
|
Total minimum future lease payments |
| $ | 2,150 |
|
-77-
(in thousands) |
|
|
| |
Year Ended December 31, |
|
|
| |
2024 |
| $ | 2,243 |
|
2025 |
|
| 884 |
|
2026 |
|
| 429 |
|
2027 |
|
| 96 |
|
Total minimum future lease payments to be received |
| $ | 3,652 |
|
NOTE 7. REVENUE RECOGNITION
The Company’s accounting for revenues is governed by two accounting standards. The majority of the Company’s revenues are considered lease or lease related and are accounted for in accordance with Topic 842, Leases. Revenues determined to be non-lease related are accounted for in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The Company accounts for revenues when approval and commitment from both parties have been obtained, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company typically recognizes non-lease related revenues at a point in time because the customer does not simultaneously consume the benefits of the Company’s promised goods and services, or performance obligations, and obtain control when delivery and installation are complete. For contracts that have multiple performance obligations, the transaction price is allocated to each performance obligation in the contract based on the Company’s best estimate of the standalone selling prices of each distinct performance obligation in the contract. The standalone selling price is typically determined based upon the expected cost plus an estimated margin of each performance obligation.
Revenue from contracts that satisfy the criteria for over time recognition are recognized as work is performed by using the ratio of costs incurred to estimated total contract costs for each contract. The majority of revenue for these contracts is derived from long-term projects which typically span multiple quarters. The timing of revenue recognition, billings, and cash collections results in billed contract receivables and contract assets on the Company's Consolidated Balance Sheets. In the Company’s contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. Billings can occur subsequent to revenue recognition, resulting in contract assets, or in advance, resulting in contract liabilities. These contract assets and liabilities are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. The contract liabilities included in Deferred income on the Company’s Consolidated Balance Sheets totaled $40.7 million and $27.4 million at December 31, 2023 and 2022, respectively. Sales revenues totaling $21.4 million were recognized during the year ended December 31, 2023, which were included in the contract liability balance at December 31, 2022. For certain modular building sales, the customer retains a small portion of the contract price until full completion of the contract, or revenue is recognizable prior to customer billing, which results in revenue earned in excess of billings. These unbilled contract assets are included in Accounts receivable on the Company’s Consolidated Balance Sheets and totaled $8.7 million and $0.6 million at December 31, 2023 and 2022, respectively. The Company did not recognize any material contract asset impairments during the years ended December 31, 2023 and 2022.
The Company's uncompleted contracts with customers which meet the criteria for over-time revenue recognition have unsatisfied or partially satisfied performance obligations. As of December 31, 2023, approximately $34.3 million of revenue is expected to be recognized for unsatisfied or partially satisfied obligations. We expect to recognize revenue for approximately one half of these unsatisfied or partially satisfied performance obligations over the next 12 months, with the remaining balance recognized thereafter. As of December 31, 2023, approximately $236.4 million of revenue was recognized for sales and non-lease services transferred at a point in time and approximately $31.3 million of revenue was recognized for sales and non-lease services transferred over time.
The Company generally rents and sells to customers on 30 day payment terms. The Company does not typically offer variable payment terms, or accept non-monetary consideration. Amounts billed and due from the Company’s customers are classified as Accounts receivable on the Company’s Consolidated Balance Sheets. For certain sales of modular buildings, progress payments from the customer are received during the manufacturing of new equipment, or the preparation of used equipment. The advance payments are not considered a significant financing component because the payments are used to meet working capital needs during the contract and to protect the Company from the customer failing to adequately complete their obligations under the contract.
Lease Revenues
Rental revenues from operating leases are recognized on a straight-line basis over the term of the lease for all operating segments. Rental billings for periods extending beyond period end are recorded as deferred income and are recognized in the period earned. Rental related services revenues are primarily associated with relocatable modular building and portable storage container leases. For modular building leases, rental related services revenues for modifications, delivery, installation, dismantle and return delivery are lease related because the payments are considered minimum lease payments that are an integral part of the negotiated lease agreement with the customer. These revenues are recognized on a straight-line basis over the term of the lease. Certain leases are accounted for as sales-type leases. For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the
-78-
equipment and the unearned interest is recognized over the lease term on a basis which results in a constant rate of return on the unrecovered lease investment. Other revenues include interest income on sales-type leases and rental income on facility leases.
Non-Lease Revenues
Non-lease revenues are recognized in the period when control of the performance obligation is transferred, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. For portable storage container and electronic test equipment leases, rental related services revenues for delivery and return delivery are considered non-lease revenues.
Sales revenues are typically recognized at a point in time, which occurs upon the completion of delivery, installation and acceptance of the equipment by the customer. Sales contracts that satisfy the criteria for over-time recognition are recognized as work is performed by using the ratio of costs incurred to estimated total contracts costs for each contract. Accounting for non-lease revenues requires judgment in determining the point in time the customer gains control of the equipment and the appropriate accounting period to recognize revenue.
Sales taxes charged to customers are reported on a net basis and are excluded from revenues and expenses.
The following table disaggregates the Company’s revenues from continuing operations by lease (within the scope of Topic 842) and non-lease revenues (within the scope of Topic 606) and the underlying service provided for the three years ended December 31, 2023, 2022 and 2021:
(in thousands) |
| Mobile |
|
| Portable Storage |
|
| TRS- |
|
| Enviroplex |
|
| Consolidated |
| |||||
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Leasing |
| $ | 367,753 |
|
| $ | 77,181 |
|
| $ | 119,134 |
|
| $ | — |
|
| $ | 564,068 |
|
Non-lease: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Rental related services |
|
| 36,734 |
|
|
| 19,250 |
|
|
| 2,658 |
|
|
| — |
|
|
| 58,642 |
|
Sales |
|
| 155,267 |
|
|
| 4,587 |
|
|
| 24,951 |
|
|
| 20,192 |
|
|
| 204,997 |
|
Other |
|
| 2,482 |
|
|
| 119 |
|
|
| 1,534 |
|
|
| — |
|
|
| 4,135 |
|
Total non-lease |
|
| 194,483 |
|
|
| 23,956 |
|
|
| 29,143 |
|
|
| 20,192 |
|
|
| 267,774 |
|
Total revenues |
| $ | 562,236 |
|
| $ | 101,137 |
|
| $ | 148,277 |
|
| $ | 20,192 |
|
| $ | 831,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Leasing |
| $ | 267,779 |
|
| $ | 63,422 |
|
| $ | 125,695 |
|
| $ | — |
|
| $ | 456,896 |
|
Non-lease: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Rental related services |
|
| 14,348 |
|
|
| 16,082 |
|
|
| 2,579 |
|
|
| — |
|
|
| 33,009 |
|
Sales |
|
| 97,045 |
|
|
| 2,933 |
|
|
| 21,267 |
|
|
| 23,170 |
|
|
| 144,415 |
|
Other |
|
| 39 |
|
|
| 69 |
|
|
| 1,237 |
|
|
| — |
|
|
| 1,345 |
|
Total non-lease |
|
| 111,432 |
|
|
| 19,084 |
|
|
| 25,083 |
|
|
| 23,170 |
|
|
| 178,769 |
|
Total revenues |
| $ | 379,211 |
|
| $ | 82,506 |
|
| $ | 150,778 |
|
| $ | 23,170 |
|
| $ | 635,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Leasing |
| $ | 223,383 |
|
| $ | 45,792 |
|
| $ | 116,769 |
|
| $ | — |
|
| $ | 385,944 |
|
Non-lease: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Rental related services |
|
| 13,091 |
|
|
| 11,943 |
|
|
| 2,469 |
|
|
| — |
|
|
| 27,503 |
|
Sales |
|
| 64,809 |
|
|
| 4,175 |
|
|
| 19,788 |
|
|
| 31,081 |
|
|
| 119,853 |
|
Other |
|
| 82 |
|
|
| 41 |
|
|
| 1,168 |
|
|
| — |
|
|
| 1,291 |
|
Total non-lease |
|
| 77,982 |
|
|
| 16,159 |
|
|
| 23,425 |
|
|
| 31,081 |
|
|
| 148,647 |
|
Total revenues |
| $ | 301,365 |
|
| $ | 61,951 |
|
| $ | 140,194 |
|
| $ | 31,081 |
|
| $ | 534,591 |
|
Customer returns of rental equipment prior to the end of the rental contract term are typically billed a cancellation fee, which is recorded as rental revenue in the period billed. Sales of new relocatable modular buildings, portable storage containers, electronic test equipment and related accessories and liquid and solid containment tanks and boxes not manufactured by the Company are typically covered by warranties provided by the manufacturer of the products sold. The Company typically provides limited 90-day warranties for certain sales of used rental equipment and one-year warranties on equipment manufactured by Enviroplex. Although the Company’s
-79-
policy is to provide reserves for warranties when required for specific circumstances, the Company has not found it necessary to establish such reserves to date as warranty costs have not been significant.
The Company’s incremental cost of obtaining lease contracts, which consists of salesperson commissions, are deferred and amortized over the initial lease term for modular building leases. Incremental costs for obtaining a contract for all other operating segments are expensed in the period incurred because the lease term is typically less than 12 months.
-80-
NOTE 3.8. NOTES PAYABLE
Notes payable consists of the following:
(in thousands) |
| December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Unsecured revolving lines of credit |
| $ | 588,000 |
|
| $ | 313,775 |
|
2.35% Series E senior notes due in 2026 |
|
| 60,000 |
|
|
| 60,000 |
|
2.57% Series D senior notes due in 2028 |
|
| 40,000 |
|
|
| 40,000 |
|
6.25% Series F senior notes due in 2030 |
|
| 75,000 |
|
|
| — |
|
|
|
| 763,000 |
|
|
| 413,775 |
|
Unamortized debt issuance cost |
|
| (25 | ) |
|
| (33 | ) |
|
| $ | 762,975 |
|
| $ | 413,742 |
|
(in thousands) |
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Unsecured revolving lines of credit |
| $ | 183,473 |
|
| $ | 186,376 |
|
4.03% Series A senior notes due in 2018 |
|
| 20,000 |
|
|
| 40,000 |
|
3.68% Series B senior notes due in 2021 |
|
| 40,000 |
|
|
| 40,000 |
|
3.84% Series C senior notes due in 2022 |
|
| 60,000 |
|
|
| 60,000 |
|
|
| $ | 303,473 |
|
| $ | 326,376 |
|
As of December 31, 2017,2023, the future minimum payments under the unsecured revolving lines of credit, 4.03%2.35% Series AE senior notes, 2.57% Series D senior notes and 6.25% Series F senior notes due in 2018, 3.68% Series B senior notes due in 20212026, 2028 and 3.84% Series C senior notes due in 20222030, respectively, are as follows:
(in thousands) |
|
|
| |
Year Ended December 31, |
|
|
| |
2024 |
| $ | — |
|
2025 |
|
| — |
|
2026 |
|
| 60,000 |
|
2027 |
|
| 588,000 |
|
2028 |
|
| 40,000 |
|
Thereafter |
|
| 75,000 |
|
|
| $ | 763,000 |
|
(in thousands) |
|
|
|
|
Year Ended December 31, |
|
|
|
|
2018 |
| $ | 20,000 |
|
2019 |
|
| — |
|
2020 |
|
| — |
|
2021 |
|
| 223,473 |
|
2022 |
|
| 60,000 |
|
|
| $ | 303,473 |
|
Unsecured Revolving Lines of Credit
In March 2016,On July 15, 2022, the Company renewed itsentered into an amended and restated credit agreement with a syndicateBank of banksAmerica, N.A., as Administrative Agent, Swing Line Lender, L/C Issuer and lender, and other lenders named therein (the “Credit Facility”). The five-year facility matures on March 31, 2021 and replaced the Company’s prior $420.0 million unsecured revolving credit facility. The Credit Facility provides for a $420.0$650.0 million unsecured revolving credit facility (which may be further increased to $620.0$950.0 million with $200.0 millionby adding one or more tranches of additionalterm loans and/or increasing the aggregate revolving commitments), which includes a $25.0$40.0 million sublimit for the issuance of standby letters of credit and a $10.0$20.0 million sublimit for swingline loans. The proceeds of the Credit Facility are available to be used for general corporate purposes, including permitted acquisitions. The Credit Facility permits the Company’s existing indebtedness to remain, which includes the Company’s $20.0 million Treasury Sweep Note due July 15, 2027, the Company’s existing senior notes issued pursuant to the Note Purchase and Private Shelf Agreement with Prudential Investment Management, Inc., dated as of April 21, 2011 (as amended): (i) the $60.0 million aggregate outstanding principal of notes issued November 5, 2015, which were repaid on November 5, 2022, (ii) the $40.0 million aggregate outstanding principal of notes issued March 17, 2021 and due March 17, 2028, and (iii) the $60.0 million aggregate outstanding principal of notes issued June 16, 2021 and due June 16, 2026. In addition, the Company may incur additional senior note indebtedness in an aggregate amount not to exceed $250.0 million. The Credit Facility matures on July 15, 2027 and replaced the Company’s prior $420.0 million credit facility dated March 31, 2020 with Bank of America, N.A., as agent, as amended. All obligations outstanding under the prior credit facility as of the date of the Credit Facility were refinanced by the Credit Facility on July 15, 2022.
In March 2016,On August 19, 2022, the Company entered into aan amended and restated Credit Facility Letter Agreement and a Credit Line Note in favor of MUFG Union Bank, N.A., extending itswhich provides for a $20.0 million line of credit facility related to its cash management services (“Sweep Service Facility”) and increasing the facility size from $10.0 million to $12.0 million.. The Sweep Service Facility matures on the earlier of March 31, 2021,July 15, 2027, or the date the Company ceases to utilize MUFG Union Bank, N.A. for its cash management services. The Sweep Service Facility replaced the Company’s prior $12.0 million sweep service facility, dated as of March 30, 2020.
-72-
At December 31, 2017,2023, under the Credit Facility and Sweep Service Facility, the Company had unsecured lines of credit that permit it to borrow up to $432.0$650.0 million of which $183.5$588.0 million was outstanding, and had capacity to borrow up to an additional $248.5 million.outstanding. The Amended Credit Facility contains financial covenants
-81-
requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to such terms in the Amended Credit Facility):
Permit the Consolidated Fixed Charge Coverage Ratio of EBITDA to fixed charges as of the end of any fiscal quarter to be less than 2.50 to 1. At December 31, 2017,2023 the actual ratio was 6.823.31 to 1.
Permit the Consolidated Leverage Ratio of funded debt to EBITDA at any time during any period of four consecutive fiscal quarters to be greater than 2.75 to 1. At December 31, 2017,2023, the actual ratio was 1.702.35 to 1.
Permit Tangible Net Worth as of the end of any fiscal quarter of the Company to be less than the sum of (i) $246.1 million plus (ii) 25% of the Company’s Consolidated Net Income (as defined in the Amended Credit Facility) (but only if a positive number) for each fiscal quarter ended subsequent to December 31, 2011 plus (iii) 90% of the net cash proceeds from the issuance of the Company’s capital stock after December 31, 2011. At December 31, 2017, such sum was $349.9 million and the actual Tangible Net Worth of the Company was $488.7 million.
Amounts borrowed under the Credit Facility bear interest at the Company’s option at either: (i) LIBORSOFR plus a defined margin, or (ii) the Agent bank’s prime rate (“base rate”) plus a margin. The applicable margin for each type of loan is measured based upon the Consolidated Leverage Ratio at the end of the prior fiscal quarter and ranges from 1.00%1.00% to 1.75%1.75% for LIBORSOFR loans and 0%0% to 0.75%0.75% for base rate loans. In addition, the Company pays an unused commitment fee for the portion of the $420.0$650.0 million credit facility that is not used. These fees are based upon the Consolidated Leverage Ratio and range from 0.15%0.15% to 0.30%0.30%. As of December 31, 20172023 and 2016,2022, the applicable margins were 1.25% and 1.50%1.25% for LIBORSOFR based loans, respectively, 0.25% and 0.50%0.25% for base rate loans respectively and 0.20% and 0.25%0.20% for unused fees, respectively.fees. Amounts borrowed under the Sweep Service Facility are based upon the MUFG Union Bank, N.A. base rate plus an applicable margin and an unused commitment fee for the portion of the $12.0$20.0 million facility not used. The applicable base rate margin and unused commitment fee rates for the Sweep Service Facility are the same as for the Amended Credit Facility. The following information relates to the lines of credit for each of the following periods:
(dollar amounts in thousands) |
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2023 |
|
| 2022 |
| ||||
Maximum amount outstanding |
| $ | 215,732 |
|
| $ | 239,820 |
|
| $ | 591,000 |
|
| $ | 328,752 |
|
Average amount outstanding |
| $ | 199,499 |
|
| $ | 214,446 |
|
| $ | 541,635 |
|
| $ | 276,399 |
|
Weighted average interest rate, during the period |
|
| 2.64 | % |
|
| 2.19 | % |
|
| 6.63 | % |
|
| 3.29 | % |
Prime interest rate, end of period |
|
| 4.50 | % |
|
| 3.75 | % |
|
| 8.50 | % |
|
| 7.50 | % |
4.03% Senior Notes Due in 2018Note Purchase and Private Shelf Agreement
On April 21, 2011,June 8, 2023, the Company entered into a Second Amended and Restated Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”) with Prudential Investment Management,PGIM, Inc. (“PIM”PGIM”), The Prudential Insurance Company and the holders of AmericaSeries D and Prudential Retirement Insurance and Annuity Company (collectively, the “Purchaser”),Series E Notes previously issued pursuant to whichthe Prior Amended and Restated NPA, among the Company agreedand the other parties to sell anthe Note Purchase Agreement. The Note Purchase Agreement amended and restated, and superseded in its entirety, the Prior NPA. Pursuant to the Prior NPA, the Company issued (i) $40.0 million aggregate principal amount of $100.0its 2.57% Series D Senior Notes, due March 17, 2028, and (ii) $60.0 million aggregate principal amount of its 4.03%2.35% Series AE Senior Notes, due June 16, 2026, to which the terms of the Note Purchase Agreement shall apply.
In addition, pursuant to the Note Purchase Agreement, the Company may authorize the issuance and sale of additional senior notes (the “Shelf Notes”) in the aggregate principal amount of (x) $300 million minus (y) the amount of other notes (such as the Series D Senior Notes, Series E Senior Notes and Series F Senior Notes, each defined below) then outstanding, to be dated the date of issuance thereof, to mature, in case of each Shelf Note so issued, no more than 15 years after the date of original issuance thereof, to have an average life, in the case of each Shelf Note so issued, of no more than 15 years after the date of original issuance thereof, to bear interest on the unpaid balance thereof from the date thereof at the rate per annum, and to have such other particular terms, as shall be set forth, in the case of each Shelf Note so issued, in accordance with the Note Purchase Agreement. Shelf Notes may be issued and sold from time to time at the discretion of the Company’s Board of Directors and in such amounts as the Board of Directors may determine, subject to prospective purchasers’ agreement to purchase the Shelf Notes. The Company will sell the Shelf Notes directly to such purchasers. The full net proceeds of each Shelf Note will be used in the manner described in the applicable Request for Purchase with respect to such Shelf Note.
6.25% Senior Notes Due in 2030
On September 27, 2023, the Company issued and sold to the purchasers $75.0 million aggregate principal amount of 6.25% Series F Notes (the “Series AF Senior Notes”) pursuant to the Purchaser. terms of the Second Amended and Restated Note Purchase and Private Shelf Agreement, dated June 8, 2023 (the “Note Purchase Agreement”), among the Company, PGIM, Inc. and the noteholders party thereto.
The Series AF Senior Notes are an unsecured obligation of the Company dueand bear interest at a rate of 6.25% per annum and mature on April 21, 2018. September 27, 2030. Interest on these notesthe Series F Senior Notes is payable semi-annually beginning on March 27, 2024 and continuing thereafter on September 27 and March 27 of each year until maturity. The principal balance is due semi-annually in arrears andwhen the principal is due in five equal annual installments, withnotes mature on September 27, 2030. The full net proceeds from the first payment due on April 21, 2014.Series F Senior Notes will primarily be used to fulfill the income tax obligations incurred from the divestiture of Adler Tanks. At December 31, 2017 and 2016,2023, the principal balance outstanding under the Series AF Senior Notes were $20.0 million and $40.0 million, respectively.was $75.0 million.
3.68%-82-
2.57% Senior Notes Due in 20212028
On March 17, 2014,2021, the Company issued and sold to the Purchasers a $40.0purchasers $40 million aggregate principal amount of its 3.68%2.57% Series B SeniorD Notes (the “Series BD Senior Notes”) pursuant to the terms of the Amended and Restated Note Purchase and Private Shelf Agreement, as amended. dated March 31, 2020 (the “Note Purchase Agreement”), among the Company, PGIM, Inc. and the noteholders party thereto.
The Series BD Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 3.68%2.57% per annum and mature on March 17, 2021. 2028. Interest on the Series BD Senior Notes is payable semi-annually beginning on September 17, 20142021 and continuing thereafter on March 17 and September 17 of each year until maturity. The principal balance is due when the notes mature on March 17, 2028. The full net proceeds from the Series BD Senior Notes were used for working capital and other general corporate purposes.to pay off the Company’s $40 million Series B Senior Notes. At December 31, 2017 and 2016,2023, the principal balance outstanding under the Series BD Senior Notes was $40.0$40.0 million.
3.84%2.35% Senior Notes Due in 20222026
On November 5, 2015,June 16, 2021, the Company issued and sold to the Purchasers a $60.0purchasers $60 million aggregate principal amount of its 3.84%2.35% Series C SeniorE Notes (the “Series C Senior Notes”"Series E Notes") pursuant to the terms of the Amended and Restated Note Purchase and Private Shelf Agreement, as amended. dated March 31, 2020 (the “Note Purchase Agreement”), among the Company, PGIM, Inc. and the noteholders party thereto.
The Series CE Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 3.84%2.35% per annum and mature on November 5,
-73-
2022. June 16, 2026. Interest on the Series CE Senior Notes is payable semi-annually beginning on May 5, 2016December 16, 2021 and continuing thereafter on November 5June 16 and May 5December 16 of each year until maturity. The principal balance is due when the notes mature on June 16, 2026. The full net proceeds from the Series CE Senior Notes were used to reduce the outstanding balance onpay down the Company’s revolving credit line.facility. At December 31, 2017 and 2016,2023, the principal balance outstanding under the Series CE Senior Notes was $60.0$60.0 million.
Among other restrictions, the Note Purchase Agreement, which has superseded in its entirety the Prior NPA, under which the Series A Senior Notes, Series BD Senior Notes and Series CE Senior Notes were sold, contains financial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to such terms in the Note Purchase Agreement):
Permit the Consolidated Fixed Charge Coverage Ratio of EBITDA to fixed charges as of the end of any fiscal quarter to be less than 2.50 to 1. At December 31, 2017,2023, the actual ratio was 6.823.33 to 1.
Permit the Consolidated Leverage Ratio of funded debt to EBITDA at any time during any period of four consecutive quarters to be greater than 2.75 to 1. At December 31, 2017,2023, the actual ratio was 1.702.34 to 1.
Permit Tangible Net Worth, calculated as of the last day of each fiscal quarter, to be less than the sum of (i) $229.0 million, plus (ii) 25% of net income for such fiscal quarter subsequent to December 31, 2010, plus (iii) 90% of the net cash proceeds from the issuance of the Company’s capital stock after December 31, 2010. At December 31, 2017, such sum was $349.9 million and the actual Tangible Net Worth of the Company was $488.7 million.
At December 31, 2017,2023, the Company was in compliance with each of the aforementioned covenants. There are no anticipated trends that the Company is aware of that would indicate non-compliance with these covenants, though, significant deterioration in the Company’s financial performance could impact its ability to comply with these covenants.
On February 9, 2016, the Company entered into an amendment to the Note Purchase Agreement (“2016 Amendment”) with the Purchaser. Pursuant to the 2016 Amendment, (i) the issuance period for the shelf notes to be issued and sold pursuant to the Note Purchase Agreement is extended until the earlier of February 9, 2019 or the termination of the issuance and sale of the shelf notes upon the 30 days’ prior notice of either PIM or the Company, and (ii) the definition of the “Available Facility Amount,” which is the aggregate amount of the shelf notes that may be authorized for purchase pursuant to the Note Purchase Agreement was amended to equal a formula based on: $250 million, minus the aggregate principal amount of the shelf notes then outstanding and purchased pursuant to the Note Purchase Agreement, minus the shelf notes accepted by the Company for purchase, but not yet purchased, by the Purchaser pursuant to the Note Purchase Agreement; provided, however, the aggregate amount of the shelf notes purchased by any corporation or other entity controlling, controlled by, or under common control with, PIM shall not exceed $200 million.
NOTE 4.9. INCOME TAXES
Income before provision (benefit) provision for income taxes consisted of the following:
(in thousands) |
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
U.S. |
| $ | 234,188 |
|
| $ | 149,759 |
|
| $ | 121,660 |
|
Foreign |
|
| 228 |
|
|
| 261 |
|
|
| 96 |
|
|
| $ | 234,416 |
|
| $ | 150,020 |
|
| $ | 121,756 |
|
(in thousands) |
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
U.S. |
| $ | 83,525 |
|
| $ | 67,199 |
|
| $ | 66,889 |
|
Foreign |
|
| (73 | ) |
|
| (268 | ) |
|
| (512 | ) |
|
| $ | 83,452 |
|
| $ | 66,931 |
|
| $ | 66,377 |
|
The provision (benefit) provision for income taxes consisted of the following:
(in thousands) |
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Current: |
|
|
|
|
|
|
|
|
| |||
U.S. Federal |
| $ | 57,176 |
|
| $ | 19,480 |
|
| $ | (1,692 | ) |
State |
|
| (5,587 | ) |
|
| 8,708 |
|
|
| 5,360 |
|
Foreign |
|
| 1,847 |
|
|
| 2,208 |
|
|
| 2,035 |
|
|
|
| 53,436 |
|
|
| 30,396 |
|
|
| 5,703 |
|
Deferred: |
|
|
|
|
|
|
|
|
| |||
U.S. Federal |
|
| 4,892 |
|
|
| 4,563 |
|
|
| 23,433 |
|
State |
|
| 1,481 |
|
|
| (68 | ) |
|
| 2,896 |
|
Foreign |
|
| (14 | ) |
|
| (9 | ) |
|
| 19 |
|
|
|
| 6,359 |
|
|
| 4,486 |
|
|
| 26,348 |
|
Total |
| $ | 59,795 |
|
| $ | 34,882 |
|
| $ | 32,051 |
|
(in thousands) |
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
| $ | 21,171 |
|
| $ | 17,203 |
|
| $ | 7,976 |
|
State |
|
| 2,976 |
|
|
| 2,049 |
|
|
| 1,851 |
|
Foreign |
|
| 2,016 |
|
|
| 1,683 |
|
|
| 1,645 |
|
|
|
| 26,163 |
|
|
| 20,935 |
|
|
| 11,472 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
| (103,518 | ) |
|
| 4,005 |
|
|
| 13,201 |
|
State |
|
| 6,948 |
|
|
| 3,039 |
|
|
| 1,538 |
|
Foreign |
|
| (61 | ) |
|
| 701 |
|
|
| (304 | ) |
|
|
| (96,631 | ) |
|
| 7,745 |
|
|
| 14,435 |
|
Total |
| $ | (70,468 | ) |
| $ | 28,680 |
|
| $ | 25,907 |
|
-83-
-74-
The reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate is as follows:
|
| Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
U.S. federal statutory rate |
|
| 21.0 | % |
|
| 21.0 | % |
|
| 21.0 | % |
State taxes, net of federal benefit |
|
| 4.9 |
|
|
| 4.9 |
|
|
| 5.1 |
|
State deferred tax apportionment change, net of federal benefit |
|
| (0.2 | ) |
|
| (1.1 | ) |
|
| 1.6 |
|
Non-deductible transaction costs |
|
| 0.3 |
|
|
| — |
|
|
| — |
|
Non-deductible executive compensation |
|
| 0.4 |
|
|
| 0.6 |
|
|
| 0.8 |
|
Share-based compensation |
|
| (1.2 | ) |
|
| (1.7 | ) |
|
| (2.1 | ) |
Enactment of the Tax Cuts and Jobs Act |
|
| (0.2 | ) |
|
| (0.2 | ) |
|
| — |
|
Other |
|
| 0.5 |
|
|
| (0.2 | ) |
|
| (0.1 | ) |
|
|
| 25.5 | % |
|
| 23.3 | % |
|
| 26.3 | % |
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
U.S. federal statutory rate |
|
| 35.0 | % |
|
| 35.0 | % |
|
| 35.0 | % |
State taxes, net of federal benefit |
|
| 4.1 |
|
|
| 4.2 |
|
|
| 4.2 |
|
State deferred tax rate change, net of federal benefit |
|
| 0.5 |
|
|
| 2.0 |
|
|
| (0.4 | ) |
Valuation allowance |
|
| 0.1 |
|
|
| 1.1 |
|
|
| — |
|
Share-based compensation |
|
| (1.0 | ) |
|
| — |
|
|
| — |
|
Enactment of the Tax Cuts and Jobs Act |
|
| (122.9 | ) |
|
| — |
|
|
| — |
|
Other |
|
| (0.2 | ) |
|
| 0.6 |
|
|
| 0.2 |
|
|
|
| (84.4 | )% |
|
| 42.9 | % |
|
| 39.0 | % |
The following table shows the deferred income taxes related to the temporary differences between the tax bases of assets and liabilities and the respective amounts included in “Deferred income taxes, net” on the Company’s Consolidated Balance Sheets:
(in thousands) |
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2023 |
|
| 2022 |
| ||||
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Accelerated depreciation |
| $ | 195,694 |
|
| $ | 293,141 |
|
| $ | 273,503 |
|
| $ | 249,568 |
|
Prepaid costs currently deductible |
|
| 4,152 |
|
|
| 6,572 |
|
|
| 12,567 |
|
|
| 8,646 |
|
Other |
|
| 4,405 |
|
|
| 5,747 |
|
|
| 6,767 |
|
|
| 8,124 |
|
Total deferred tax liabilities |
|
| 204,251 |
|
|
| 305,460 |
|
|
| 292,837 |
|
|
| 266,338 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Accrued costs not yet deductible |
|
| 7,880 |
|
|
| 9,785 |
|
|
| 13,742 |
|
|
| 12,207 |
|
Allowance for doubtful accounts |
|
| 484 |
|
|
| 809 |
|
|
| 713 |
|
|
| 588 |
|
Net operating loss carry-forward |
|
| 28,670 |
|
|
| — |
| ||||||||
Deferred revenues |
|
| 213 |
|
|
| 965 |
|
|
| 5,439 |
|
|
| 4,069 |
|
Share-based compensation |
|
| 1,045 |
|
|
| 1,882 |
|
|
| 2,718 |
|
|
| 2,563 |
|
Total deferred tax assets, net of valuation allowance of $0.8 million in 2017 and $0.7 million in 2016 |
|
| 9,622 |
|
|
| 13,441 |
| ||||||||
Total deferred tax assets, net of valuation allowance of $0.2 million in 2023 and 2022 |
|
| 51,282 |
|
|
| 19,427 |
| ||||||||
Deferred income taxes, net |
| $ | 194,629 |
|
| $ | 292,019 |
|
| $ | 241,555 |
|
| $ | 246,911 |
|
The Tax Cuts and Jobs Act (the “Tax Act”) was enactednet deferred income tax liability presented in the table above for the period ended December 2017. Among other provisions, the Tax Act reduces the U.S. federal corporate tax rate from 35% to 21% and requires companies to pay31, 2022, included a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. As a result of the Tax Act, the Company re-measured its net deferred tax liabilities and recognized a net tax benefitliability of $102.8 million. Additionally, based on information currently available to us, we recorded a provisional income tax expense of $0.3$43.6 million related to the deemed repatriationdivested Adler Tanks segment and is included in Liabilities of foreign earnings.discontinued operations on the Consolidated Balance Sheets. As of December 31, 2023, the current and deferred tax liabilities from discontinued operations of $64.8 million were paid in full and no future tax obligations pertaining to the Adler Tanks segment remain.
The Company's tax loss carryforwards for the year ended December 31, 2023, were $129.2 million and $32.2 million for federal and state jurisdictions, respectively, which are expected to result in a future federal and state tax benefit of $27.1 million and $1.5 million, respectively. The availability of these tax losses to offset future income varies by jurisdiction. Furthermore, the ability to utilize the tax losses may be subject to additional limitations. The company’s federal net operating loss carryforwards have an indefinite carryforward period. The company’s state net operating loss carryforwards have differing carryforward periods. The Company did not have a deferred tax liability related to its foreign earnings because permanent reinvestment was previously asserted. It isanticipates that the Company’s intent to continue to permanently reinvest such earnings. The Company will continue to obtain and analyze information related to the deemed repatriationavailable net operating losses as of foreign earnings associated with historical ownership and financial information and will finalize the provision within one year of the enactment date. In addition, there is currently uncertainty as to what portions if any of the Tax ActDecember 31, 2023, will be adopted by the U.S. state and local taxing authorities.utilized prior to their respective expiration dates.
In December 2016, the Company decided to exit the Bangalore, India branch operations of its TRS-RenTelco electronics division. The wind down of operations in India began in 2017. As a result, a valuation allowance was recorded against the deferred tax assets that resulted primarily from accumulated net operating loss carry forwards in India as of December 31, 2017 that management estimated the benefit of which will not be realized. As of December 31, 2017,2023, the Company’s foreign net operating losses for tax purposes were $0.4$0.6 million. If not realized, these carry forwards will begin to expire in 2023.2024.
For income tax purposes, deductible compensation related to share-based awards is based on the value of the award when realized, which may be different than the compensation expense recognized by the company for financial statement purposes which is based on the award value on the date of grant. The difference between the value of the award upon grant, and the value of the award when ultimately realized, creates either additional tax expense or benefit. In 2017,2023, 2022 and 2021 exercise of share-based awards by employees resulted in an excess tax benefit of $0.9 million. In 2016 and 2015 the exercise of share-based awards by employees resulted in a tax shortfall of $1.1$2.7 million, $2.6 million and $0.3$2.5 million, respectively, which was recorded to equity. respectively.
-75--84-
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company evaluated all of its tax positions for which the statute of limitations remained open and determined there were no material unrecognized tax benefits as of December 31, 20172023 and 2016.2022. In addition, there have been no material changes in unrecognized benefits during 2017, 20162023, 2022 and 2015.2021.
The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to interpretation of the related tax laws and regulations and require the application of significant judgment. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the years before 2013.
Our income tax returns are subject to examination by federal, state and foreign tax authorities. There may be differing interpretations of tax laws and regulations, and as a result, disputes may arise with these tax authorities involving the timing and amount of deductions and allocation of income. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the years before 2019.
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision (benefit) provision for income taxes in the accompanying Consolidated Statements of Income for all periods presented. Such interest and penalties were not significant for the years ended December 31, 2017, 20162023, 2022 and 2015.2021.
-85-
NOTE 5.10. BENEFIT PLANS
Stock Plans
The Company adopted the 2016 Stock Incentive Plan (the “2016 Plan”), effective June 8, 2016, under which 2,000,000 shares of the common stock of the Company, plus the number of shares that remain available for grants of awards under the Company's 2007 Stock Option Plan (the “2007 Plan”) and become available as a result of forfeiture, termination, or expiration of awards previously granted under the 2007 Plan, were reserved for the grant of equity awards to its employees, directors and consultants. The equity awards have a maximum term of 7 years at an exercise price of not less than 100%100% of the fair market value of the Company's common stock on the date the equity award is granted. The 2016 Plan replaced the 2007 Plan.
The 2016 Plan provides for the grant of awards in the form of stock options, stock appreciation rights, RSUs,restricted stock units (“RSUs”), the vesting of which may be performance-based or service-based, and other rights and benefits. Each RSU issued reduces the number of shares of the Company’s common stock available for grant under the 2016 Plan by two shares. There were no significant modifications to the 2016 Plan and noor awards classified as liabilities in the year ended December 31, 2017.2023.
For the years ended December 31, 2017, 20162023, 2022 and 2015,2021, the share-based compensation expense was $3.2$8.3 million, $3.1$8.0 million and $3.4$7.7 million, respectively, before provision for income taxes. The Company recorded a tax benefit of approximately $1.3$2.2 million, $1.2$2.2 million and $1.3$2.1 million, respectively, related to the aforementioned share-based compensation expenses. There was no capitalized share-based compensation expense in the years ended December 31, 2017, 20162023, 2022 and 2015. 2021.
Stock Options
As of December 31, 2017,2023, a cumulative total of 8,458,600 shares subject to options have been granted with exercise prices ranging from $3.47$3.47 to $40.37.$40.37. Of these, options have been exercised for the purchase of 5,620,8786,906,363 shares, while options for 1,628,6221,672,732 shares have been terminated, and options for 1,208,860240 shares with an exercise prices ranging from $23.84 to $40.37price of $34.57 remained outstanding under the stock plans. These options vest over five years and expire seven years after grant. To date, no options have been issued to any of the Company’s non-employee advisors. As of December 31, 2017, 2,097,5942023, 1,123,946 shares remained available for issuance of awards under the stock plans.
-76-
A summary of the Company’s option activity and related information for the three years ended December 31, 20172023 is as follows:
|
| Number of options |
|
| Weighted- average price |
|
| Weighted- average remaining contractual term (in years) |
|
| Aggregate intrinsic value (in millions) |
| ||||||||||||||||||||
Balance at December 31, 2014 |
|
| 1,343,760 |
|
| $ | 27.25 |
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| Number of |
|
| Weighted- |
|
| Weighted- |
|
| Aggregate |
| ||||||||||||||||||||
Balance at December 31, 2020 |
|
| 409,410 |
|
| $ | 29.33 |
|
|
|
|
|
|
| ||||||||||||||||||
Options granted |
|
| 456,200 |
|
|
| 31.69 |
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| ||
Options exercised |
|
| (270,650 | ) |
|
| 19.81 |
|
|
|
|
|
|
|
|
|
|
| (133,020 | ) |
|
| 28.57 |
|
|
|
|
|
|
| ||
Options cancelled/forfeited/expired |
|
| (118,660 | ) |
|
| 29.58 |
|
|
|
|
|
|
|
|
|
|
| (1,760 | ) |
|
| 34.57 |
|
|
|
|
|
|
| ||
Balance at December 31, 2015 |
|
| 1,410,650 |
|
|
| 29.91 |
|
|
|
|
|
|
|
|
| ||||||||||||||||
Balance at December 31, 2021 |
|
| 274,630 |
|
|
| 29.66 |
|
|
|
|
|
|
| ||||||||||||||||||
Options granted |
|
| 881,800 |
|
|
| 25.26 |
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| ||
Options exercised |
|
| (368,085 | ) |
|
| 27.34 |
|
|
|
|
|
|
|
|
|
|
| (135,280 | ) |
|
| 25.61 |
|
|
|
|
|
|
| ||
Options cancelled/forfeited/expired |
|
| (339,930 | ) |
|
| 28.62 |
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| ||
Balance at December 31, 2016 |
|
| 1,584,435 |
|
|
| 28.14 |
|
|
|
|
|
|
|
|
| ||||||||||||||||
Balance at December 31, 2022 |
|
| 139,350 |
|
|
| 33.59 |
|
|
|
|
|
|
| ||||||||||||||||||
Options granted |
|
| 299,600 |
|
|
| 34.66 |
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| ||
Options exercised |
|
| (398,275 | ) |
|
| 28.94 |
|
|
|
|
|
|
|
|
|
|
| (139,110 | ) |
|
| 33.51 |
|
|
|
|
|
|
| ||
Options cancelled/forfeited/expired |
|
| (276,900 | ) |
|
| 28.04 |
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| ||
Balance at December 31, 2017 |
|
| 1,208,860 |
|
| $ | 29.52 |
|
|
| 4.94 |
|
| $ | 21.1 |
| ||||||||||||||||
Exercisable at December 31, 2017 |
|
| 325,680 |
|
| $ | 28.65 |
|
|
| 4.04 |
|
| $ | 6.0 |
| ||||||||||||||||
Expected to vest after December 31, 2017 |
|
| 680,049 |
|
| $ | 29.78 |
|
|
| 5.28 |
|
| $ | 11.7 |
| ||||||||||||||||
Balance at December 31, 2023 |
|
| 240 |
|
| $ | 34.57 |
|
|
| 0.17 |
|
| $ | 0.02 |
| ||||||||||||||||
Exercisable at December 31, 2023 |
|
| 240 |
|
| $ | 34.57 |
|
|
| 0.17 |
|
| $ | 0.02 |
| ||||||||||||||||
Expected to vest after December 31, 2023 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
The intrinsic value of stock options at any point in time is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock. The aggregate intrinsic value of options exercised and sold under the Company’s stock option plans was $6.2$9.4 million, $4.2$7.9 million and $5.7$7.0 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively, determined as of the date of option exercise. As of December 31, 2017,2023, there was approximately $4.3 million of totalno unrecognized compensation cost related to unvested share-based compensation option arrangements granted under the Company’s stock plans, which is expected to be recognized over a weighted-average period of 2.7 years.plans.
-86-
The following table indicates the options outstanding and options exercisable by exercise price with the weighted-average remaining contractual life for the options outstanding and the weighted-average exercise price at December 31, 2017:2023:
|
| Options Outstanding |
|
| Options Exercisable |
| ||||||||||||||
Exercise price |
| Number outstanding at December 31, 2017 |
|
| Weighted- average remaining contractual life (Years) |
|
| Weighted- average grant date value |
|
| Number exercisable at December 31, 2017 |
|
| Weighted- average grant date value |
| |||||
$20 – 25 |
|
| 481,510 |
|
|
| 5.13 |
|
| $ | 24.59 |
|
|
| 125,505 |
|
| $ | 24.58 |
|
$25 – 30 |
|
| 57,505 |
|
|
| 3.14 |
|
| $ | 28.05 |
|
|
| 37,300 |
|
| $ | 28.91 |
|
$30 – 35 |
|
| 654,265 |
|
|
| 4.94 |
|
| $ | 33.07 |
|
|
| 160,635 |
|
| $ | 32.09 |
|
$35 – 40 |
|
| 8,780 |
|
|
| 5.32 |
|
| $ | 38.61 |
|
|
| 2,240 |
|
| $ | 38.18 |
|
$40 – 45 |
|
| 6,800 |
|
|
| 6.67 |
|
| $ | 40.37 |
|
|
| — |
|
| $ | — |
|
$20 – 45 |
|
| 1,208,860 |
|
|
| 4.94 |
|
| $ | 29.52 |
|
|
| 325,680 |
|
| $ | 28.65 |
|
|
| Options Outstanding |
|
| Options Exercisable |
| ||||||||||||||
Exercise price |
| Number outstanding at December 31, 2023 |
|
| Weighted-average |
|
| Weighted-average grant date value |
|
| Number exercisable at December 31, 2023 |
|
| Weighted-average grant date value |
| |||||
$30 – 35 |
|
| 240 |
|
|
| 0.17 |
|
| $ | 34.57 |
|
|
| 240 |
|
| $ | 34.57 |
|
$30 – 35 |
|
| 240 |
|
|
| 0.17 |
|
| $ | 34.57 |
|
|
| 139,350 |
|
| $ | 34.57 |
|
The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of share-based compensation at the date of grant, which requires the use of accounting judgment and financial estimates, including estimates of the expected term option holders will retain their vested stock options before exercising them, the estimated volatility of the Company’s stock price over the expected term and the expected number of options that will be forfeited prior to the completion of their vesting requirements. Application of alternative assumptions could produce significantly different estimates of the fair value of share-based compensation amounts recognized in the Consolidated Statements of Income.
-77-
The fair value of each optionNo options were granted was estimated on the date of grant using the Black-Scholes option-pricing model using the following weighted-average assumptions:
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Expected term (in years) |
|
| 5.0 |
|
|
| 5.0 |
|
|
| 5.0 |
|
Expected volatility |
|
| 26.1 | % |
|
| 28.7 | % |
|
| 31.1 | % |
Expected dividend yields |
|
| 3.0 | % |
|
| 4.1 | % |
|
| 3.2 | % |
Risk-free interest rates |
|
| 2.0 | % |
|
| 1.2 | % |
|
| 1.6 | % |
The Company monitors option exercise behavior to determine the appropriate homogenous groups for estimation purposes. Currently, the Company’s option activity is separated into two categories: directors and employees. The expected term of the options represents the estimated period of time until exercise and is based on historical experience, giving consideration to the option terms, vesting schedules and expectations of future behavior. Expected stock volatility is based on historical stock price volatility of the Company and the risk-free interest rates are based on U.S. Treasury yields in effect on the date of the option grant for the estimated period the options will be outstanding. The expected dividend yield is based upon the current dividend annualized as a percentage of the grant exercise price.
The weighted average grant date fair value per share was $6.28, $4.14 and $6.60 during the years ended December 31, 2017, 20162023, 2022 and 2015, respectively.2021.
Restricted Stock Units
The following table summarizes the activity of the Company’s RSUs, which includes service-based and performance-based awards, for the three years ended December 31, 2017:2023:
|
|
|
|
|
| Weighted- |
|
| Aggregate |
| ||||||||||||||
|
|
|
|
|
| average |
|
| intrinsic |
|
|
|
| Weighted- |
| Aggregate |
| |||||||
|
| Number |
|
| grant date |
|
| value |
|
|
|
| average |
| intrinsic |
| ||||||||
|
| of shares |
|
| fair value |
|
| (in millions) |
|
| Number |
| grant date |
| value |
| ||||||||
Balance at December 31, 2014 |
|
| 311,583 |
|
| $ | 29.78 |
|
|
|
|
| ||||||||||||
|
| of shares |
|
| fair value |
|
| (in millions) |
| |||||||||||||||
Balance at December 31, 2020 |
|
| 225,970 |
|
| $ | 57.06 |
|
|
|
| |||||||||||||
RSUs granted |
|
| 79,300 |
|
|
| 31.86 |
|
|
|
|
|
|
| 116,326 |
|
|
| 72.75 |
|
|
|
| |
RSUs vested |
|
| (89,915 | ) |
|
| 27.97 |
|
|
|
|
|
|
| (116,242 | ) |
|
| 53.32 |
|
|
|
| |
RSUs cancelled/forfeited/expired |
|
| (80,320 | ) |
|
| 31.35 |
|
|
|
|
|
|
| (8,646 | ) |
|
| 52.78 |
|
|
|
| |
Balance at December 31, 2015 |
|
| 220,648 |
|
|
| 30.70 |
|
|
|
|
| ||||||||||||
Balance at December 31, 2021 |
|
| 217,408 |
|
|
| 67.63 |
|
|
|
| |||||||||||||
RSUs granted |
|
| 31,900 |
|
|
| 25.75 |
|
|
|
|
|
|
| 95,028 |
|
|
| 77.79 |
|
|
|
| |
RSUs vested |
|
| (59,008 | ) |
|
| 29.69 |
|
|
|
|
|
|
| (114,274 | ) |
|
| 58.30 |
|
|
|
| |
RSUs cancelled/forfeited/expired |
|
| (68,300 | ) |
|
| 29.33 |
|
|
|
|
|
|
| (10,754 | ) |
|
| 70.10 |
|
|
|
| |
Balance at December 31, 2016 |
|
| 125,240 |
|
|
| 30.66 |
|
|
|
|
| ||||||||||||
Balance at December 31, 2022 |
|
| 187,408 |
|
|
| 76.74 |
|
|
|
| |||||||||||||
RSUs granted |
|
| 70,960 |
|
|
| 34.53 |
|
|
|
|
|
|
| 92,320 |
|
|
| 103.56 |
|
|
|
| |
RSUs vested |
|
| (36,336 | ) |
|
| 26.99 |
|
|
|
|
|
|
| (86,402 | ) |
|
| 50.98 |
|
|
|
| |
RSUs cancelled/forfeited/expired |
|
| (66,200 | ) |
|
| 32.63 |
|
|
|
|
|
|
| (21,649 | ) |
|
| 82.69 |
|
|
|
| |
Balance at December 31, 2017 |
|
| 93,664 |
|
| $ | 33.62 |
|
| $ | 4.4 |
| ||||||||||||
Balance at December 31, 2023 |
|
| 171,677 |
|
| $ | 92.18 |
|
| $ | 27.4 |
|
Performance-based RSUs issued prior to 2018 vest over five years, with 60%60% of the shares immediately vesting after three years when the performance criteria has been determined to have been met and 20%20% of the remaining shares vesting annually at the anniversary of the performance determination date, subject to continuous employment of the participant. The performance-based RSU grants issued in 2018 and thereafter vest after three years with 100% of the shares vesting immediately when performance criteria has been determined to have been met. There were 112,83488,110 performance-based RSUs expected to vest as of December 31, 2017. Service-based2023. Service based RSUs have been issued to the Company’s directors and generally vest over twelve to fourteen months.months. Service based RSUs issued to the Company’s management vest over three years. There were 17,60083,567 service-based RSUs expected to vest as of December 31, 2017. 2023. No forfeitures are currently expected. The total fair value of RSUs that vested during the years ended December 31, 2017, 20162023, 2022 and 20152021 based on the weighted average grant date values was $1.0$8.6 million, $1.8$9.3 million and $2.5$9.2 million, respectively.
Share-based compensation expense for RSUs for the yearyears ended December 31, 2017, 20162023, 2022 and 20152021 was $1.4$8.3 million, $1.0$7.9 million and $1.7,$7.3 million, respectively. As of December 31, 2017,2023, the total unrecognized compensation expense related to unvested RSUs was $1.7$10.7 million and is expected to be recognized over a weighted-average period of 2.21.4 years.
-78--87-
Employee Stock Ownership and 401(k) Plans
The McGrath RentCorp Employee Stock Ownership and 401(k) Plan (the “KSOP”) provides that each participant may annually contribute an elected percentage of his or her salary, not to exceed the statutory limit. Each employee who has at least threetwo months of service with the Company and is 21 years or older, is eligible to participate in the KSOP. The Company, at its discretion, may make matching contributions. Contributions are expensed in the year approved by the Board of Directors. Dividends on the Company’s stock held by the KSOP are treated as ordinary dividends and, in accordance with existing tax laws, are deducted by the Company in the year paid. For the year ended December 31, 20162023 dividends deducted by the Company were $0.3$0.5 million, which resulted in a tax benefit of approximately $0.1$0.1 million in 2017.2023.
At December 31, 2017,2023, the KSOP held 258,482249,468 shares, or less than 2%1% of the Company’s total common shares outstanding. These shares are included in basic and diluted earnings per share calculations.
NOTE 6.11. SHAREHOLDERS’ EQUITY
In May 2008, the Company’s Board of Directors authorized the Company to repurchase an aggregate of 2,000,000 shares of the Company's outstanding common stock. The Company has in the past made purchases of shares of its common stock from time to time in over-the-counter market (NASDAQ) transactions, through privately negotiated, large block transactions and through a share repurchase plan, in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. In August 2015, the Company’s Board of Directors authorized the Company to repurchase an additional 2,000,000 shares of the Company's outstanding common stock.stock (the “Repurchase Plan”). The amount and time of the specific repurchases are subject to prevailing market conditions, applicable legal requirements and other factors, including management’s discretion. All shares repurchased by the Company are canceled and returned to the status of authorized but unissued shares of common stock. There can be no assurance that any authorized shares will be repurchased and the repurchase program may be modified, extended or terminated by the boardBoard of directorsDirectors at any time. There were no repurchases shares of common stock repurchased during the twelve months ended December 31, 20172023 and 2016.2022. As of December 31, 2017, 1,592,0262023, 1,309,805 shares remain authorized for repurchase under this authorization.the Repurchase Plan.
NOTE 7.12. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities under various operating leases. Most of the lease agreements provide the Company with the option of renewing its lease at the end of the lease term, at the fair rental value. In most cases, management expects that in the normal course of business, facility leases will be renewed or replaced by other leases. Minimum payments under these leases, exclusive of property taxes and insurance, are as follows:
(in thousands) |
|
|
|
|
Year Ended December 31, |
|
|
|
|
2018 |
| $ | 1,632 |
|
2019 |
|
| 1,282 |
|
2020 |
|
| 941 |
|
2021 |
|
| 839 |
|
2022 |
|
| 863 |
|
Thereafter |
|
| 1,964 |
|
|
| $ | 7,521 |
|
(in thousands) |
|
|
| |
Year Ended December 31, |
|
|
| |
2024 |
| $ | 6,270 |
|
2025 |
|
| 4,702 |
|
2026 |
|
| 2,125 |
|
2027 |
|
| 516 |
|
2028 |
|
| 270 |
|
Thereafter |
|
| 1,119 |
|
|
| $ | 15,002 |
|
RentFacility rent expense was $3.6 million, $3.5 million and $3.5$10.8 million in 2017, 20162023, $7.0 million in 2022 and 2015, respectively.$5.6 million in 2021.
The Company is involved in various lawsuits and routine claims arising out of the normal course of its business. The Company maintains insurance coverage for its operations and employees with appropriate aggregate, per occurrence and deductible limits as the Company reasonably determines necessary or prudent with current operations and historical experience. The major policies include coverage for property, general liability, auto, directors and officers, health, and workers’ compensation insurances. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. The Company reviews these provisions at least quarterly and adjusts these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. Litigation is inherently unpredictable and is subject to significant uncertainties, some of which are beyond the Company’s control. In the opinion of management, there was not at least a reasonable possibility that the ultimate amount of liability not covered by insurance, if any, under any pending litigation and claims, individually or in the aggregate, will have a material adverse effect on the financial position or operating results of the Company.
-79-
The Company’s health and workers’ compensation plans are self-funded high deductible plans with annual stop-loss insurance of $200,000$200,000 per claim. Beginning in 2019, the Company’s workers compensation insurance is underwritten by an insurance company with no stop-loss value and $250,000 per$350,000 for prior claim respectively.years. Insurance providers are responsible for making claim payments that exceed these amounts on an
-88-
individual claim basis. In addition, the Company has stop loss insurance that pays for claim payments made during a twelve month coverage period that exceeds certain specified thresholds in the aggregate. The Company records an expense when health and workers compensation claim payments are made and accrues for the portion of claims incurred, but not yet paid at period end. The Company makes these accruals based upon a combination of historical claim payments, loss development experience and actuarial estimates. A high degree of judgment is required in developing the underlying assumptions and the resulting amounts to be accrued. In addition, our assumptions will change as the Company’s loss experience develops. All of these factors have the potential for impactingto impact the amounts previously accrued and the Company may be required to increase or decrease the amounts previously accrued. At December 31, 20172023 and 2016,2022, accruals for the Company’s health and workers’ compensation high deductible plans were $2.9$1.6 million and $2.4$2.0 million, respectively.
NOTE 8.13. GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying amount of goodwill were as follows:
(dollar amounts in thousands) |
| Mobile Modular |
|
| Adler Tanks (Discontinued) |
|
| Total |
| |||
Balance at December 31, 2021 |
| $ | 106,491 |
|
| $ | 25,902 |
|
| $ | 132,393 |
|
Changes to Design Space purchase accounting |
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
Balance at December 31, 2022 |
|
| 106,403 |
|
|
| 25,902 |
|
|
| 132,305 |
|
Goodwill acquired through business combination |
|
| 216,821 |
|
|
| — |
|
|
| 216,821 |
|
Derecognition of goodwill divested |
|
| — |
|
|
| (25,902 | ) |
|
| (25,902 | ) |
Balance at December 31, 2023 |
| $ | 323,224 |
|
| $ | — |
|
| $ | 323,224 |
|
|
|
|
|
|
|
|
|
|
|
Intangible assets from continuing operations consist of the following:
(dollar amounts in thousands) |
| Estimated |
| Average remaining life in years |
| Cost |
| Accumulated amortization |
| Net book value |
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
Customer relationships |
| 8 to 11 |
| 7.8 |
| $73,217 |
| $(17,003) |
| $56,214 |
Non-compete agreements |
| 5 |
| 3.7 |
| 10,556 |
| (3,141) |
| 7,415 |
Trade name |
| 0.75 to 8 |
| 5.3 |
| 2,000 |
| (1,212) |
| 788 |
Total amortizing |
|
|
|
|
| 85,773 |
| (21,356) |
| 64,417 |
Trade name - non-amortizing |
| Indefinite |
|
|
| 171 |
| — |
| 171 |
Total |
|
|
|
|
| $85,944 |
| $(21,356) |
| $64,588 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
Customer relationships |
| 8 to 11 |
| 6.3 |
| $50,284 |
| $(18,098) |
| $32,186 |
Non-compete agreements |
| 5 |
| 3.2 |
| 3,296 |
| (1,159) |
| 2,137 |
Customer backlog |
| — |
| — |
| 1,900 |
| (1,900) |
| — |
Trade name |
| 8 |
| 6.3 |
| 1,200 |
| (263) |
| 937 |
Total amortizing |
|
|
|
|
| 56,680 |
| (21,420) |
| 35,260 |
Trade name - non-amortizing |
| Indefinite |
|
|
| 5,871 |
| — |
| 5,871 |
Total |
|
|
|
|
| $62,551 |
| $(21,420) |
| $41,131 |
|
|
|
|
|
|
|
|
|
|
|
The Company assesses potential impairment of its goodwill and intangible assets when there is evidence that events or circumstances have occurred that would indicate the recovery of an asset’s carrying value is unlikely. The Company also assesses potential impairment of its goodwill and intangible assets with indefinite lives on an annual basis regardless of whether there is evidence of impairment. If indicators of impairment were to be present in intangible assets used in operations and future discounted cash flows were not expected to be sufficient to recover the asset’s carrying amount, an impairment loss would be charged to expense in the period identified. The amount of an impairment loss that would be recognized is the excess of the asset’s carrying value over its fair value. Factors the Company considers important, which may cause impairment include, among others, significant changes in the manner of use of the acquired asset, negative industry or economic trends, and significant underperformance relative to historical or projected operating results. The Company last conducted a qualitative analysis of its goodwill and intangible assets in the fourth quarter 2023, with no indicators of impairment. In addition, no impairment triggering events occurred during the year ended December 31, 2023. Determining fair value of a reporting unit is judgmental and involves the use of significant estimates and assumptions. The
(dollar amounts in thousands) |
| Estimated useful life |
|
| December 31, |
| ||||||
|
| (In years) |
|
| 2017 |
|
| 2016 |
| |||
Trade name |
| Indefinite |
|
| $ | 5,700 |
|
| $ | 5,700 |
| |
Customer relationships |
|
| 11 |
|
|
| 9,611 |
|
|
| 9,611 |
|
|
|
|
|
|
|
| 15,311 |
|
|
| 15,311 |
|
Less accumulated amortization |
|
|
|
|
|
| (7,587 | ) |
|
| (6,716 | ) |
|
|
|
|
|
| $ | 7,724 |
|
| $ | 8,595 |
|
-89-
Company bases its fair value estimates on assumptions that it believes are reasonable but are uncertain and subject to changes in market conditions.
Intangible assets with finite useful lives are amortized over their respective useful lives. Amortization expense in each of the years ended December 31, 2017, 20162023, 2022 and 2015 were $0.9 million.2021 was $10.7 million, $5.9 million and $5.9 million, respectively. Based on the carrying values at December 31, 20172023 and assuming no subsequent impairment of the underlying assets, the annual amortization is expected to be $0.9$10.3 million in 2018 through 2019 and $0.22024, $10.2 million in 2020.2025, $9.8 million in 2026, $9.6 million in 2027 and $8.2 million in 2028. For information on intangible assets from discontinued operations refer to Note 5.
NOTE 9.14. RELATED PARTY TRANSACTIONS
There were no significant related party transactions in the years ended December 31, 20172023, 2022 and 2016,2021, or amounts owed to related parties at such dates.
-80-
During the quarter ended December 31, 2023, the Company determined that its Portable Storage business segment met the criteria for separate recognition as defined in the Accounting Standards Codification ("ASC") Topic 280, Segment Reporting. The guidance under this topic requires a public business entity to evaluate both quantitative and qualitative thresholds to determine the significance of a business segment and whether the separate reporting of a business segment enhances the users understanding of the reporting entity's performance, future net cash flows and judgments. The Company evaluated the guidance within Topic 280 and made its determination to separately report the Portable Storage segment primarily due to the Company's continued growth in container fleet purchases and related increased revenues and improved profitability performance when compared to previously reported periods.
FASB guidelines establish annual and interim reporting standards for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. In accordance with these guidelines the Company’s four reportable segments are Mobile Modular, Portable Storage, TRS-RenTelco Adler Tanks and Enviroplex. Management focuses on several key measures to evaluate and assess each segment’s performance including rental revenue growth, gross margin and income before provision for income taxes. Excluding interest expense, allocations of revenue and expense not directly associated with one of these segments are generally allocated to Mobile Modular, TRS-RenTelcoPortable Storage and Adler Tanks,TRS-RenTelco, based on their pro-rata share of direct revenues. Interest expense is allocated amongst Mobile Modular, TRS-RenTelcoPortable Storage and Adler TanksTRS-RenTelco based on their pro-rata share of average rental equipment at cost, goodwill, intangible assets, accounts receivable, deferred income and customer security deposits. The Company does not report total assets by business segment.Summarized financial information from continuing operations for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, for the Company’s reportable segments is shown in the following tables:
(dollar amounts in thousands) |
| Mobile |
|
| Portable Storage |
|
| TRS- |
|
| Enviroplex 1 |
|
| Consolidated |
| |||||
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Rental revenues |
| $ | 285,553 |
|
| $ | 74,536 |
|
| $ | 114,247 |
|
| $ | — |
|
| $ | 474,336 |
|
Rental related services revenues |
|
| 114,511 |
|
|
| 20,510 |
|
|
| 3,139 |
|
| — |
|
|
| 138,160 |
| |
Sales and other revenues |
|
| 162,172 |
|
|
| 6,091 |
|
|
| 30,891 |
|
|
| 20,192 |
|
|
| 219,346 |
|
Total revenues |
|
| 562,236 |
|
|
| 101,137 |
|
|
| 148,277 |
|
|
| 20,192 |
|
|
| 831,842 |
|
Depreciation of rental equipment |
|
| 36,921 |
|
|
| 3,514 |
|
|
| 48,477 |
|
| — |
|
|
| 88,912 |
| |
Gross profit |
|
| 257,921 |
|
|
| 68,880 |
|
|
| 62,604 |
|
|
| 4,228 |
|
|
| 393,633 |
|
Selling and administrative expenses |
|
| (138,574 | ) |
|
| (31,537 | ) |
|
| (30,962 | ) |
|
| (6,466 | ) |
|
| (207,539 | ) |
Other income |
|
| 2,329 |
|
|
| 457 |
|
|
| 832 |
|
|
| — |
|
|
| 3,618 |
|
Income (loss) from operations |
|
| 121,676 |
|
|
| 37,800 |
|
|
| 32,474 |
|
|
| (2,238 | ) |
|
| 189,712 |
|
Interest expense (income) allocation |
|
| 29,724 |
|
|
| 4,950 |
|
|
| 8,146 |
|
|
| (2,260 | ) |
|
| 40,560 |
|
Income before provision for income taxes |
|
| 91,952 |
|
|
| 32,850 |
|
|
| 24,638 |
|
|
| 22 |
|
|
| 149,462 |
|
Rental equipment acquisitions |
|
| 176,200 |
|
|
| 27,967 |
|
|
| 28,945 |
|
| — |
|
|
| 233,112 |
| |
Accounts receivable, net (period end) |
|
| 175,360 |
|
|
| 16,057 |
|
|
| 25,511 |
|
|
| 10,440 |
|
|
| 227,368 |
|
Rental equipment, at cost (period end) |
|
| 1,291,093 |
|
|
| 236,123 |
|
|
| 377,587 |
|
| — |
|
|
| 1,904,803 |
| |
Rental equipment, net book value (period end) |
|
| 967,712 |
|
|
| 217,315 |
|
|
| 144,296 |
|
| — |
|
|
| 1,329,323 |
| |
Utilization (period end) 2 |
|
| 79.4 | % |
|
| 71.5 | % |
|
| 55.9 | % |
|
|
|
|
|
| ||
Average utilization 2 |
|
| 79.7 | % |
|
| 77.3 | % |
|
| 58.9 | % |
|
|
|
|
|
|
-90-
Segment Data (Continued) |
| Mobile |
|
| Portable Storage |
|
| TRS- |
|
| Enviroplex 1 |
|
| Consolidated |
| |||||
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Rental revenues |
| $ | 206,070 |
|
| $ | 62,218 |
|
| $ | 121,375 |
|
| $ | — |
|
| $ | 389,663 |
|
Rental related services revenues |
|
| 74,756 |
|
|
| 17,095 |
|
|
| 3,112 |
|
| — |
|
|
| 94,963 |
| |
Sales and other revenues |
|
| 98,385 |
|
|
| 3,193 |
|
|
| 26,291 |
|
|
| 23,170 |
|
|
| 151,039 |
|
Total revenues |
|
| 379,211 |
|
|
| 82,506 |
|
|
| 150,778 |
|
|
| 23,170 |
|
|
| 635,665 |
|
Depreciation of rental equipment |
|
| 28,373 |
|
|
| 2,799 |
|
|
| 49,253 |
|
| — |
|
|
| 80,425 |
| |
Gross profit |
|
| 161,885 |
|
|
| 55,302 |
|
|
| 67,899 |
|
|
| 5,122 |
|
|
| 290,208 |
|
Selling and administrative expenses |
|
| (85,769 | ) |
|
| (24,465 | ) |
|
| (27,245 | ) |
|
| (5,435 | ) |
|
| (142,914 | ) |
Income (loss) from operations |
|
| 76,116 |
|
|
| 30,837 |
|
|
| 40,654 |
|
|
| (313 | ) |
|
| 147,294 |
|
Interest expense (income) allocation |
|
| 8,657 |
|
|
| 1,518 |
|
|
| 3,294 |
|
|
| (1,239 | ) |
|
| 12,230 |
|
Income before provision for income taxes |
|
| 67,459 |
|
|
| 29,319 |
|
|
| 36,982 |
|
|
| 926 |
|
|
| 134,686 |
|
Rental equipment acquisitions |
|
| 87,535 |
|
|
| 34,072 |
|
|
| 69,928 |
|
| — |
|
|
| 191,535 |
| |
Accounts receivable, net (period end) |
|
| 124,184 |
|
|
| 14,923 |
|
|
| 26,442 |
|
|
| 4,302 |
|
|
| 169,851 |
|
Rental equipment, at cost (period end) |
|
| 929,636 |
|
|
| 193,632 |
|
|
| 398,267 |
|
| — |
|
|
| 1,521,535 |
| |
Rental equipment, net book value (period end) |
|
| 637,151 |
|
|
| 178,241 |
|
|
| 174,924 |
|
| — |
|
|
| 990,316 |
| |
Utilization (period end) 2 |
|
| 80.3 | % |
|
| 82.6 | % |
|
| 59.4 | % |
|
|
|
|
|
| ||
Average utilization 2 |
|
| 78.0 | % |
|
| 84.8 | % |
|
| 64.2 | % |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Rental revenues |
| $ | 175,626 |
|
| $ | 44,943 |
|
| $ | 113,419 |
|
| $ | — |
|
| $ | 333,988 |
|
Rental related services revenues |
|
| 59,756 |
|
|
| 12,574 |
|
|
| 2,880 |
|
| — |
|
|
| 75,210 |
| |
Sales and other revenues |
|
| 65,983 |
|
|
| 4,434 |
|
|
| 23,895 |
|
|
| 31,081 |
|
|
| 125,393 |
|
Total revenues |
|
| 301,365 |
|
|
| 61,951 |
|
|
| 140,194 |
|
|
| 31,081 |
|
|
| 534,591 |
|
Depreciation of rental equipment |
|
| 25,852 |
|
|
| 2,219 |
|
|
| 47,374 |
|
| — |
|
|
| 75,445 |
| |
Gross profit |
|
| 136,618 |
|
|
| 39,422 |
|
|
| 61,394 |
|
|
| 9,888 |
|
|
| 247,322 |
|
Selling and administrative expenses |
|
| (72,091 | ) |
|
| (20,512 | ) |
|
| (25,152 | ) |
|
| (5,303 | ) |
|
| (123,058 | ) |
Income from operations |
|
| 64,526 |
|
|
| 18,910 |
|
|
| 36,243 |
|
|
| 4,585 |
|
|
| 124,264 |
|
Interest expense (income) allocation |
|
| 5,553 |
|
|
| 880 |
|
|
| 2,270 |
|
|
| (459 | ) |
|
| 8,244 |
|
Income before benefit for income taxes |
|
| 58,973 |
|
|
| 18,030 |
|
|
| 33,763 |
|
|
| 5,044 |
|
|
| 115,810 |
|
Rental equipment acquisitions |
|
| 151,625 |
|
|
| 36,767 |
|
|
| 61,097 |
|
| — |
|
|
| 249,489 |
| |
Accounts receivable, net (period end) |
|
| 101,839 |
|
|
| 10,456 |
|
|
| 22,115 |
|
|
| 8,711 |
|
|
| 143,121 |
|
Rental equipment, at cost (period end) |
|
| 879,272 |
|
|
| 160,822 |
|
|
| 361,391 |
|
| — |
|
|
| 1,401,485 |
| |
Rental equipment, net book value (period end) |
|
| 603,497 |
|
|
| 148,040 |
|
|
| 161,900 |
|
| — |
|
|
| 913,437 |
| |
Utilization (period end) 2 |
|
| 75.3 | % |
|
| 82.5 | % |
|
| 62.9 | % |
|
|
|
|
|
| ||
Average utilization 2 |
|
| 75.4 | % |
|
| 81.0 | % |
|
| 67.0 | % |
|
|
|
|
|
|
Segment Data (dollar amounts in thousands) |
| Mobile Modular |
|
| TRS- RenTelco |
|
| Adler Tanks |
|
| Enviroplex 1 |
|
| Consolidated |
| |||||
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues |
| $ | 142,584 |
|
| $ | 82,812 |
|
| $ | 64,021 |
|
| $ | — |
|
| $ | 289,417 |
|
Rental related services revenues |
|
| 50,448 |
|
|
| 2,858 |
|
|
| 24,762 |
|
| — |
|
|
| 78,068 |
| |
Sales and other revenues |
|
| 38,234 |
|
|
| 22,374 |
|
|
| 2,572 |
|
|
| 31,369 |
|
|
| 94,549 |
|
Total revenues |
|
| 231,266 |
|
|
| 108,044 |
|
|
| 91,355 |
|
|
| 31,369 |
|
|
| 462,034 |
|
Depreciation of rental equipment |
|
| 21,247 |
|
|
| 32,891 |
|
|
| 15,770 |
|
| — |
|
|
| 69,908 |
| |
Gross profit |
|
| 103,935 |
|
|
| 50,289 |
|
|
| 43,218 |
|
|
| 8,903 |
|
|
| 206,345 |
|
Selling and administrative expenses |
|
| 55,583 |
|
|
| 22,171 |
|
|
| 29,542 |
|
|
| 4,309 |
|
|
| 111,605 |
|
Income from operations |
|
| 48,352 |
|
|
| 28,118 |
|
|
| 13,676 |
|
|
| 4,594 |
|
|
| 94,740 |
|
Interest expense (income) allocation |
|
| (6,671 | ) |
|
| (2,320 | ) |
|
| (3,071 | ) |
|
| 440 |
|
|
| (11,622 | ) |
Income before (benefit) provision for income taxes |
|
| 41,681 |
|
|
| 26,132 |
|
|
| 10,605 |
|
|
| 5,034 |
|
|
| 83,452 |
|
Rental equipment acquisitions |
|
| 34,526 |
|
|
| 58,781 |
|
|
| 4,800 |
|
| — |
|
|
| 98,107 |
| |
Accounts receivable, net (period end) |
|
| 59,274 |
|
|
| 19,581 |
|
|
| 18,663 |
|
|
| 8,354 |
|
|
| 105,872 |
|
Rental equipment, at cost (period end) |
|
| 775,400 |
|
|
| 262,325 |
|
|
| 309,808 |
|
| — |
|
|
| 1,347,533 |
| |
Rental equipment, net book value (period end) |
|
| 543,857 |
|
|
| 109,482 |
|
|
| 208,981 |
|
| — |
|
|
| 862,320 |
| |
Utilization (period end) 2 |
|
| 77.8 | % |
|
| 61.7 | % |
|
| 57.5 | % |
|
|
|
|
|
|
|
|
Average utilization 2 |
|
| 76.8 | % |
|
| 62.9 | % |
|
| 56.0 | % |
|
|
|
|
|
|
|
|
-81-
Segment Data (Continued) (dollar amounts in thousands) |
| Mobile Modular |
|
| TRS- RenTelco |
|
| Adler Tanks |
|
| Enviroplex 1 |
|
| Consolidated |
| |||||
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues |
| $ | 130,496 |
|
| $ | 82,307 |
|
| $ | 58,585 |
|
| $ | — |
|
| $ | 271,388 |
|
Rental related services revenues |
|
| 49,206 |
|
|
| 2,846 |
|
|
| 23,807 |
|
| — |
|
|
| 75,859 |
| |
Sales and other revenues |
|
| 29,810 |
|
|
| 23,464 |
|
|
| 1,438 |
|
|
| 22,121 |
|
|
| 76,833 |
|
Total revenues |
|
| 209,512 |
|
|
| 108,617 |
|
|
| 83,830 |
|
|
| 22,121 |
|
|
| 424,080 |
|
Depreciation of rental equipment |
|
| 21,001 |
|
|
| 35,256 |
|
|
| 15,940 |
|
| — |
|
|
| 72,197 |
| |
Gross profit |
|
| 93,816 |
|
|
| 45,797 |
|
|
| 37,409 |
|
|
| 7,145 |
|
|
| 184,167 |
|
Selling and administrative expenses |
|
| 51,432 |
|
|
| 21,896 |
|
|
| 27,610 |
|
|
| 3,970 |
|
|
| 104,908 |
|
Income from operations |
|
| 42,384 |
|
|
| 23,901 |
|
|
| 9,799 |
|
|
| 3,175 |
|
|
| 79,259 |
|
Interest expense (income) allocation |
|
| (6,804 | ) |
|
| (2,465 | ) |
|
| (3,200 | ) |
|
| 262 |
|
|
| (12,207 | ) |
Income before provision for income taxes |
|
| 35,580 |
|
|
| 21,315 |
|
|
| 6,599 |
|
|
| 3,437 |
|
|
| 66,931 |
|
Rental equipment acquisitions |
|
| 43,099 |
|
|
| 30,505 |
|
|
| 1,030 |
|
| — |
|
|
| 74,634 |
| |
Accounts receivable, net (period end) |
|
| 55,916 |
|
|
| 19,506 |
|
|
| 16,150 |
|
|
| 5,305 |
|
|
| 96,877 |
|
Rental equipment, at cost (period end) |
|
| 744,099 |
|
|
| 245,700 |
|
|
| 306,701 |
|
| — |
|
|
| 1,324,057 |
| |
Rental equipment, net book value (period end) |
|
| 544,421 |
|
|
| 90,172 |
|
|
| 221,778 |
|
| — |
|
|
| 856,371 |
| |
Utilization (period end) 2 |
|
| 77.3 | % |
|
| 61.0 | % |
|
| 50.7 | % |
|
|
|
|
|
|
|
|
Average utilization 2 |
|
| 76.6 | % |
|
| 60.6 | % |
|
| 50.1 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues |
| $ | 115,986 |
|
| $ | 89,208 |
|
| $ | 68,502 |
|
| $ | — |
|
| $ | 273,696 |
|
Rental related services revenues |
|
| 45,616 |
|
|
| 3,055 |
|
|
| 24,643 |
|
| — |
|
|
| 73,314 |
| |
Sales and other revenues |
|
| 22,682 |
|
|
| 22,754 |
|
|
| 1,486 |
|
|
| 10,612 |
|
|
| 57,534 |
|
Total revenues |
|
| 184,284 |
|
|
| 115,017 |
|
|
| 94,631 |
|
|
| 10,612 |
|
|
| 404,544 |
|
Depreciation of rental equipment |
|
| 19,246 |
|
|
| 39,974 |
|
|
| 15,993 |
|
| — |
|
|
| 75,213 |
| |
Gross profit |
|
| 78,771 |
|
|
| 47,836 |
|
|
| 47,397 |
|
|
| 2,903 |
|
|
| 176,907 |
|
Selling and administrative expenses |
|
| 46,496 |
|
|
| 22,930 |
|
|
| 27,494 |
|
|
| 3,030 |
|
|
| 99,950 |
|
Income from operations |
|
| 32,275 |
|
|
| 24,906 |
|
|
| 19,903 |
|
|
| (127 | ) |
|
| 76,957 |
|
Interest expense (income) allocation |
|
| (5,363 | ) |
|
| (2,194 | ) |
|
| (2,729 | ) |
|
| 194 |
|
|
| (10,092 | ) |
Income before provision for income taxes |
|
| 26,912 |
|
|
| 22,224 |
|
|
| 17,174 |
|
|
| 67 |
|
|
| 66,377 |
|
Rental equipment acquisitions |
|
| 79,622 |
|
|
| 44,316 |
|
|
| 9,440 |
|
| — |
|
|
| 133,378 |
| |
Accounts receivable, net (period end) |
|
| 53,550 |
|
|
| 21,784 |
|
|
| 17,955 |
|
|
| 1,728 |
|
|
| 95,017 |
|
Rental equipment, at cost (period end) |
|
| 736,875 |
|
|
| 262,945 |
|
|
| 310,263 |
|
| — |
|
|
| 1,310,083 |
| |
Rental equipment, net book value (period end) |
|
| 529,483 |
|
|
| 102,191 |
|
|
| 237,927 |
|
| — |
|
|
| 869,601 |
| |
Utilization (period end) 2 |
|
| 76.9 | % |
|
| 58.7 | % |
|
| 49.7 | % |
|
|
|
|
|
|
|
|
Average utilization 2 |
|
| 75.8 | % |
|
| 60.5 | % |
|
| 58.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
No single customer accounted for more than 10% of total revenues during 2017, 20162023, 2022 and 2015.2021. Revenue from foreign country customers accounted for 4%, 5% and 5%3% of the Company’s total revenues for the same periods, respectively.
-82-
NOTE 11. QUARTERLY FINANCIAL INFORMATION (unaudited)
Quarterly financial information2023 and 4% for each of the two years ended December 31, 2017 is summarized below:2022 and 2021.
(in thousands, except per share amounts) |
| 2017 |
| |||||||||||||||||
|
| First |
|
| Second |
|
| Third |
|
| Fourth |
|
| Year |
| |||||
Operations Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues |
| $ | 67,978 |
|
| $ | 69,953 |
|
| $ | 73,781 |
|
| $ | 77,705 |
|
| $ | 289,417 |
|
Total revenues |
|
| 94,837 |
|
|
| 109,582 |
|
|
| 135,388 |
|
|
| 122,227 |
|
|
| 462,034 |
|
Gross profit |
|
| 43,670 |
|
|
| 49,211 |
|
|
| 58,775 |
|
|
| 54,689 |
|
|
| 206,345 |
|
Income from operations |
|
| 15,822 |
|
|
| 21,846 |
|
|
| 30,286 |
|
|
| 26,786 |
|
|
| 94,740 |
|
Income before (benefit) provision for income taxes |
|
| 13,259 |
|
|
| 18,908 |
|
|
| 27,336 |
|
|
| 23,949 |
|
|
| 83,452 |
|
Net income |
|
| 7,973 |
|
|
| 11,461 |
|
|
| 16,762 |
|
|
| 117,724 |
|
|
| 153,920 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.33 |
|
| $ | 0.48 |
|
| $ | 0.70 |
|
| $ | 4.90 |
|
| $ | 6.41 |
|
Diluted |
| $ | 0.33 |
|
| $ | 0.48 |
|
| $ | 0.69 |
|
| $ | 4.82 |
|
| $ | 6.34 |
|
Dividends declared per share |
| $ | 0.260 |
|
| $ | 0.260 |
|
| $ | 0.260 |
|
| $ | 0.260 |
|
| $ | 1.04 |
|
Shares used in per share calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 23,950 |
|
|
| 23,985 |
|
|
| 24,015 |
|
|
| 24,044 |
|
|
| 23,999 |
|
Diluted |
|
| 24,232 |
|
|
| 24,092 |
|
|
| 24,228 |
|
|
| 24,410 |
|
|
| 24,269 |
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental equipment, net |
| $ | 856,981 |
|
| $ | 863,207 |
|
| $ | 865,724 |
|
| $ | 862,320 |
|
| $ | 862,320 |
|
Total assets |
|
| 1,130,734 |
|
|
| 1,150,123 |
|
|
| 1,156,415 |
|
|
| 1,147,854 |
|
|
| 1,147,854 |
|
Notes payable |
|
| 323,483 |
|
|
| 330,287 |
|
|
| 323,117 |
|
|
| 303,414 |
|
|
| 303,414 |
|
Shareholders’ equity |
|
| 396,625 |
|
|
| 402,365 |
|
|
| 412,782 |
|
|
| 524,184 |
|
|
| 524,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2016 |
| |||||||||||||||||
|
| First |
|
| Second |
|
| Third |
|
| Fourth |
|
| Year |
| |||||
Operations Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues |
| $ | 66,532 |
|
| $ | 66,747 |
|
| $ | 67,757 |
|
| $ | 70,352 |
|
| $ | 271,388 |
|
Total revenues |
|
| 93,699 |
|
|
| 103,105 |
|
|
| 121,993 |
|
|
| 105,283 |
|
|
| 424,080 |
|
Gross profit |
|
| 40,655 |
|
|
| 43,756 |
|
|
| 50,433 |
|
|
| 49,323 |
|
|
| 184,167 |
|
Income from operations |
|
| 14,258 |
|
|
| 18,073 |
|
|
| 24,232 |
|
|
| 22,696 |
|
|
| 79,259 |
|
Income before provision for income taxes |
|
| 10,853 |
|
|
| 15,006 |
|
|
| 21,277 |
|
|
| 19,795 |
|
|
| 66,931 |
|
Net income |
|
| 6,566 |
|
|
| 9,079 |
|
|
| 12,872 |
|
|
| 9,734 |
|
|
| 38,251 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.28 |
|
| $ | 0.38 |
|
| $ | 0.54 |
|
| $ | 0.41 |
|
| $ | 1.60 |
|
Diluted |
| $ | 0.27 |
|
| $ | 0.38 |
|
| $ | 0.54 |
|
| $ | 0.40 |
|
| $ | 1.60 |
|
Dividends declared per share |
| $ | 0.255 |
|
| $ | 0.255 |
|
| $ | 0.255 |
|
| $ | 0.255 |
|
| $ | 1.02 |
|
Shares used in per share calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 23,862 |
|
|
| 23,900 |
|
|
| 23,911 |
|
|
| 23,927 |
|
|
| 23,900 |
|
Diluted |
|
| 23,911 |
|
|
| 23,949 |
|
|
| 24,041 |
|
|
| 24,123 |
|
|
| 23,976 |
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental equipment, net |
| $ | 867,215 |
|
| $ | 868,422 |
|
| $ | 862,528 |
|
| $ | 856,371 |
|
| $ | 856,371 |
|
Total assets |
|
| 1,132,355 |
|
|
| 1,148,018 |
|
|
| 1,144,923 |
|
|
| 1,128,276 |
|
|
| 1,128,276 |
|
Notes payable |
|
| 365,772 |
|
|
| 363,121 |
|
|
| 345,286 |
|
|
| 326,266 |
|
|
| 326,266 |
|
Shareholders’ equity |
|
| 380,512 |
|
|
| 383,313 |
|
|
| 390,600 |
|
|
| 394,287 |
|
|
| 394,287 |
|
-91-
-83-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. |
|
None.
|
|
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures. The Company’s management under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) is responsible for establishing and maintaining “disclosure controls and procedures” (as defined in rules promulgated under the Securities Exchange Act of 1934, as amended) for the Company. Based on their evaluation the CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2017.2023.
On February 1, 2023, McGrath RentCorp completed its acquisition of Vesta Modular Housing Solutions Holdings, Inc. ("Vesta Modular"). Management has excluded Vesta Modular's internal controls from its assessment of the effectiveness of internal controls over financial reporting as of December 31, 2023. Vesta Modular's revenues and total assets (excluding goodwill and intangible assets) represents approximately 13% and 14%, respectively, of the consolidated financial statement amounts as of, and for the fiscal year ended, December 31, 2023.
Changes in Internal Control over Financial Reporting. During the last quarter of the Company’s fiscal year ended December 31, 2017,2023, there were no changes in the Company’s internal control that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Limitations on the Effectiveness of Controls. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and the CEO and CFO have concluded that these controls and procedures are effective at the “reasonable assurance” level.
Management’s Assessment of Internal Control. Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017,2023, is discussed in the Management’s Report on Internal Control Over Financial Reporting included on page 59.57.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 20172023 has been audited by Grant Thornton LLP, the Company’s independent registered public accounting firm, and its report is included in this Annual Report on Form 10-K.
ITEM 9B. OTHER INFORMATION. During the three months ended December 31, 2023, none of our directors or officers adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” as such terms are defined under Item 408 of Regulation S-K. During the three months ended December 31, 2023, the Company did not adopt, modify or terminate a “Rule 10b5-1 trading arrangement” as such term is defined under Item 408 of Regulation S-K. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. -92- |
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this Item iswill either be incorporated herein by reference to McGrath RentCorp’s definitivethe Company’s Definitive Proxy Statement with respect to be filed pursuant to Regulation 14A of the Exchange Act for its 20182024 Annual or Special Meeting of Shareholders or included in an amendment to be held on June 6, 2018,this Report, which, in either case, will be filed with the Securities and Exchange Commission no later than April 27, 2018.120 days after December 31, 2023.
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ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item iswill either be incorporated herein by reference to McGrath RentCorp’s definitivethe Company’s Definitive Proxy Statement with respect to be filed pursuant to Regulation 14A of the Exchange Act for its 20182024 Annual or Special Meeting of Shareholders or included in an amendment to be held on June 6, 2018,this Report, which, in either case, will be filed with the Securities and Exchange Commission no later than April 27, 2018.120 days after December 31, 2023.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by this Item iswill either be incorporated herein by reference to McGrath RentCorp’s definitivethe Company’s Definitive Proxy Statement with respect to be filed pursuant to Regulation 14A of the Exchange Act for its 20182024 Annual or Special Meeting of Shareholders or included in an amendment to be held on June 6, 2018,this Report, which, in either case, will be filed with the Securities and Exchange Commission no later than April 27, 2018.120 days after December 31, 2023.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
The information required by this Item iswill either be incorporated herein by reference to McGrath RentCorp’s definitivethe Company’s Definitive Proxy Statement with respect to be filed pursuant to Regulation 14A of the Exchange Act for its 20182024 Annual or Special Meeting of Shareholders or included in an amendment to be held on June 6, 2018,this Report, which, in either case, will be filed with the Securities and Exchange Commission no later than April 27, 2018.120 days after December 31, 2023.
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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this Item iswill either be incorporated herein by reference to McGrath RentCorp’s definitivethe Company’s Definitive Proxy Statement with respect to be filed pursuant to Regulation 14A of the Exchange Act for its 20182024 Annual or Special Meeting of Shareholders or included in an amendment to be held on June 6, 2018,this Report, which, in either case, will be filed with the Securities and Exchange Commission no later than April 27, 2018.120 days after December 31, 2023.
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Index of documents filed as part of this report:
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Page of this report | ||
Management’s Report on Internal Control over Financial Reporting |
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Reports of Independent Registered Public Accounting Firm (PCAOB ID: 248) |
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Consolidated Financial Statements | ||
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Consolidated Balance Sheets as of December 31, | 61 | |
Consolidated Statements of Income for the Years Ended December 31, | 62 | |
63 | ||
64 | ||
65 | ||
66 | ||
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Schedules and exhibits required by Article 5 of Regulation S-X other than those listed are omitted because they are not required, are not applicable, or equivalent information has been included in the consolidated financial statements, and notes thereto, or elsewhere herein.
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Number | Description | Method of Filing | ||
| Filed as exhibit 1.01 to the Company’s Current Report on Form 8-K (filed February 1, 2023), and incorporated herein by reference. | |||
2.2 | Filed as exhibit 1.02 to the Company’s Current Report on Form 8-K (filed February 1, 2023), and incorporated herein by reference. | |||
2.3 | Filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K/A (filed January 29, 2024), and incorporated herein by reference. | |||
3.1 | Articles of Incorporation of McGrath RentCorp. | Filed as exhibit 19.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1988 (filed August 14, 1988), and incorporated herein by reference. | ||
3.1.1 | Amendment to Articles of Incorporation of McGrath RentCorp. | Filed as exhibit 3.1 to the Company’s Registration Statement on Form S-1 (filed March 28, 1991 Registration No. 33-39633), and incorporated herein by reference. | ||
3.1.2 | Filed as exhibit 3.1.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 (filed March 31, 1998), and incorporated herein by reference. | |||
3.2 | Filed | |||
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4.1 | ||||
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| Filed as exhibit 10.1 to the Company’s Current Report on Form 8-K (filed | |||
| Filed as exhibit 10.1 to the Company’s Current Report on Form 8-K (filed March 20, 2014) and incorporated herein by reference. | |||
| Filed as exhibit 10.1 to the Company’s Current Report on Form 8-K (filed February 11, 2016) and incorporated herein by reference. | |||
4.2 | Filed as exhibit 10.1 to the Company’s Current Report on Form 8-K (filed | |||
4.2.1 | Filed as exhibit 10.2 to the Company’s Current Report on Form 8-K (filed | |||
4.2.2 | Filed as exhibit | |||
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| Filed as exhibit | |||
4.3 | ||||
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| McGrath RentCorp Employee Stock Ownership Plan, as amended and restated on December 31, 2008. | Filed as exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (filed February 26, 2009), and incorporated herein by reference. | ||
| Filed as exhibit 10.3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (filed February 26, 2009), and incorporated herein by reference. | |||
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Number | Description | Method of Filing | ||
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10.2† | Filed as exhibit 10.12 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (filed August 2, 2007), and incorporated herein by reference. | |||
| Form of 2007 Stock Incentive Plan Stock Option Award and Agreement. | Filed as exhibit 10.12.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (filed August 2, 2007), and incorporated herein by reference. | ||
| Form of 2007 Stock Incentive Plan Non-Qualified Stock Option Award and Agreement. | Filed as exhibit 10.12.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (filed August 2, 2007), and incorporated herein by reference. | ||
| Form of 2007 Stock Incentive Plan Stock Appreciation Right Award and Agreement. | Filed as exhibit 10.4.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (filed May 6, 2010), and incorporated herein by reference. | ||
| Form of 2007 Stock Incentive Plan Restricted Stock Unit Award and Agreement. | Filed as exhibit 10.4.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (filed May 6, 2010), and incorporated herein by reference. | ||
| Filed as exhibit 4.5 to the Company’s Registration Statement on Form S-8 (filed August 10, 2012) and incorporated herein by reference. | |||
| McGrath RentCorp Change in Control Severance Plan and Summary Plan Description | Filed as exhibit | ||
Filed as Appendix A to the Company's Proxy Statement for the 2016 Annual Meeting (filed April 29, 2016), and incorporated herein by reference. | ||||
Form of 2016 Stock Incentive Plan Restricted Stock Unit Award and Agreement - Corporate | Filed as exhibit | |||
Filed as exhibit | ||||
Form of 2016 Stock Incentive Plan Stock Appreciation Right Award and Agreement - Enviroplex | Filed as exhibit | |||
10.6† | Form of Indemnification Agreement with Directors and Officers | Filed herewith. | ||
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21.1 | Filed herewith. | |||
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23.1 | Filed herewith. | |||
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Filed herewith. | ||
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Filed herewith. | ||
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32.1 | ||||
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | Furnished herewith. | |||
32.2 | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | Furnished herewith. | ||
| Filed herewith. | |||
101 | The following materials from McGrath RentCorp’s annual Report on Form 10-K for the year ended December 31, | |||
104 Cover Page Interactive Data File (embedded within the inline XBRL
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† = Indicates a management contract or compensatory plan
‘P’ = exhibit was filed in paper form
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February | McGrath RentCorp | |||
by: | /s/ Joseph F. Hanna | |||
JOSEPH F. HANNA | ||||
Chief Executive Officer and President (Principal Executive Officer) |
by: | /s/ Keith E. Pratt | |||
KEITH E. PRATT | ||||
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
by: | /s/ David M. Whitney | |||
DAVID M. WHITNEY | ||||
Vice President and Controller (Principal Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
Name | Title | Date | ||
/s/ Nicolas Anderson | Director | February 21, 2024 | ||
NICOLAS ANDERSON | ||||
/s/ Kim A. Box | Director | February 21, 2024 | ||
KIM A. BOX | ||||
/s/ Smita Conjeevaram | Director | February 21, 2024 | ||
Smita Conjeevaram | ||||
/s/ William J. Dawson | Director | February | ||
WILLIAM J. DAWSON | ||||
/s/ Elizabeth A. Fetter | Director | February | ||
ELIZABETH A. FETTER | ||||
/s/ Joseph F. Hanna | Chief Executive Officer, President and Director | February | ||
JOSEPH F. HANNA | ||||
/s/ Bradley M. Shuster |
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| Chairman of the Board | February | ||
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