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EX-31.1 - EX-31.1 - MOBILE MINI INCmini-ex311_6.htm
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EX-31.2 - EX-31.2 - MOBILE MINI INCmini-ex312_7.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 1-12804

 

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

86-0748362

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

4646 E. Van Buren Street, Suite 400

Phoenix, Arizona

 

85008

(Address of principal executive offices)

 

(Zip Code)

(480) 894-6311

(Registrant’s telephone number, including area code)

 

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 every Interactive Data File required to be submitted 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 such files).    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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

At October 12, 2018, there were outstanding 44,692,446 shares of the registrant’s common stock, par value $.01.

 

 

 


MOBILE MINI, INC.

INDEX TO FORM 10-Q FILING

FOR THE QUARTER ENDED SEPTEMBER 30, 2018

 

 

 

 

 

PAGE

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1. Financial Statements

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets September 30, 2018 (unaudited) and December 31, 2017

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2018 and September 30, 2017

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive (Loss) Income (unaudited) for the Three and Nine Months Ended September 30, 2018 and September 30, 2017

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2018 and September 30, 2017

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

33

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

49

 

 

 

 

 

Item 4. Controls and Procedures

 

50

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1A. Risk Factors

 

51

 

 

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

51

 

 

 

 

 

Item 6. Exhibits

 

52

 

 

 

 

2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MOBILE MINI, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value data)

 

 

 

September 30,

2018

 

 

December 31,

2017

 

 

 

(unaudited)

 

 

(audited)

 

ASSETS

 

Cash and cash equivalents

 

$

4,935

 

 

$

13,451

 

Receivables, net of allowance for doubtful accounts of $5,028 and $6,250

   at September 30, 2018 and December 31, 2017, respectively

 

 

118,101

 

 

 

111,562

 

Inventories

 

 

13,444

 

 

 

15,671

 

Rental fleet, net

 

 

925,956

 

 

 

989,154

 

Property, plant and equipment, net

 

 

155,621

 

 

 

157,304

 

Other assets

 

 

17,586

 

 

 

15,334

 

Intangibles, net

 

 

57,164

 

 

 

62,024

 

Goodwill

 

 

706,768

 

 

 

708,907

 

Total assets

 

$

1,999,575

 

 

$

2,073,407

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

32,610

 

 

$

26,955

 

Accrued liabilities

 

 

80,114

 

 

 

78,084

 

Lines of credit

 

 

610,223

 

 

 

634,285

 

Obligations under capital leases

 

 

61,853

 

 

 

52,791

 

Senior notes, net of deferred financing costs of $3,671 and $4,150

   at September 30, 2018 and December 31, 2017, respectively

 

 

246,329

 

 

 

245,850

 

Deferred income taxes

 

 

158,758

 

 

 

173,754

 

Total liabilities

 

 

1,189,887

 

 

 

1,211,719

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock $.01 par value, 20,000 shares authorized, none issued

 

 

 

 

 

 

Common stock $.01 par value, 95,000 shares authorized, 49,987 issued and 44,692

   outstanding at September 30, 2018 and 49,658 issued and 44,380 outstanding at

   December 31, 2017

 

 

500

 

 

 

497

 

Additional paid-in capital

 

 

616,850

 

 

 

605,369

 

Retained earnings

 

 

407,559

 

 

 

463,322

 

Accumulated other comprehensive loss

 

 

(67,387

)

 

 

(60,334

)

Treasury stock, at cost, 5,295 and 5,278 shares at September 30, 2018 and

   December 31, 2017, respectively

 

 

(147,834

)

 

 

(147,166

)

Total stockholders' equity

 

 

809,688

 

 

 

861,688

 

Total liabilities and stockholders' equity

 

$

1,999,575

 

 

$

2,073,407

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

3


MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

140,924

 

 

$

127,695

 

 

$

406,149

 

 

$

360,288

 

Sales

 

 

8,716

 

 

 

8,438

 

 

 

25,700

 

 

 

24,817

 

Other

 

 

67

 

 

 

503

 

 

 

511

 

 

 

1,748

 

Total revenues

 

 

149,707

 

 

 

136,636

 

 

 

432,360

 

 

 

386,853

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

 

90,764

 

 

 

87,745

 

 

 

269,033

 

 

 

248,954

 

Cost of sales

 

 

5,770

 

 

 

5,519

 

 

 

16,925

 

 

 

16,039

 

Restructuring expenses

 

 

 

 

 

625

 

 

 

1,306

 

 

 

2,062

 

Asset impairment charge and loss on divestiture, net

 

 

98,278

 

 

 

 

 

 

98,278

 

 

 

 

Depreciation and amortization

 

 

16,191

 

 

 

15,935

 

 

 

50,206

 

 

 

46,941

 

Total costs and expenses

 

 

211,003

 

 

 

109,824

 

 

 

435,748

 

 

 

313,996

 

(Loss) income from operations

 

 

(61,296

)

 

 

26,812

 

 

 

(3,388

)

 

 

72,857

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

4

 

 

 

6

 

 

 

20

 

Interest expense

 

 

(10,487

)

 

 

(9,203

)

 

 

(30,179

)

 

 

(26,412

)

Foreign currency exchange

 

 

24

 

 

 

(2

)

 

 

69

 

 

 

(29

)

(Loss) income before income tax provision

 

 

(71,759

)

 

 

17,611

 

 

 

(33,492

)

 

 

46,436

 

Income tax (benefit) provision

 

 

(19,594

)

 

 

6,383

 

 

 

(11,182

)

 

 

16,279

 

Net (loss) income

 

$

(52,165

)

 

$

11,228

 

 

$

(22,310

)

 

$

30,157

 

(Loss) earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.18

)

 

$

0.25

 

 

$

(0.50

)

 

$

0.68

 

Diluted

 

 

(1.18

)

 

 

0.25

 

 

 

(0.50

)

 

 

0.68

 

Weighted average number of common and common share

   equivalents outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

44,323

 

 

 

44,039

 

 

 

44,275

 

 

 

44,030

 

Diluted

 

 

44,323

 

 

 

44,206

 

 

 

44,275

 

 

 

44,190

 

Cash dividends declared per share

 

$

0.25

 

 

$

0.23

 

 

$

0.75

 

 

$

0.68

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

4


MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net (loss) income

 

$

(52,165

)

 

$

11,228

 

 

$

(22,310

)

 

$

30,157

 

Foreign currency translation adjustment

 

 

(2,696

)

 

 

7,566

 

 

 

(7,053

)

 

 

19,165

 

Comprehensive (loss) income

 

$

(54,861

)

 

$

18,794

 

 

$

(29,363

)

 

$

49,322

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

5


MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(22,310

)

 

$

30,157

 

Adjustments to reconcile net (loss) income to net cash provided

   by operating activities:

 

 

 

 

 

 

 

 

Asset impairment charge and loss on divestiture, net

 

 

98,278

 

 

 

 

Provision for doubtful accounts

 

 

1,980

 

 

 

3,176

 

Amortization of deferred financing costs

 

 

1,545

 

 

 

1,545

 

Amortization of long-term liabilities

 

 

109

 

 

 

98

 

Share-based compensation expense

 

 

7,866

 

 

 

5,890

 

Depreciation and amortization

 

 

50,206

 

 

 

46,941

 

Gain on sale of rental fleet

 

 

(4,523

)

 

 

(4,273

)

Loss on disposal of property, plant and equipment

 

 

548

 

 

 

472

 

Deferred income taxes

 

 

(12,891

)

 

 

15,167

 

Foreign currency exchange

 

 

(69

)

 

 

29

 

Changes in certain assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(9,029

)

 

 

(3,183

)

Inventories

 

 

(922

)

 

 

(1,443

)

Other assets

 

 

1,875

 

 

 

(497

)

Accounts payable

 

 

3,217

 

 

 

(3,200

)

Accrued liabilities

 

 

340

 

 

 

4,953

 

Net cash provided by operating activities

 

 

116,220

 

 

 

95,832

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of assets held for sale

 

 

3,508

 

 

 

 

Additions to rental fleet, excluding acquisitions

 

 

(65,620

)

 

 

(45,945

)

Proceeds from sale of rental fleet

 

 

11,447

 

 

 

9,602

 

Additions to property, plant and equipment, excluding acquisitions

 

 

(14,635

)

 

 

(12,816

)

Proceeds from sale of property, plant and equipment

 

 

603

 

 

 

780

 

Net cash used in investing activities

 

 

(64,697

)

 

 

(48,379

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net repayments under lines of credit

 

 

(24,062

)

 

 

(281

)

Deferred financing costs

 

 

 

 

 

(12

)

Principal payments on capital lease obligations

 

 

(6,683

)

 

 

(5,526

)

Issuance of common stock

 

 

3,617

 

 

 

4,685

 

Dividend payments

 

 

(33,312

)

 

 

(30,120

)

Purchase of treasury stock

 

 

(668

)

 

 

(8,359

)

Net cash used in financing activities

 

 

(61,108

)

 

 

(39,613

)

Effect of exchange rate changes on cash

 

 

1,069

 

 

 

632

 

Net (decrease) increase in cash

 

 

(8,516

)

 

 

8,472

 

Cash and cash equivalents at beginning of period

 

 

13,451

 

 

 

4,137

 

Cash and cash equivalents at end of period

 

$

4,935

 

 

$

12,609

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

6


MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

31,753

 

 

$

30,379

 

Cash paid for income and franchise taxes

 

 

2,346

 

 

 

1,313

 

Equipment and other acquired through capital lease obligations

 

 

15,746

 

 

 

6,610

 

Capital expenditures accrued or payable

 

 

9,774

 

 

 

8,931

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

 

 

7


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

(1) Mobile Mini, Inc. - Organization and Description of Business

Mobile Mini, Inc., a Delaware corporation, is a leading provider of portable storage solutions and tank and pump solutions. In these notes, the terms “Mobile Mini” the “Company,” “we,” “us,” and “our” refer to Mobile Mini, Inc.

At September 30, 2018, we had a fleet of storage solutions units operating throughout the United States (the “U.S.”), Canada and the United Kingdom (the “U.K.”), serving a diversified customer base, including construction companies, large and small retailers, medical centers, schools, utilities, distributors, the military, hotels, restaurants, entertainment complexes and households. These customers rent our products for a wide variety of applications, including the storage of construction materials and equipment, retail and manufacturing inventory, documents and records and other goods. We also have a fleet of tank and pump solutions products, concentrated in the U.S. Gulf Coast, including liquid and solid containment units, serving a specialty sector in the industry.  Our tank and pump products are rented primarily to chemical, refinery, oil and natural gas drilling, mining and environmental service customers.

Basis of Presentation and Consolidation

The consolidated financial statements include the accounts of Mobile Mini and our wholly owned subsidiaries. We do not have any subsidiaries in which we do not own 100% of the outstanding stock. All significant intercompany balances and transactions have been eliminated.  The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) applicable to interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management of Mobile Mini, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for all periods presented have been made. The results of operations for the three and nine months ended September 30, 2018 and 2017, respectively, are not necessarily indicative of the results to be expected for the full year.  During the current year, we changed the classification of certain ancillary revenues that were previously reported in rental and other revenues to sales revenues, and the corresponding expenses are now being classified in cost of sales on the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2018.  As the amounts are immaterial, reclassifications were not made in the corresponding period of the prior year.

These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the Securities and Exchange Commission (“SEC”) on February 2, 2018.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying condensed consolidated financial statements and the notes to those statements. Actual results could differ from those estimates. Significant estimates affect the calculation of depreciation and amortization, the calculation of the allowance for doubtful accounts, the analysis of goodwill and long-lived assets for potential impairment and certain accrued liabilities.

 

(2) Impact of Recently Issued Accounting Standards

Intangibles – Goodwill and Other – Internal-Use Software.  In August 2018, the Financial Accounting Standards Board (“FASB”) issued a standard that provides guidance on accounting for implementation costs incurred in a cloud computing arrangement that is a service contract.  The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software, and hosting arrangements that include an internal-use software license.  

This guidance also requires entities to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. The entity is also required to present the capitalized implementation costs in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented.  This standard is effective for annual and interim periods beginning after December 15, 2019.  We are currently evaluating the effect the standard will have on our financial statements.

Share-Based Compensation – Modifications. In May 2017, the FASB issued a standard which clarifies what constitutes a modification of a share-based payment award.  This standard is effective for annual and interim periods beginning after December 15, 2017.  We implemented this standard on January 1, 2018 and will apply the guidance to future modifications.

8


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

Business Combinations.  In January 2017, the FASB issued a standard which clarifies the definition of a business and provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.  This standard is effective for annual and interim periods beginning after December 15, 2017.  We implemented this standard on January 1, 2018 and will apply the guidance to future transactions.

Intangibles – Goodwill and Other.  In January 2017, the FASB issued a standard requiring an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment.  Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit.  This standard is effective for annual and interim periods beginning after December 15, 2019.  Entities may early adopt the guidance.  We have not determined an adoption date and do not expect the adoption of this standard to have a material effect on our consolidated financial statements.

Leases.  In February 2016, the FASB issued a standard on lease accounting requiring a lessee to recognize assets and liabilities on the balance sheet for leases with lease terms greater than 12 months. This standard is effective for annual and interim periods beginning after December 15, 2018.

We expect to adopt this standard effective January 1, 2019.  A modified retrospective transition approach is required.  Entities may choose between applying the new standard as of the date of initial application, or applying the standard to all leases existing as of the earliest comparative period and recasting its comparative period financial statements.  We expect to use the effective date as our date of initial application.  Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.  

While we are continuing to evaluate all potential impacts of the standard, we do not believe the accounting for our contractual rental revenue will be materially affected by the adoption of this standard.  The standard includes optional transition practical expedients intended to simplify its adoption.  We intend to elect to use certain of these expedients including, among other things, the ability to retain lease classification determined under legacy GAAP as well as a relief from reviewing expired or existing contracts to determine if they contain leases. We anticipate the lessee accounting for operating leases under the standard will have a material effect on our statement of financial position.

Upon adoption, we currently expect to recognize additional operating liabilities totaling between $75 million to $85 million, with corresponding right of use assets.  The liabilities will be calculated as the present value of the remaining minimum rental payments for existing operating leases.

Revenue from Contracts with Customers.  In May 2014, the FASB issued an accounting standard on revenue from contracts with customers.  The standard provides a single model for revenue arising from contracts with customers and supersedes previous revenue recognition guidance.  The standard requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of goods or services and is effective for annual and interim periods beginning after December 15, 2017.  We adopted this guidance with a date of initial application of January 1, 2018.

The majority of our revenue, as it relates to contractual rental revenue, is excluded from the scope of this standard, and the accounting for the remaining revenue streams were not affected. We utilized the modified retrospective adoption and there was no impact on our consolidated financial statements, nor was there a cumulative effect of initially applying the standard.  For more information regarding our revenue from contracts with customers, see the disclosure in Note 4.

 

(3) Fair Value Measurements

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement determined by assumptions that market participants would use in pricing an asset or liability. We categorize each of our fair value measurements in one of the following three levels based on the lowest level of input that is significant to the fair value measurement: 

Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2 — Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and

Level 3 — Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

At September 30, 2018 and December 31, 2017, we did not have any financial instruments required to be recorded at fair value on a recurring basis.

9


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

The carrying amounts of cash, cash equivalents, receivables, accounts payable and accrued liabilities approximate fair values based on their short-term nature. The fair values of our revolving credit facility and capital leases are estimated using discounted cash flow analyses, based on our current incremental borrowing rates for similar types of borrowing arrangements. Based on the borrowing rates currently available to us for bank loans with similar terms and average maturities, the fair value of our revolving credit facility debt and capital leases, which are measured using Level 2 inputs, at September 30, 2018 and December 31, 2017 approximated their respective book values.

The fair value of our $250.0 million aggregate principal amount of 5.875% senior notes due July 1, 2024 (the “Senior Notes” or “2024 Notes”) is based on their latest sales price at the end of each period obtained from a third-party institution and is Level 2 in the fair value hierarchy as there is not an active market for the Senior Notes.  The Senior Notes are presented on the balance sheet net of deferred financing costs. The gross carrying value and the fair value of our Senior Notes are as follows:

 

 

 

September 30,

2018

 

 

December 31,

2017

 

 

 

(In thousands)

 

Carrying value

 

$

250,000

 

 

$

250,000

 

Fair value

 

 

253,200

 

 

 

262,500

 

 

 

(4) Revenue from Contracts with Customers

Revenue Recognition

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.  A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

Rental contracts with our customers may have multiple performance obligations including the direct rental of fleet to our customers, fleet delivery and pickup.  Also included in rental revenues are ancillary fees including late charges and charges for damages.  For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using the contractually stated price as our best estimate of the standalone selling price of each distinct promise in the contract.  Our prices are determined using methods and assumptions developed consistently across similar customers and markets.

We enter into contracts with our customers to rent equipment based on a monthly rate for our Storage Solutions fleet and a daily, weekly or monthly rate for our Tank & Pump Solutions fleet.  Revenues from renting are recognized ratably over the rental period. The rental continues until cancelled by the customer or the Company. If equipment is returned prior to the end of the contractually obligated period, the excess, if any, between the amount the customer is contractually required to pay, over the cumulative amount of revenue recognized to date, is recognized as incremental revenue upon return. Customers may utilize our equipment delivery and pick-up services in conjunction with the rental of equipment, but it is not required. Revenue pursuant to the delivery or pick up of a rented unit is recognized in rental revenue upon completion of the service.  

Sales revenue is primarily generated by the sale of new and used units, and to a lesser extent, parts and supplies sold to Tank & Pump Solutions customers.  Sales contracts generally have a single performance obligation that is satisfied at the time of delivery. Sales revenue is measured based on the consideration specified in the contract and recognized when the customer takes possession of the unit or other sale items.

Our Storage Solutions rental customers are generally billed in advance.  Additionally, we may bill our customers in advance for fleet pickup.  Tank & Pump Solutions rental customers are typically billed in arrears, a minimum of once per month.  Sales transactions are generally billed in advance or upon transfer of the sold items.  Payments from customers are generally due upon receipt of the invoice.  Certain customers have extended terms for payment, but no terms are greater than one year following the invoice date.

Taxes assessed by a governmental authority that are both imposed and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

As disclosed in Note 2, we adopted new guidance related to revenue from contracts with customers.  The adoption did not have a significant impact on our revenue, nor did it result in a cumulative effect adjustment as of January 1, 2018.  We have consistently applied our accounting policies to all periods presented in these consolidated financial statements.

10


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

Contract Costs and Liabilities

We incur commission costs to obtain rental contracts and for sales of fleet inventory.  We expect the period benefitted by each commission to be less than one year. As a result, we have applied the practical expedient for incremental costs of obtaining a contract and expense commissions as incurred.

When customers are billed in advance, we defer recognition of revenue and reflect unearned rental revenue at the end of the period.  As of September 30, 2018 and December 31, 2017, we had approximately $39.9 million and $38.3 million, respectively, of unearned rental revenue included in accrued liabilities in the condensed consolidated balance sheets for September 30, 2018 and December 31, 2017.  We expect to perform the remaining performance obligations and recognize the unearned rental revenue within the next twelve months.  Accordingly, we have applied the practical expedient available, under which we do not disclose the amount of consideration allocable to different performance obligations.

Disaggregated Rental Revenue

In the following table, rental revenue is disaggregated by the nature of the underlying service provided and for the periods indicated.  The table also includes a reconciliation of the disaggregated rental revenue to our reportable segments.

 

 

 

For the Three Months Ended September 30, 2018

 

 

 

Storage Solutions

 

 

 

 

 

 

 

 

 

 

 

North

America

 

 

United

Kingdom

 

 

Total

 

 

Tank &

Pump

Solutions

 

 

Consolidated

 

 

 

(In thousands)

 

Direct rental revenue

 

$

68,073

 

 

$

14,068

 

 

$

82,141

 

 

$

19,461

 

 

$

101,602

 

Delivery, pickup and similar revenue

 

 

21,671

 

 

 

5,118

 

 

 

26,789

 

 

 

8,329

 

 

 

35,118

 

Ancillary rental revenue

 

 

2,497

 

 

 

1,212

 

 

 

3,709

 

 

 

495

 

 

 

4,204

 

Total rental revenues

 

$

92,241

 

 

$

20,398

 

 

$

112,639

 

 

$

28,285

 

 

$

140,924

 

 

 

 

For the Three Months Ended September 30, 2017

 

 

 

Storage Solutions

 

 

 

 

 

 

 

 

 

 

 

North

America

 

 

United

Kingdom

 

 

Total

 

 

Tank &

Pump

Solutions

 

 

Consolidated

 

 

 

(In thousands)

 

Direct rental revenue

 

$

61,681

 

 

$

14,163

 

 

$

75,844

 

 

$

16,231

 

 

$

92,075

 

Delivery, pickup and similar revenue

 

 

19,686

 

 

 

4,922

 

 

 

24,608

 

 

 

6,341

 

 

 

30,949

 

Ancillary rental revenue

 

 

2,882

 

 

 

1,154

 

 

 

4,036

 

 

 

635

 

 

 

4,671

 

Total rental revenues

 

$

84,249

 

 

$

20,239

 

 

$

104,488

 

 

$

23,207

 

 

$

127,695

 

 

 

 

For the Nine Months Ended September 30, 2018

 

 

 

Storage Solutions

 

 

 

 

 

 

 

 

 

 

 

North

America

 

 

United

Kingdom

 

 

Total

 

 

Tank &

Pump

Solutions

 

 

Consolidated

 

 

 

(In thousands)

 

Direct rental revenue

 

$

196,029

 

 

$

42,684

 

 

$

238,713

 

 

$

57,301

 

 

$

296,014

 

Delivery, pickup and similar revenue

 

 

59,893

 

 

 

14,822

 

 

 

74,715

 

 

 

21,970

 

 

 

96,685

 

Ancillary rental revenue

 

 

8,305

 

 

 

3,560

 

 

 

11,865

 

 

 

1,585

 

 

 

13,450

 

Total rental revenues

 

$

264,227

 

 

$

61,066

 

 

$

325,293

 

 

$

80,856

 

 

$

406,149

 

 

11


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

 

 

For the Nine Months Ended September 30, 2017

 

 

 

Storage Solutions

 

 

 

 

 

 

 

 

 

 

 

North

America

 

 

United

Kingdom

 

 

Total

 

 

Tank &

Pump

Solutions

 

 

Consolidated

 

 

 

(In thousands)

 

Direct rental revenue

 

$

176,013

 

 

$

39,999

 

 

$

216,012

 

 

$

47,205

 

 

$

263,217

 

Delivery, pickup and similar revenue

 

 

51,712

 

 

 

14,035

 

 

 

65,747

 

 

 

17,699

 

 

 

83,446

 

Ancillary rental revenue

 

 

8,601

 

 

 

3,420

 

 

 

12,021

 

 

 

1,604

 

 

 

13,625

 

Total rental revenues

 

$

236,326

 

 

$

57,454

 

 

$

293,780

 

 

$

66,508

 

 

$

360,288

 

 

 

(5) Earnings Per Share

Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of common shares outstanding during the period.  Restricted stock awards are subject to the risk of forfeiture and are not included in the calculation of basic weighted average number of common shares outstanding until vested. Diluted EPS is calculated under the treasury stock method.  Potential common shares included restricted common stock and incremental shares of common stock issuable upon the exercise of stock options.

The following table is a reconciliation of net income and weighted-average shares of common stock outstanding for purposes of calculating basic and diluted EPS:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(In thousands, except per share data)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(52,165

)

 

$

11,228

 

 

$

(22,310

)

 

$

30,157

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

 

44,323

 

 

 

44,039

 

 

 

44,275

 

 

 

44,030

 

Dilutive effect of share-based awards

 

 

 

 

 

167

 

 

 

 

 

 

160

 

Weighted average shares outstanding - diluted

 

 

44,323

 

 

 

44,206

 

 

 

44,275

 

 

 

44,190

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.18

)

 

$

0.25

 

 

$

(0.50

)

 

$

0.68

 

Diluted

 

 

(1.18

)

 

 

0.25

 

 

 

(0.50

)

 

 

0.68

 

 

 

There were approximately 0.8 million and 0.7 million of common stock equivalents that would have been included in the diluted EPS denominator for the three and nine month periods ended September 30, 2018, respectively, had there not been a net loss.  These common stock equivalents were excluded because their inclusion would reduce the net loss per share.  In addition, the following table represents the effect of stock options and restricted share awards that were issued or outstanding but excluded in calculating diluted EPS because their effect would have been anti-dilutive for the periods indicated, or the underlying performance criteria had not yet been met:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Stock options

 

 

691

 

 

 

2,185

 

 

 

724

 

 

 

2,213

 

Restricted share awards

 

 

42

 

 

 

1

 

 

 

27

 

 

 

4

 

Total

 

 

733

 

 

 

2,186

 

 

 

751

 

 

 

2,217

 

 

 

12


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

(6) Inventories

Inventories are valued at the lower of cost (principally on a standard cost basis which approximates the first-in, first-out method) or net realizable value. Raw materials and supplies principally consist of raw steel, glass, paint, vinyl and other assembly components used in manufacturing and remanufacturing processes and, to a lesser extent, parts used for internal maintenance and ancillary items held for sale in our Tank & Pump Solutions segment. Work-in-process primarily represents partially assembled units. Finished units primarily represent purchased or assembled containers held in inventory until the container is either sold as is, remanufactured and sold, or remanufactured and deployed as rental fleet. Inventories at September 30, 2018 and December 31, 2017 consisted of the following:

 

 

 

September 30,

2018

 

 

December 31,

2017

 

 

 

(In thousands)

 

Raw materials and supplies

 

$

9,892

 

 

$

11,732

 

Work-in-process

 

 

 

 

 

50

 

Finished units

 

 

3,552

 

 

 

3,889

 

Inventories

 

$

13,444

 

 

$

15,671

 

 

 

(7) Rental Fleet

Rental fleet is capitalized at cost and depreciated over the estimated useful life of the unit using the straight-line method. Rental fleet is depreciated whether or not it is out on rent. Capitalized cost of rental fleet includes the price paid to acquire the unit and freight charges to the location when the unit is first placed in service, and when applicable, the cost of manufacturing or remanufacturing, which includes the cost of customizing units. Ordinary repair and maintenance costs are charged to operations as incurred.

We periodically review depreciable lives and residual values against various factors, including the results of our lenders’ independent appraisal of our rental fleet, practices of our competitors in comparable industries and profit margins achieved on sales of depreciated units.  See Note 17 for information regarding the impairment charge and loss on divestiture, net related to certain of our fleet during the current period.

Appraisals on our rental fleet are required by our lenders on a regular basis. The appraisal typically reports no difference in the value of the unit due to the age or length of time it has been in our fleet. Based in part upon our lender’s third-party appraiser who evaluated our fleet as of September 30, 2017, management estimates that the net orderly liquidation appraisal value as of September 30, 2018 was approximately $1.1 billion.  Our net book value for this fleet as of September 30, 2018 was $0.9 billion.

Depreciation expense related to our rental fleet for the nine months ended September 30, 2018 and 2017 was $23.9 million and $23.1 million, respectively. At September 30, 2018, all rental fleet units were pledged as collateral under our Amended and Restated ABL Credit Agreement, dated December 14, 2015, with Deutsche Bank AG New York Branch, as administrative agent, and the other lenders party thereto (the “Credit Agreement”).

13


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

Rental fleet consisted of the following at September 30, 2018 and December 31, 2017:

 

 

 

Residual Value

as Percentage of

Original Cost (1)

 

 

Estimated

Useful Life

in Years

 

September 30,

2018

 

 

December 31,

2017

 

 

 

 

 

 

 

 

 

(In thousands)

 

Storage Solutions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel storage containers

 

 

55%

 

 

30

 

$

596,403

 

 

$

655,553

 

Steel ground level offices

 

55

 

 

30

 

 

342,712

 

 

 

374,836

 

Other

 

 

 

 

 

 

 

 

7,530

 

 

 

8,290

 

Total

 

 

 

 

 

 

 

 

946,645

 

 

 

1,038,679

 

Accumulated depreciation

 

 

 

 

 

 

 

 

(149,158

)

 

 

(168,112

)

Total Storage Solutions fleet, net

 

 

 

 

 

 

 

$

797,487

 

 

$

870,567

 

Tank & Pump Solutions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel tanks

 

 

 

 

 

25

 

$

68,689

 

 

$

64,254

 

Roll-off boxes

 

 

 

 

 

15 - 20

 

 

33,887

 

 

 

29,897

 

Stainless steel tank trailers

 

 

 

 

 

25

 

 

28,969

 

 

 

28,871

 

Vacuum boxes

 

 

 

 

 

20

 

 

16,790

 

 

 

12,700

 

Dewatering boxes

 

 

 

 

 

20

 

 

8,250

 

 

 

6,361

 

Pumps and filtration equipment

 

 

 

 

 

7

 

 

14,239

 

 

 

12,680

 

Other

 

 

 

 

 

 

 

 

7,512

 

 

 

7,088

 

Total

 

 

 

 

 

 

 

 

178,336

 

 

 

161,851

 

Accumulated depreciation

 

 

 

 

 

 

 

 

(49,867

)

 

 

(43,264

)

Total Tank & Pump Solutions fleet, net

 

 

 

 

 

 

 

$

128,469

 

 

$

118,587

 

Total rental fleet, net

 

 

 

 

 

 

 

$

925,956

 

 

$

989,154

 

 

(1)

Tank & Pump Solutions fleet has been assigned zero residual value.

 

 

(8) Property, Plant and Equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is recorded using the straight-line method over the assets’ estimated useful lives. Our depreciation expense related to property, plant and equipment for the nine months ended September 30, 2018 and 2017 was $21.4 million and $19.0 million, respectively. Normal repairs and maintenance to property, plant and equipment are expensed as incurred. When property or equipment is retired or sold, the net book value of the asset, reduced by any proceeds, is charged to gain or loss on the disposal of property, plant and equipment and is included in rental, selling and general expenses in the condensed consolidated statements of operations.

Property, plant and equipment at September 30, 2018 and December 31, 2017 consisted of the following:

 

 

 

Residual Value

as Percentage of

Original Cost

 

 

Estimated

Useful Life

in Years

 

September 30,

2018

 

 

December 31,

2017

 

 

 

 

 

 

 

 

 

(In thousands)

 

Land

 

 

 

 

 

 

 

$

2,954

 

 

$

2,970

 

Vehicles and machinery

 

   0 - 55%

 

 

5 - 30

 

 

152,782

 

 

 

151,937

 

Buildings and improvements (1)

 

0 - 25

 

 

3 - 30

 

 

26,779

 

 

 

25,079

 

Furniture, office and computer equipment

 

 

 

 

3 - 10

 

 

75,966

 

 

 

73,416

 

Property, plant and equipment

 

 

 

 

 

 

 

 

258,481

 

 

 

253,402

 

Accumulated depreciation

 

 

 

 

 

 

 

 

(102,860

)

 

 

(96,098

)

Property, plant and equipment, net

 

 

 

 

 

 

 

$

155,621

 

 

$

157,304

 

 

(1)

Improvements made to leased properties are depreciated over the lesser of the estimated remaining life or the remaining term of the respective lease.

14


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

As of September 30, 2018 and December 31, 2017, we had $40.4 million and $39.5 million, respectively, of capitalized software, net of accumulated depreciation, included in property, plant and equipment.

 

(9) Goodwill and Intangibles

For acquired businesses, we record assets acquired and liabilities assumed at their 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 is recorded as goodwill. Of the $706.8 million total goodwill at September 30, 2018, $468.7 million related to the North America Storage Solutions segment, $56.9 million related to the U.K. Storage Solutions segment and $181.2 million related to the Tank & Pump Solutions segment.

The following table shows the activity and balances related to goodwill from January 1, 2018 to September 30, 2018 (in thousands): 

 

Balance at January 1, 2018

 

$

708,907

 

Foreign currency

 

 

(2,139

)

Balance at September 30, 2018

 

$

706,768

 

 

Intangible assets are amortized over the estimated useful life of the asset utilizing a method which reflects the estimated pattern in which the economic benefits will be consumed.  Customer relationships are amortized based on the estimated attrition rates of the underlying customer base. Other intangibles are amortized using the straight-line method.

The following table reflects balances related to intangible assets for the periods presented:

 

 

 

 

 

September 30, 2018

 

 

December 31, 2017

 

 

 

Estimated

Useful Life

in Years

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

 

 

 

(In thousands)

 

Customer relationships

 

15 - 20

 

$

92,946

 

 

$

(38,342

)

 

$

54,604

 

 

$

93,235

 

 

$

(34,660

)

 

$

58,575

 

Trade names/trademarks

 

  5 - 10

 

 

5,929

 

 

 

(3,826

)

 

 

2,103

 

 

 

5,954

 

 

 

(3,312

)

 

 

2,642

 

Non-compete agreements

 

5

 

 

1,888

 

 

 

(1,459

)

 

 

429

 

 

 

1,890

 

 

 

(1,114

)

 

 

776

 

Other

 

20

 

 

59

 

 

 

(31

)

 

 

28

 

 

 

60

 

 

 

(29

)

 

 

31

 

Total

 

 

 

$

100,822

 

 

$

(43,658

)

 

$

57,164

 

 

$

101,139

 

 

$

(39,115

)

 

$

62,024

 

 

Amortization expense for amortizable intangibles was approximately $4.8 million and $4.9 million for the nine-month periods ended September 30, 2018 and 2017, respectively.  Based on the carrying value at September 30, 2018, future amortization of intangible assets is expected to be as follows for the years ended December 31 (in thousands): 

 

2018 (remaining)

 

$

1,603

 

2019

 

 

6,304

 

2020

 

 

5,143

 

2021

 

 

4,907

 

2022

 

 

4,606

 

Thereafter

 

 

34,601

 

Total

 

$

57,164

 

 

15


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

(10) Debt

Lines of Credit

On December 14, 2015, we entered into the Credit Agreement with Deutsche Bank AG New York Branch, as administrative agent, and other lenders party thereto. The Credit Agreement provides for a five-year, $1.0 billion first lien senior secured revolving credit facility maturing on or before the earlier of (i) December 14, 2020 and (ii) the date that is 90 days prior to the final maturity date of the Senior Notes, if such Senior Notes remain outstanding on such date.  The Credit Agreement also provides for the issuance of irrevocable standby letters of credit by U.S.-based lenders in amounts totaling up to $50.0 million, by U.K.-based lenders in amounts totaling up to $20.0 million, and by Canadian-based lenders in amounts totaling up to $20.0 million.  The obligations of Mobile Mini and its subsidiary guarantors under the Credit Agreement are secured by a blanket lien on substantially all of our assets.

Amounts borrowed under the Credit Agreement and repaid or prepaid during the term may be reborrowed. Outstanding amounts under the Credit Agreement bear interest at our option at either: (i) the London interbank offered rate (“LIBOR”) plus an applicable margin (“LIBOR Loans”), or (ii) the prime rate plus an applicable margin (“Base Rate Loans”). The applicable margin for each type of loan is based on an availability-based pricing grid and ranges from 1.25% to 1.75% for LIBOR Loans and 0.25% to 0.75% for Base Rate Loans at each measurement date. As of September 30, 2018, the applicable margins are 1.50% for LIBOR Loans and 0.50% for Base Rate Loans.

Availability of borrowings under the Credit Agreement is subject to a borrowing base calculation based upon a valuation of the Company’s eligible accounts receivable, eligible fleet (including units held for sale, work-in-process and raw materials) and machinery and equipment, each multiplied by an applicable advance rate or limit. The rental fleet is appraised at least once annually by a third-party appraisal firm and up to 90% of the net orderly liquidation value, as defined in the Credit Agreement, is included in the borrowing base to determine the amount the Company may borrow under the Credit Agreement. At September 30, 2018, we had $610.2 million of borrowings outstanding and $386.4 million of additional borrowing availability under the Credit Agreement.

The Credit Agreement provides for U.K. borrowings, which are, at the Company’s option, denominated in either Pounds Sterling or Euros, by its U.K. subsidiary based upon a U.K. borrowing base; Canadian borrowings, which are denominated in Canadian dollars, by its Canadian subsidiary based upon a Canadian borrowing base; and U.S. borrowings, which are denominated in U.S. dollars, by the Company based upon a U.S. borrowing base along with any Canadian assets not included in the Canadian subsidiary.

The Credit Agreement also contains customary negative covenants, including covenants that restrict or limit the Company’s ability to, among other things: (i) allow certain liens to attach to the Company’s or its subsidiaries’ assets, (ii) repurchase or pay dividends or make certain other restricted payments on capital stock and certain other securities, or prepay certain indebtedness, (iii) incur additional indebtedness or engage in certain other types of financing transactions, and (iv) make acquisitions or other investments.  In addition, we must comply with a minimum fixed charge coverage ratio of 1.00 to 1.00 as of the last day of each quarter, upon the minimum availability amount under the Credit Agreement falling below the greater of (y) $90 million and (z) 10% of the lesser of the then total revolving loan commitment and aggregate borrowing base.  As of September 30, 2018, we were in compliance with the minimum borrowing availability threshold set forth in the Credit Agreement and, therefore, are not subject to any financial maintenance covenants.

Senior Notes

We have outstanding $250.0 million aggregate principal amount of 2024 Notes issued at their face value on May 9, 2016.  The 2024 Notes bear interest at a rate of 5.875% per year, have an eight-year term and mature on July 1, 2024. Interest on the 2024 Notes is payable semiannually in arrears on January 1 and July 1. The 2024 Notes are senior unsecured obligations of the Company and are unconditionally guaranteed on a senior unsecured basis by certain of our existing and future domestic subsidiaries.

Obligations Under Capital Leases

At September 30, 2018 and December 31, 2017, obligations under capital leases for certain real property and transportation related equipment were $61.9 million and $52.8 million, respectively. Certain of the lease agreements provide us with a purchase option at the end of the lease term.

16


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

Future Debt Obligations

The scheduled maturity for debt obligations for balances outstanding at September 30, 2018 are as follows:

 

 

 

Lines of

Credit

 

 

Senior

Notes

 

 

Capital Lease

Obligations

 

 

Total

 

 

 

(In thousands)

 

2018 (remaining)

 

$

 

 

$

 

 

$

2,572

 

 

$

2,572

 

2019

 

 

 

 

 

 

 

 

10,070

 

 

 

10,070

 

2020

 

 

610,223

 

 

 

 

 

 

11,208

 

 

 

621,431

 

2021

 

 

 

 

 

 

 

 

11,258

 

 

 

11,258

 

2022

 

 

 

 

 

 

 

 

9,869

 

 

 

9,869

 

Thereafter

 

 

 

 

 

250,000

 

 

 

16,876

 

 

 

266,876

 

Total

 

$

610,223

 

 

$

250,000

 

 

$

61,853

 

 

$

922,076

 

 

 

(11) Income Taxes

We are subject to taxation in the U.S. federal jurisdiction, as well as various U.S. state and foreign jurisdictions. We have identified our U.S. federal tax return as our “major” tax jurisdiction. As of September 30, 2018, we are no longer subject to examination by U.S. federal tax authorities for years prior to 2014, to examination for any U.S. state taxing authority prior to 2012, or to examination for any foreign jurisdictions prior to 2013.  All subsequent periods remain open to examination.  

Our effective income tax rate decreased to 33.4% for the nine months ended September 30, 2018, compared to 35.1% for the prior-year period.  The current period effective tax rate was affected by the reduction of the U.S. federal tax rate from 35% to 21%, which was partially offset by the increase in disallowed deductions for officers’ compensation, both of which are a result of the Tax Cuts and Jobs Act (the “Tax Act”) enacted on December 22, 2017.  Additionally, income tax benefits were recognized due to state tax rate changes enacted in the third quarter and for adjustments made to provisional amounts related to repatriation of foreign earnings, which had the effect of increasing the effective tax rate due to the $33.5 million pre-tax loss recognized during the nine month period.

In December 2017, we recorded $3.1 million of provisional tax expense related to the repatriation of foreign earnings attributable to the impact of the Tax Act. We have not yet finalized these calculations, however an adjustment to the provisional amount has been made in the current nine-month period of a $2.9 million benefit, reducing this provisional amount to $0.2 million.  The adjustment was primarily due to additional analysis of historical ownership and financial information, including depreciation estimates, as well as state responses to tax reform enacted in the period. We continue to obtain and analyze information related to the depreciation estimates impacting the deemed repatriation of foreign earnings and will finalize the provisional amounts within one year from the date of enactment.

Our policy for recording interest and penalties associated with audits is to record such items as a component of income before taxes. Penalties and associated interest costs, if any, are recorded in rental, selling and general expenses in our condensed consolidated statements of operations.

As of September 30, 2018, we no longer have unrecognized tax benefits.  The reduction to our unrecognized tax benefits in the period had no effect on our effective tax rate. A reconciliation of the beginning and ending balance of our unrecognized tax position is as follows (in thousands):

 

 

 

Gross Position

 

 

Tax Effect

 

Balance as of January 1, 2018

 

$

14,140

 

 

$

3,521

 

Additions based on tax positions related to the current year

 

 

 

 

 

 

Additions for tax positions of prior years

 

 

 

 

 

 

Reduction for settlements

 

 

(14,140

)

 

 

(3,521

)

Balance as of September 30, 2018

 

$

 

 

$

 

 

 

(12) Share-Based Compensation

We have historically awarded stock options and restricted stock awards for employees and non-employee directors as a means of attracting and retaining quality personnel and to align employee performance with stockholder value.  Share-based compensation plans are approved by our stockholders and administered by the stock compensation committee of the Company’s Board of Directors (the “Board”). The current plan allows for a variety of equity programs designed to provide flexibility in implementing equity and

17


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

cash awards, including incentive stock options, nonqualified stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance stock, performance units and other stock-based awards. Participants may be granted any one of the equity awards or any combination. We do not award stock options with an exercise price below the market price of the underlying securities on the date of grant.  As of September 30, 2018, 1.6 million shares are available for future grants, assuming performance-based awards vest at their target amount.  Generally, stock options have contractual terms of ten years. Expense related to performance-based awards is recognized based upon anticipated attainment.

 

The following table summarizes the Company’s share-based compensation for the three and nine months ended September 30:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Share-based compensation expense included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

$

2,230

 

 

$

2,071

 

 

$

7,503

 

 

$

5,890

 

Restructuring expenses

 

 

 

 

 

 

 

 

363

 

 

 

 

Total share-based compensation

 

$

2,230

 

 

$

2,071

 

 

$

7,866

 

 

$

5,890

 

 

During the nine months ended September 30, 2017, the final vesting dates were accelerated for certain share-based compensation awards to an executive departing the Company. The vesting dates were adjusted to correspond to the executive’s departure date, resulting in expense of $0.2 million in the quarter ended September 30, 2017 and a total of $1.2 million in the nine month period ended September 30, 2017. The expense related to the acceleration is included in rental, selling and general expenses in the condensed consolidated statements of operations for the three and nine months ended September 30, 2017.

As of September 30, 2018, total unrecognized compensation cost related to stock option awards assuming achievement at target was approximately $0.8 million and the related weighted-average period over which it is expected to be recognized is approximately 0.7 years. As of September 30, 2018, the unrecognized compensation cost related to restricted stock awards assuming achievement at target was approximately $8.2 million, which is expected to be recognized over a weighted-average period of approximately 1.9 years.

Stock Options. The fair value of each stock option award is estimated on the date of the grant using the Black-Scholes-Merton option pricing model which requires the input of assumptions. We estimate the risk-free interest rate based on the U.S. Treasury security rate in effect at the time of the grant. The expected life of the options, volatility and dividend rates are estimated based on our historical data. No new stock options were issued in 2018.  The following are the key assumptions used for the nine-month period ended September 30, 2017:

 

Risk-free interest rate

 

1.7% - 1.9%

Expected life of the options (years)

 

5

Expected stock price volatility

 

33.4% - 35.4%

Expected dividend rate

 

2.8% - 3.1%

 

The following table summarizes stock option activity for the nine months ended September 30, 2018:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

 

(In thousands)

 

 

 

 

 

Options outstanding, beginning of period

 

 

3,169

 

 

$

32.49

 

Additional options granted based upon achievement of

   specified performance criteria

 

 

81

 

 

 

32.42

 

Canceled/Expired

 

 

(174

)

 

 

27.75

 

Exercised

 

 

(118

)

 

 

30.86

 

Options outstanding, end of period

 

 

2,958

 

 

 

32.70

 

 

18


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

The beginning balance of options outstanding in the table above includes approximately 0.7 million unvested performance-based stock options granted in 2017 and 2016, for which the targets were set at the time of the grant.  For options granted in both 2017 and 2016, vesting conditions were related to the Company’s return on capital employed.  

Certain options granted in 2017 vested contingent upon 2017 performance targets.  Actual performance exceeded targets for these shares.  As a result, in the first quarter of 2018, in addition to the target options included in the beginning balance, additional options were vested.  Certain options granted in 2016 also vested contingent upon 2017 performance targets.  Actual performance did not achieve the minimum vesting requirements for these shares.  As a result, shares totaling 0.1 million are included in the canceled/expired shares in the above table.

Included in the options outstanding at the end of the period are approximately 0.5 million of unvested performance-based stock options granted in 2017 and 2016 for which the performance criteria relates to fiscal years 2018 and 2019.  These stock options are included in the table at the target amount; however, the terms of these awards provide that the number of options that ultimately vest may vary between 50% and 200% of the target award, or may be zero.

 

A summary of stock options outstanding as of September 30, 2018 is as follows:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Terms

 

 

Aggregate

Intrinsic

Value

 

 

 

(In thousands)

 

 

 

 

 

 

(In years)

 

 

(In thousands)

 

Outstanding

 

 

2,958

 

 

$

32.70

 

 

 

5.29

 

 

$

33,534

 

Exercisable

 

 

2,593

 

 

 

33.01

 

 

 

4.90

 

 

 

28,662

 

 

The aggregate intrinsic value of options exercised during the nine months ended September 30, 2018 was approximately $1.4 million.

Restricted Stock Awards. The fair value of restricted stock awards is estimated as the closing price of our common stock on the date of grant. A summary of restricted stock award activity is as follows:

 

 

 

Shares

 

 

Weighted

Average

Grant Date

Fair Value

 

 

 

(In thousands)

 

 

 

 

 

Restricted stock awards at beginning of period

 

 

234

 

 

$

31.42

 

Awarded

 

 

225

 

 

 

38.45

 

Released

 

 

(106

)

 

 

34.30

 

Forfeited

 

 

(13

)

 

 

36.67

 

Restricted stock awards at end of period

 

 

340

 

 

 

34.99

 

 

Included in the restricted stock awarded in 2018 are 0.1 million shares that vest based upon the achievement of specified performance criteria related to fiscal years 2018, 2019 and 2020.  Such awards have been granted assuming a target number of shares.  However, the terms of these awards provide that the number of shares that ultimately vest may vary between 50% and 200% of the target award, or may be zero.  The table presents the awards at their target amount.

 

The restricted stock awards that vested during the nine months ended September 30, 2018 had an aggregate grant date fair value of $3.6 million and an aggregate vesting date fair value of $4.3 million.

 

 

(13) Restructuring

We have undergone restructuring actions to align our business operations.  Of the $1.3 million of restructuring expenses recognized in the nine months ended September 30, 2018, $0.9 million related to the restructuring of our corporate service center, including the severance of an executive.  The remainder primarily related to projects initiated in prior years that were not accruable during such periods.

19


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

Of the $2.1 million of restructuring expense recognized in the nine months ended September 30, 2017, approximately $0.8 million of expenses largely related to the abandonment of yards, or portions of yard, as well as related fleet and other costs due to the divestiture of our wood mobile office business.  Additionally, $1.3 million related to activities associated with the continued integration of Evergreen Tank Solutions (“ETS”) into the existing Mobile Mini infrastructure.

The following table details accrued restructuring obligations (included in accrued liabilities in the Condensed Consolidated Balance Sheets) and related activity for the fiscal year ended December 31, 2017 and the nine-month period ended September 30, 2018:

 

 

 

Severance and

Benefits

 

 

Lease

Abandonment

Costs

 

 

Other

Costs

 

 

Total

 

 

 

(In thousands)

 

Accrued obligations as of January 1, 2017

 

$

395

 

 

$

368

 

 

$

 

 

$

763

 

Restructuring expense

 

 

931

 

 

 

900

 

 

 

1,055

 

 

 

2,886

 

Settlement of obligations

 

 

(787

)

 

 

(1,086

)

 

 

(1,019

)

 

 

(2,892

)

Accrued obligations as of December 31, 2017

 

 

539

 

 

 

182

 

 

 

36

 

 

 

757

 

Restructuring expense

 

 

948

 

 

 

125

 

 

 

233

 

 

 

1,306

 

Settlement of obligations

 

 

(1,353

)

 

 

(247

)

 

 

(261

)

 

 

(1,861

)

Accrued obligations as of September 30, 2018

 

$

134

 

 

$

60

 

 

$

8

 

 

$

202

 

 

The following amounts are included in restructuring expenses for the periods indicated:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Severance and benefits

 

$

 

 

$

277

 

 

$

948

 

 

$

277

 

Lease abandonment costs

 

 

 

 

 

105

 

 

 

125

 

 

 

810

 

Other costs

 

 

 

 

 

243

 

 

 

233

 

 

 

975

 

Restructuring expenses

 

$

 

 

$

625

 

 

$

1,306

 

 

$

2,062

 

 

 

(14) Commitments and Contingencies

We are a party to various claims and litigation in the normal course of business. Our current estimated range of liability related to various claims and pending litigation is based on claims for which our management can determine that it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Because of the uncertainties related to both the probability of incurred and possible range of loss on pending claims and litigation, management must use considerable judgment in making reasonable determination of the liability that could result from an unfavorable outcome. As additional information becomes available, we will assess the potential liability related to our pending litigation and revise our estimates. Such revisions in our estimates of the potential liability could materially impact our results of operation. We do not anticipate the resolution of such matters known at this time will have a material adverse effect on our business or consolidated financial position.

 

 

(15) Stockholders’ Equity

Dividends

The Board authorized and declared cash dividends to all of our common stockholders as follows:

 

Declaration Date

 

Payment Date

 

Record Date

(close of business)

 

Dividend Amount Per Share

of Common Stock

 

January 31, 2018

 

March 14, 2018

 

February 28, 2018

 

$

0.250

 

April 19, 2018

 

May 30, 2018

 

May 16, 2018

 

 

0.250

 

July 18, 2018

 

August 29, 2018

 

August 15, 2018

 

 

0.250

 

20


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

Treasury Stock

On November 6, 2013, the Board approved a share repurchase program authorizing up to $125.0 million of our outstanding shares of common stock to be repurchased. On April 17, 2015, the Board authorized up to an additional $50.0 million of our outstanding shares of common stock to be repurchased, for a total of $175.0 million under the share repurchase program. The shares may be repurchased from time to time in the open market or in privately negotiated transactions. The share repurchases are subject to prevailing market conditions and other considerations. The share repurchase program does not have an expiration date and may be suspended or terminated at any time by the Board. All shares repurchased are held in treasury.

During the nine months ended September 30, 2018, we did not purchase shares of our common stock under the authorized share repurchase program. Approximately $70.8 million is available for repurchase as of September 30, 2018.  We withheld approximately 17,000 shares of stock from employees, for an approximate value of $0.7 million, upon vesting of share awards to satisfy minimum tax withholding obligations during the nine months ended September 30, 2018. These shares were not acquired pursuant to the share repurchase program.

 

(16) Segment Reporting

Our operations are comprised of three reportable segments: North American Storage Solutions, U.K. Storage Solutions and Tank & Pump Solutions.  Discrete financial data on each of our products is not available and it would be impractical to collect and maintain financial data in such a manner. The results for each segment are reviewed discretely by our chief operating decision maker.

We operate in the U.S., the U.K. and Canada.  All of our locations operate in their local currency. Although we are exposed to foreign exchange rate fluctuation in foreign markets where we rent and sell our products, we do not believe such exposure will have a significant impact on our results of operations. Revenues recognized by our U.S. locations were $125.8 million and $113.1 million for the three months ended September 30, 2018 and 2017, respectively, and were $362.0 million and $320.5 million for the nine months ended September 30, 2018 and 2017, respectively.

The following tables set forth certain information regarding each of the Company’s segments for the three-month periods indicated:

 

 

 

For the Three Months Ended September 30, 2018

 

 

 

Storage Solutions

 

 

 

 

 

 

 

 

 

 

 

North

America

 

 

United

Kingdom

 

 

Total

 

 

Tank &

Pump

Solutions

 

 

Consolidated

 

 

 

(In thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

92,241

 

 

$

20,398

 

 

$

112,639

 

 

$

28,285

 

 

$

140,924

 

Sales

 

 

5,103

 

 

 

2,593

 

 

 

7,696

 

 

 

1,020

 

 

 

8,716

 

Other

 

 

 

 

 

40

 

 

 

40

 

 

 

27

 

 

 

67

 

Total revenues

 

 

97,344

 

 

 

23,031

 

 

 

120,375

 

 

 

29,332

 

 

 

149,707

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

 

57,662

 

 

 

13,459

 

 

 

71,121

 

 

 

19,643

 

 

 

90,764

 

Cost of sales

 

 

3,178

 

 

 

2,048

 

 

 

5,226

 

 

 

544

 

 

 

5,770

 

Asset impairment charge and loss on divestiture, net

 

 

87,658

 

 

 

8,434

 

 

 

96,092

 

 

 

2,186

 

 

 

98,278

 

Depreciation and amortization

 

 

7,892

 

 

 

1,866

 

 

 

9,758

 

 

 

6,433

 

 

 

16,191

 

Total costs and expenses

 

 

156,390

 

 

 

25,807

 

 

 

182,197

 

 

 

28,806

 

 

 

211,003

 

(Loss) income from operations

 

$

(59,046

)

 

$

(2,776

)

 

$

(61,822

)

 

$

526

 

 

$

(61,296

)

Interest expense, net of interest income

 

$

7,589

 

 

$

200

 

 

$

7,789

 

 

$

2,698

 

 

$

10,487

 

Income tax benefit

 

 

(16,699

)

 

 

(454

)

 

 

(17,153

)

 

 

(2,441

)

 

 

(19,594

)

Capital expenditures for additions to rental fleet,

   excluding acquisitions

 

 

18,290

 

 

 

1,243

 

 

 

19,533

 

 

 

7,611

 

 

 

27,144

 

 

21


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

 

 

For the Three Months Ended September 30, 2017

 

 

 

Storage Solutions

 

 

 

 

 

 

 

 

 

 

 

North

America

 

 

United

Kingdom

 

 

Total

 

 

Tank &

Pump

Solutions

 

 

Consolidated

 

 

 

(In thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

84,249

 

 

$

20,239

 

 

$

104,488

 

 

$

23,207

 

 

$

127,695

 

Sales

 

 

4,503

 

 

 

2,240

 

 

 

6,743

 

 

 

1,695

 

 

 

8,438

 

Other

 

 

274

 

 

 

127

 

 

 

401

 

 

 

102

 

 

 

503

 

Total revenues

 

 

89,026

 

 

 

22,606

 

 

 

111,632

 

 

 

25,004

 

 

 

136,636

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

 

57,327

 

 

 

12,868

 

 

 

70,195

 

 

 

17,550

 

 

 

87,745

 

Cost of sales

 

 

2,657

 

 

 

1,820

 

 

 

4,477

 

 

 

1,042

 

 

 

5,519

 

Restructuring expenses

 

 

500

 

 

 

 

 

 

500

 

 

 

125

 

 

 

625

 

Depreciation and amortization

 

 

8,052

 

 

 

1,784

 

 

 

9,836

 

 

 

6,099

 

 

 

15,935

 

Total costs and expenses

 

 

68,536

 

 

 

16,472

 

 

 

85,008

 

 

 

24,816

 

 

 

109,824

 

Income from operations

 

$

20,490

 

 

$

6,134

 

 

$

26,624

 

 

$

188

 

 

$

26,812

 

Interest expense, net of interest income

 

$

6,370

 

 

$

125

 

 

$

6,495

 

 

$

2,704

 

 

$

9,199

 

Income tax provision (benefit)

 

 

6,280

 

 

 

981

 

 

 

7,261

 

 

 

(878

)

 

 

6,383

 

Capital expenditures for additions to rental fleet,

   excluding acquisitions

 

 

16,629

 

 

 

4,509

 

 

 

21,138

 

 

 

1,780

 

 

 

22,918

 

The following tables set forth certain information regarding each of the Company’s segments for the nine-month periods indicated:

 

 

 

For the Nine Months Ended September 30, 2018

 

 

 

Storage Solutions

 

 

 

 

 

 

 

 

 

 

 

North

America

 

 

United

Kingdom

 

 

Total

 

 

Tank &

Pump

Solutions

 

 

Consolidated

 

 

 

(In thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

264,227

 

 

$

61,066

 

 

$

325,293

 

 

$

80,856

 

 

$

406,149

 

Sales

 

 

15,211

 

 

 

6,574

 

 

 

21,785

 

 

 

3,915

 

 

 

25,700

 

Other

 

 

238

 

 

 

161

 

 

 

399

 

 

 

112

 

 

 

511

 

Total revenues

 

 

279,676

 

 

 

67,801

 

 

 

347,477

 

 

 

84,883

 

 

 

432,360

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

 

171,182

 

 

 

41,066

 

 

 

212,248

 

 

 

56,785

 

 

 

269,033

 

Cost of sales

 

 

9,401

 

 

 

5,294

 

 

 

14,695

 

 

 

2,230

 

 

 

16,925

 

Restructuring expenses

 

 

1,306

 

 

 

 

 

 

1,306

 

 

 

 

 

 

1,306

 

Asset impairment charge and loss on divestiture, net

 

 

87,658

 

 

 

8,434

 

 

 

96,092

 

 

 

2,186

 

 

 

98,278

 

Depreciation and amortization

 

 

25,349

 

 

 

6,049

 

 

 

31,398

 

 

 

18,808

 

 

 

50,206

 

Total costs and expenses

 

 

294,896

 

 

 

60,843

 

 

 

355,739

 

 

 

80,009

 

 

 

435,748

 

(Loss) income from operations

 

$

(15,220

)

 

$

6,958

 

 

$

(8,262

)

 

$

4,874

 

 

$

(3,388

)

Interest expense, net of interest income

 

$

21,443

 

 

$

631

 

 

$

22,074

 

 

$

8,099

 

 

$

30,173

 

Income tax (benefit) provision

 

 

(8,876

)

 

 

1,269

 

 

 

(7,607

)

 

 

(3,575

)

 

 

(11,182

)

Capital expenditures for additions to rental fleet,

   excluding acquisitions

 

 

39,400

 

 

 

5,805

 

 

 

45,205

 

 

 

20,415

 

 

 

65,620

 

22


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

 

 

 

For the Nine Months Ended September 30, 2017

 

 

 

Storage Solutions

 

 

 

 

 

 

 

 

 

 

 

North

America

 

 

United

Kingdom

 

 

Total

 

 

Tank &

Pump

Solutions

 

 

Consolidated

 

 

 

(In thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

236,326

 

 

$

57,454

 

 

$

293,780

 

 

$

66,508

 

 

$

360,288

 

Sales

 

 

14,407

 

 

 

6,356

 

 

 

20,763

 

 

 

4,054

 

 

 

24,817

 

Other

 

 

1,109

 

 

 

309

 

 

 

1,418

 

 

 

330

 

 

 

1,748

 

Total revenues

 

 

251,842

 

 

 

64,119

 

 

 

315,961

 

 

 

70,892

 

 

 

386,853

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

 

161,122

 

 

 

37,429

 

 

 

198,551

 

 

 

50,403

 

 

 

248,954

 

Cost of sales

 

 

8,727

 

 

 

5,081

 

 

 

13,808

 

 

 

2,231

 

 

 

16,039

 

Restructuring expenses

 

 

1,933

 

 

 

 

 

 

1,933

 

 

 

129

 

 

 

2,062

 

Depreciation and amortization

 

 

23,316

 

 

 

5,180

 

 

 

28,496

 

 

 

18,445

 

 

 

46,941

 

Total costs and expenses

 

 

195,098

 

 

 

47,690

 

 

 

242,788

 

 

 

71,208

 

 

 

313,996

 

Income (loss) from operations

 

$

56,744

 

 

$

16,429

 

 

$

73,173

 

 

$

(316

)

 

$

72,857

 

Interest expense, net of interest income

 

$

17,897

 

 

$

377

 

 

$

18,274

 

 

$

8,118

 

 

$

26,392

 

Income tax provision (benefit)

 

 

16,593

 

 

 

2,629

 

 

 

19,222

 

 

 

(2,943

)

 

 

16,279

 

Capital expenditures for additions to rental fleet,

   excluding acquisitions

 

 

31,833

 

 

 

9,037

 

 

 

40,870

 

 

 

5,075

 

 

 

45,945

 

 

Assets related to the Company’s reportable segments include the following:

 

 

 

Storage Solutions

 

 

 

 

 

 

 

 

 

 

 

North

America

 

 

United

Kingdom

 

 

Total

 

 

Tank &

Pump

Solutions

 

 

Consolidated

 

 

 

(In thousands)

 

As of September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

468,656

 

 

$

56,896

 

 

$

525,552

 

 

$

181,216

 

 

$

706,768

 

Intangibles, net

 

 

974

 

 

 

415

 

 

 

1,389

 

 

 

55,775

 

 

 

57,164

 

Rental fleet, net

 

 

652,677

 

 

 

144,810

 

 

 

797,487

 

 

 

128,469

 

 

 

925,956

 

As of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

468,785

 

 

$

58,906

 

 

$

527,691

 

 

$

181,216

 

 

$

708,907

 

Intangibles, net

 

 

1,314

 

 

 

642

 

 

 

1,956

 

 

 

60,068

 

 

 

62,024

 

Rental fleet, net

 

 

714,154

 

 

 

156,413

 

 

 

870,567

 

 

 

118,587

 

 

 

989,154

 

 

Included in the table above are assets in the U.S. of $1.5 billion as of both September 30, 2018 and December 31, 2017.

 

 

(17) Held for Sale Assets

Consistent with our strategy to focus on high returning assets, during the second quarter of 2018 we initiated an organization-wide project to assess the economic and operational status of our fleet and other assets as well as an in depth analysis of our fleet management process to identify inefficiencies.  The task encompassed an intensive review of underperforming assets throughout North America and the United Kingdom using our recently implemented enterprise resource planning system and sophisticated work order system that allows specific identification of the status of each unit and facilitates deeper analysis of repair and maintenance costs.  The result of this review was the identification of specific assets over which a further determination as to the economics of continued retention and repair could be made.

In July 2018 management presented a proposed plan of sale for certain identified assets to the Board of Directors, and on July 24, 2018 the Board of Directors made the strategic decision to approve the plan and authorized management to begin actively marketing the assets for sale.  As a result, we placed these assets as held for sale and recognized a $98.3 million loss on divestiture, which consisted of a non-cash loss of $106.2 million, net of estimated proceeds. The majority of the assets will be sold as scrap metal.  

23


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

Proceeds were primarily estimated by obtaining quotes from regional scrapping companies based on the net tonnage of the fleet to be scrapped.  The assets represent a subset of larger asset groups held by the Company and we expect to complete the sale of the assets by December 31, 2018.  In addition to rental fleet, we also identified and placed for sale, property, plant and equipment and inventory that were not being used efficiently.

In conjunction with this project, we evaluated the assigned depreciable lives and salvage values of our fleet.  We believe that the assigned lives and salvage values discussed in Note 7 continue to be appropriate for our fleet.  As a result of the reduction to our fleet and property, plant and equipment we expect depreciation expense to decrease approximately $0.9 million per quarter.

Related to this activity, the Company expects to recognize exit costs as positions are eliminated and yards, or portions of yards are exited.

The estimated loss as adjusted is set forth below:

 

 

 

Net Book Value

 

 

Units

 

 

 

(In thousands)

 

 

 

 

 

North America Storage Solutions Fleet:

 

 

 

 

 

 

 

 

Steel storage containers

 

$

56,986

 

 

 

19,718

 

Steel ground level offices

 

 

29,969

 

 

 

3,459

 

Other

 

 

346

 

 

 

275

 

United Kingdom Storage Solutions Fleet

 

 

8,027

 

 

 

1,482

 

Tank & Pump Solutions Fleet

 

 

1,223

 

 

 

472

 

Other

 

 

9,644

 

 

n/a

 

Total

 

 

106,195

 

 

 

25,406

 

Estimated net proceeds

 

 

(8,008

)

 

 

 

 

Initial estimated net loss on impairment and divestiture

 

 

98,187

 

 

 

 

 

Net proceeds received (above) below impaired value

 

 

91

 

 

 

 

 

Estimated net loss on impairment and divestiture

 

$

98,278

 

 

 

 

 

 

The table below sets forth the activity related to the assets held for sale subsequent to the initial impairment:

 

 

 

North

America

Storage

Solutions

Fleet

 

 

United

Kingdom

Storage

Solutions

Fleet

 

 

Tank &

Pump

Solutions

Fleet

 

 

Other Assets

 

 

Total

 

 

 

(In thousands)

 

Value of assets upon initial impairment

 

$

5,876

 

 

$

333

 

 

$

161

 

 

$

1,638

 

 

$

8,008

 

Impaired value of sold assets

 

 

(2,776

)

 

 

(34

)

 

 

(65

)

 

 

(504

)

 

 

(3,379

)

Effect of exchange rates

 

 

(1

)

 

 

(1

)

 

 

 

 

 

1

 

 

 

(1

)

Other

 

 

(57

)

 

 

8

 

 

 

 

 

 

57

 

 

 

8

 

Balance of held for sale assets

 

$

3,042

 

 

$

306

 

 

$

96

 

 

$

1,192

 

 

$

4,636

 

 

Held for sale assets are included in other assets in the accompanying condensed consolidated balance sheet.

 

(18) Subsequent Events

Declaration of Quarterly Dividend

On October 17, 2018, the Company’s Board authorized and declared a quarterly dividend to all of our common stockholders of $0.250 per share of common stock, payable on November 28, 2018, to all stockholders of record as of the close of business on November 14, 2018.

 


24


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

(19) Condensed Consolidating Financial Information

The following tables reflect the condensed consolidating financial information of the Company’s subsidiary guarantors of the Senior Notes and its non-guarantor subsidiaries. Separate financial statements of the subsidiary guarantors are not presented because the guarantee by each 100% owned subsidiary guarantor is full and unconditional, joint and several, subject to customary exceptions, and management has determined that such information is not material to investors.

 

MOBILE MINI, INC.

CONDENSED CONSOLIDATING BALANCE SHEETS

As of September 30, 2018

(In thousands)

 

 

 

 

Guarantors

 

 

Non-

Guarantors

 

 

Eliminations

 

 

Consolidated

 

ASSETS

 

Cash and cash equivalents

 

$

1,795

 

 

$

3,140

 

 

$

 

 

$

4,935

 

Receivables, net

 

 

100,273

 

 

 

17,828

 

 

 

 

 

 

118,101

 

Inventories

 

 

11,449

 

 

 

1,995

 

 

 

 

 

 

13,444

 

Rental fleet, net

 

 

773,823

 

 

 

152,133

 

 

 

 

 

 

925,956

 

Property, plant and equipment, net

 

 

131,802

 

 

 

23,819

 

 

 

 

 

 

155,621

 

Other assets

 

 

14,906

 

 

 

2,680

 

 

 

 

 

 

17,586

 

Intangibles, net

 

 

56,734

 

 

 

430

 

 

 

 

 

 

57,164

 

Goodwill

 

 

645,126

 

 

 

61,642

 

 

 

 

 

 

706,768

 

Intercompany receivables

 

 

148,005

 

 

 

34,508

 

 

 

(182,513

)

 

 

 

Total assets

 

$

1,883,913

 

 

$

298,175

 

 

$

(182,513

)

 

$

1,999,575

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

26,150

 

 

$

6,460

 

 

$

 

 

$

32,610

 

Accrued liabilities

 

 

71,431

 

 

 

8,683

 

 

 

 

 

 

80,114

 

Lines of credit

 

 

599,470

 

 

 

10,753

 

 

 

 

 

 

610,223

 

Obligations under capital leases

 

 

61,738

 

 

 

115

 

 

 

 

 

 

61,853

 

Senior notes, net

 

 

246,329

 

 

 

 

 

 

 

 

 

246,329

 

Deferred income taxes

 

 

139,931

 

 

 

18,827

 

 

 

 

 

 

158,758

 

Intercompany payables

 

 

29,583

 

 

 

4,931

 

 

 

(34,514

)

 

 

 

Total liabilities

 

 

1,174,632

 

 

 

49,769

 

 

 

(34,514

)

 

 

1,189,887

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

500

 

 

 

 

 

 

 

 

 

500

 

Additional paid-in capital

 

 

616,850

 

 

 

147,999

 

 

 

(147,999

)

 

 

616,850

 

Retained earnings

 

 

239,765

 

 

 

167,794

 

 

 

 

 

 

407,559

 

Accumulated other comprehensive loss

 

 

 

 

 

(67,387

)

 

 

 

 

 

(67,387

)

Treasury stock, at cost

 

 

(147,834

)

 

 

 

 

 

 

 

 

(147,834

)

Total stockholders' equity

 

 

709,281

 

 

 

248,406

 

 

 

(147,999

)

 

 

809,688

 

Total liabilities and stockholders' equity

 

$

1,883,913

 

 

$

298,175

 

 

$

(182,513

)

 

$

1,999,575

 

25


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

MOBILE MINI, INC.

CONDENSED CONSOLIDATING BALANCE SHEETS

As of December 31, 2017

(In thousands)

 

 

 

Guarantors

 

 

Non-

Guarantors

 

 

Eliminations

 

 

Consolidated

 

ASSETS

 

Cash and cash equivalents

 

$

803

 

 

$

12,648

 

 

$

 

 

$

13,451

 

Receivables, net

 

 

91,624

 

 

 

19,938

 

 

 

 

 

 

111,562

 

Inventories

 

 

13,471

 

 

 

2,200

 

 

 

 

 

 

15,671

 

Rental fleet, net

 

 

823,997

 

 

 

165,157

 

 

 

 

 

 

989,154

 

Property, plant and equipment, net

 

 

133,919

 

 

 

23,385

 

 

 

 

 

 

157,304

 

Other assets

 

 

13,324

 

 

 

2,010

 

 

 

 

 

 

15,334

 

Intangibles, net

 

 

61,360

 

 

 

664

 

 

 

 

 

 

62,024

 

Goodwill

 

 

645,126

 

 

 

63,781

 

 

 

 

 

 

708,907

 

Intercompany receivables

 

 

145,855

 

 

 

4,806

 

 

 

(150,661

)

 

 

 

Total assets

 

$

1,929,479

 

 

$

294,589

 

 

$

(150,661

)

 

$

2,073,407

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

21,004

 

 

$

5,951

 

 

$

 

 

$

26,955

 

Accrued liabilities

 

 

71,298

 

 

 

6,786

 

 

 

 

 

 

78,084

 

Lines of credit

 

 

634,285

 

 

 

 

 

 

 

 

 

634,285

 

Obligations under capital leases

 

 

52,648

 

 

 

143

 

 

 

 

 

 

52,791

 

Senior notes, net

 

 

245,850

 

 

 

 

 

 

 

 

 

245,850

 

Deferred income taxes

 

 

153,345

 

 

 

20,409

 

 

 

 

 

 

173,754

 

Intercompany payables

 

 

1,437

 

 

 

1,225

 

 

 

(2,662

)

 

 

 

Total liabilities

 

 

1,179,867

 

 

 

34,514

 

 

 

(2,662

)

 

 

1,211,719

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

497

 

 

 

 

 

 

 

 

 

497

 

Additional paid-in capital

 

 

605,369

 

 

 

147,999

 

 

 

(147,999

)

 

 

605,369

 

Retained earnings

 

 

290,912

 

 

 

172,410

 

 

 

 

 

 

463,322

 

Accumulated other comprehensive loss

 

 

 

 

 

(60,334

)

 

 

 

 

 

(60,334

)

Treasury stock, at cost

 

 

(147,166

)

 

 

 

 

 

 

 

 

(147,166

)

Total stockholders' equity

 

 

749,612

 

 

 

260,075

 

 

 

(147,999

)

 

 

861,688

 

Total liabilities and stockholders' equity

 

$

1,929,479

 

 

$

294,589

 

 

$

(150,661

)

 

$

2,073,407

 

 

26


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

MOBILE MINI, INC.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Three Months Ended September 30, 2018

(In thousands)

 

 

 

Guarantors

 

 

Non-

Guarantors

 

 

Eliminations

 

 

Consolidated

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

119,697

 

 

$

21,227

 

 

$

 

 

$

140,924

 

Sales

 

 

6,063

 

 

 

2,653

 

 

 

 

 

 

8,716

 

Other

 

 

25

 

 

 

42

 

 

 

 

 

 

67

 

Total revenues

 

 

125,785

 

 

 

23,922

 

 

 

 

 

 

149,707

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

 

76,522

 

 

 

14,242

 

 

 

 

 

 

90,764

 

Cost of sales

 

 

3,681

 

 

 

2,089

 

 

 

 

 

 

5,770

 

Restructuring expenses

 

 

 

 

 

 

 

 

 

 

 

 

Asset impairment charge and loss on divestiture, net

 

 

88,822

 

 

 

9,456

 

 

 

 

 

 

98,278

 

Depreciation and amortization

 

 

14,241

 

 

 

1,950

 

 

 

 

 

 

16,191

 

Total costs and expenses

 

 

183,266

 

 

 

27,737

 

 

 

 

 

 

211,003

 

Loss from operations

 

 

(57,481

)

 

 

(3,815

)

 

 

 

 

 

(61,296

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(10,287

)

 

 

(200

)

 

 

 

 

 

 

(10,487

)

Foreign currency exchange

 

 

 

 

 

24

 

 

 

 

 

 

 

24

 

Loss before income tax provision

 

 

(67,768

)

 

 

(3,991

)

 

 

 

 

 

(71,759

)

Income tax benefit

 

 

(18,864

)

 

 

(730

)

 

 

 

 

 

(19,594

)

Net loss

 

$

(48,904

)

 

$

(3,261

)

 

$

 

 

$

(52,165

)

MOBILE MINI, INC.

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Three Months Ended September 30, 2018

(In thousands) 

 

 

 

Guarantors

 

 

Non-

Guarantors

 

 

Eliminations

 

 

Consolidated

 

Net loss

 

$

(48,904

)

 

$

(3,261

)

 

$

 

 

$

(52,165

)

Foreign currency translation adjustment

 

 

 

 

 

(2,696

)

 

 

 

 

 

(2,696

)

Comprehensive loss

 

$

(48,904

)

 

$

(5,957

)

 

$

 

 

$

(54,861

)

27


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

MOBILE MINI, INC.

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

Three Months Ended September 30, 2017

(In thousands)

 

 

 

Guarantors

 

 

Non-

Guarantors

 

 

Eliminations

 

 

Consolidated

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

106,593

 

 

$

21,102

 

 

$

 

 

$

127,695

 

Sales

 

 

6,176

 

 

 

2,262

 

 

 

 

 

 

8,438

 

Other

 

 

371

 

 

 

132

 

 

 

 

 

 

503

 

Total revenues

 

 

113,140

 

 

 

23,496

 

 

 

 

 

 

136,636

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

 

74,194

 

 

 

13,551

 

 

 

 

 

 

87,745

 

Cost of sales

 

 

3,686

 

 

 

1,833

 

 

 

 

 

 

5,519

 

Restructuring expenses

 

 

625

 

 

 

 

 

 

 

 

 

625

 

Depreciation and amortization

 

 

14,065

 

 

 

1,870

 

 

 

 

 

 

15,935

 

Total costs and expenses

 

 

92,570

 

 

 

17,254

 

 

 

 

 

 

109,824

 

Income from operations

 

 

20,570

 

 

 

6,242

 

 

 

 

 

 

26,812

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

2,652

 

 

 

2

 

 

 

(2,650

)

 

 

4

 

Interest expense

 

 

(11,727

)

 

 

(126

)

 

 

2,650

 

 

 

(9,203

)

Foreign currency exchange

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Income before income tax provision

 

 

11,495

 

 

 

6,116

 

 

 

 

 

 

17,611

 

Income tax provision

 

 

5,402

 

 

 

981

 

 

 

 

 

 

6,383

 

Net income

 

$

6,093

 

 

$

5,135

 

 

$

 

 

$

11,228

 

MOBILE MINI, INC.

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended September 30, 2017

(In thousands) 

 

 

 

Guarantors

 

 

Non-

Guarantors

 

 

Eliminations

 

 

Consolidated

 

Net income

 

$

6,093

 

 

$

5,135

 

 

$

 

 

$

11,228

 

Foreign currency translation adjustment

 

 

 

 

 

7,566

 

 

 

 

 

 

7,566

 

Comprehensive income

 

$

6,093

 

 

$

12,701

 

 

$

 

 

$

18,794

 

28


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

MOBILE MINI, INC.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Nine Months Ended September 30, 2018

(In thousands)

 

 

 

Guarantors

 

 

Non-

Guarantors

 

 

Eliminations

 

 

Consolidated

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

342,783

 

 

$

63,366

 

 

$

 

 

$

406,149

 

Sales

 

 

18,864

 

 

 

6,836

 

 

 

 

 

 

25,700

 

Other

 

 

342

 

 

 

169

 

 

 

 

 

 

511

 

Total revenues

 

 

361,989

 

 

 

70,371

 

 

 

 

 

 

432,360

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

 

225,844

 

 

 

43,189

 

 

 

 

 

 

269,033

 

Cost of sales

 

 

11,448

 

 

 

5,477

 

 

 

 

 

 

16,925

 

Restructuring expenses

 

 

1,306

 

 

 

 

 

 

 

 

 

1,306

 

Asset impairment charge and loss on divestiture, net

 

 

88,822

 

 

 

9,456

 

 

 

 

 

 

98,278

 

Depreciation and amortization

 

 

43,902

 

 

 

6,304

 

 

 

 

 

 

50,206

 

Total costs and expenses

 

 

371,322

 

 

 

64,426

 

 

 

 

 

 

435,748

 

(Loss) income from operations

 

 

(9,333

)

 

 

5,945

 

 

 

 

 

 

(3,388

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

3

 

 

 

3

 

 

 

 

 

 

6

 

Dividend income

 

 

8,983

 

 

 

 

 

 

(8,983

)

 

 

 

Interest expense

 

 

(29,545

)

 

 

(634

)

 

 

 

 

 

(30,179

)

Foreign currency exchange

 

 

48

 

 

 

21

 

 

 

 

 

 

69

 

(Loss) income before income tax provision

 

 

(29,844

)

 

 

5,335

 

 

 

(8,983

)

 

 

(33,492

)

Income tax (benefit) provision

 

 

(12,152

)

 

 

970

 

 

 

 

 

 

(11,182

)

Net (loss) income

 

$

(17,692

)

 

$

4,365

 

 

$

(8,983

)

 

$

(22,310

)

MOBILE MINI, INC.

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS

Nine Months Ended September 30, 2018

(In thousands) 

 

 

 

Guarantors

 

 

Non-

Guarantors

 

 

Eliminations

 

 

Consolidated

 

Net (loss) income

 

$

(17,692

)

 

$

4,365

 

 

$

(8,983

)

 

$

(22,310

)

Foreign currency translation adjustment

 

 

 

 

 

(7,053

)

 

 

 

 

 

(7,053

)

Comprehensive loss

 

$

(17,692

)

 

$

(2,688

)

 

$

(8,983

)

 

$

(29,363

)

 

29


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

MOBILE MINI, INC.

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

Nine Months Ended September 30, 2017

(In thousands) 

 

 

 

Guarantors

 

 

Non-

Guarantors

 

 

Eliminations

 

 

Consolidated

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

300,751

 

 

$

59,537

 

 

$

 

 

$

360,288

 

Sales

 

 

18,339

 

 

 

6,478

 

 

 

 

 

 

24,817

 

Other

 

 

1,432

 

 

 

316

 

 

 

 

 

 

1,748

 

Total revenues

 

 

320,522

 

 

 

66,331

 

 

 

 

 

 

386,853

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

 

209,574

 

 

 

39,380

 

 

 

 

 

 

248,954

 

Cost of sales

 

 

10,873

 

 

 

5,166

 

 

 

 

 

 

16,039

 

Restructuring expenses

 

 

2,062

 

 

 

 

 

 

 

 

 

2,062

 

Depreciation and amortization

 

 

41,503

 

 

 

5,438

 

 

 

 

 

 

46,941

 

Total costs and expenses

 

 

264,012

 

 

 

49,984

 

 

 

 

 

 

313,996

 

Income from operations

 

 

56,510

 

 

 

16,347

 

 

 

 

 

 

72,857

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

7,966

 

 

 

4

 

 

 

(7,950

)

 

 

20

 

Interest expense

 

 

(33,981

)

 

 

(381

)

 

 

7,950

 

 

 

(26,412

)

Foreign currency exchange

 

 

 

 

 

(29

)

 

 

 

 

 

(29

)

Income before income tax provision

 

 

30,495

 

 

 

15,941

 

 

 

 

 

 

46,436

 

Income tax provision

 

 

13,650

 

 

 

2,629

 

 

 

 

 

 

16,279

 

Net income

 

$

16,845

 

 

$

13,312

 

 

$

 

 

$

30,157

 

MOBILE MINI, INC.

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

Nine Months Ended September 30, 2017

(In thousands) 

 

 

 

Guarantors

 

 

Non-

Guarantors

 

 

Eliminations

 

 

Consolidated

 

Net income

 

$

16,845

 

 

$

13,312

 

 

$

 

 

$

30,157

 

Foreign currency translation adjustment

 

 

 

 

 

19,165

 

 

 

 

 

 

19,165

 

Comprehensive income

 

$

16,845

 

 

$

32,477

 

 

$

 

 

$

49,322

 

30


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

MOBILE MINI, INC.

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2018

(In thousands)

 

 

 

Guarantors

 

 

Non-

Guarantors

 

 

Eliminations

 

 

Consolidated

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(17,692

)

 

$

4,365

 

 

$

(8,983

)

 

$

(22,310

)

Adjustments to reconcile net (loss) income to net cash

   provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset impairment charge and loss on divestiture, net

 

 

88,822

 

 

 

9,456

 

 

 

 

 

 

98,278

 

Provision for doubtful accounts

 

 

1,884

 

 

 

96

 

 

 

 

 

 

1,980

 

Amortization of deferred financing costs

 

 

1,545

 

 

 

 

 

 

 

 

 

1,545

 

Amortization of long-term liabilities

 

 

109

 

 

 

 

 

 

 

 

 

109

 

Share-based compensation expense

 

 

7,704

 

 

 

162

 

 

 

 

 

 

7,866

 

Depreciation and amortization

 

 

43,902

 

 

 

6,304

 

 

 

 

 

 

50,206

 

Gain on sale of rental fleet units

 

 

(3,949

)

 

 

(574

)

 

 

 

 

 

(4,523

)

Loss on disposal of property, plant and equipment

 

 

525

 

 

 

23

 

 

 

 

 

 

548

 

Deferred income taxes

 

 

(12,152

)

 

 

(739

)

 

 

 

 

 

(12,891

)

Foreign currency exchange

 

 

(48

)

 

 

(21

)

 

 

 

 

 

(69

)

Changes in certain assets and liabilities, net of effect of

   businesses acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivables

 

 

(10,533

)

 

 

1,504

 

 

 

 

 

 

(9,029

)

Inventories

 

 

(605

)

 

 

(317

)

 

 

 

 

 

(922

)

Other assets

 

 

2,233

 

 

 

(358

)

 

 

 

 

 

1,875

 

Accounts payable

 

 

2,482

 

 

 

735

 

 

 

 

 

 

3,217

 

Accrued liabilities

 

 

(1,898

)

 

 

2,238

 

 

 

 

 

 

340

 

Intercompany

 

 

26,039

 

 

 

(26,039

)

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

 

128,368

 

 

 

(3,165

)

 

 

(8,983

)

 

 

116,220

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from sale of assets held for sale

 

 

3,416

 

 

 

92

 

 

 

 

 

 

3,508

 

Additions to rental fleet, excluding acquisitions

 

 

(59,506

)

 

 

(6,114

)

 

 

 

 

 

(65,620

)

Proceeds from sale of rental fleet

 

 

8,885

 

 

 

2,562

 

 

 

 

 

 

11,447

 

Additions to property, plant and equipment,

   excluding acquisitions

 

 

(8,923

)

 

 

(5,712

)

 

 

 

 

 

(14,635

)

Proceeds from sale of property, plant and equipment

 

 

585

 

 

 

18

 

 

 

 

 

 

603

 

Net cash used in investing activities

 

 

(55,543

)

 

 

(9,154

)

 

 

 

 

 

(64,697

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (repayments) borrowings under lines of credit

 

 

(34,814

)

 

 

10,752

 

 

 

 

 

 

(24,062

)

Principal payments on capital lease obligations

 

 

(6,656

)

 

 

(27

)

 

 

 

 

 

(6,683

)

Issuance of common stock

 

 

3,617

 

 

 

 

 

 

 

 

 

3,617

 

Dividend payments

 

 

(33,312

)

 

 

 

 

 

 

 

 

(33,312

)

Purchase of treasury stock

 

 

(668

)

 

 

 

 

 

 

 

 

(668

)

Intercompany

 

 

 

 

 

(8,983

)

 

 

8,983

 

 

 

 

Net cash (used in) provided by financing activities

 

 

(71,833

)

 

 

1,742

 

 

 

8,983

 

 

 

(61,108

)

Effect of exchange rate changes on cash

 

 

 

 

 

1,069

 

 

 

 

 

 

1,069

 

Net increase (decrease) in cash

 

 

992

 

 

 

(9,508

)

 

 

 

 

 

(8,516

)

Cash and cash equivalents at beginning of period

 

 

803

 

 

 

12,648

 

 

 

 

 

 

13,451

 

Cash and cash equivalents at end of period

 

$

1,795

 

 

$

3,140

 

 

$

 

 

$

4,935

 

31


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

MOBILE MINI, INC.

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2017

(In thousands)

 

 

 

Guarantors

 

 

Non-

Guarantors

 

 

Eliminations

 

 

Consolidated

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

16,845

 

 

$

13,312

 

 

$

 

 

$

30,157

 

Adjustments to reconcile net income to net cash provided

   by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for doubtful accounts

 

 

2,839

 

 

 

337

 

 

 

 

 

 

3,176

 

Amortization of deferred financing costs

 

 

1,545

 

 

 

 

 

 

 

 

 

1,545

 

Amortization of long-term liabilities

 

 

98

 

 

 

 

 

 

 

 

 

98

 

Share-based compensation expense

 

 

5,671

 

 

 

219

 

 

 

 

 

 

5,890

 

Depreciation and amortization

 

 

41,503

 

 

 

5,438

 

 

 

 

 

 

46,941

 

Gain on sale of rental fleet units

 

 

(4,014

)

 

 

(259

)

 

 

 

 

 

(4,273

)

Loss on disposal of property, plant and equipment

 

 

105

 

 

 

367

 

 

 

 

 

 

472

 

Deferred income taxes

 

 

13,649

 

 

 

1,518

 

 

 

 

 

 

15,167

 

Foreign currency exchange

 

 

 

 

 

29

 

 

 

 

 

 

29

 

Changes in certain assets and liabilities, net of effect of

   businesses acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivables

 

 

(2,153

)

 

 

(1,030

)

 

 

 

 

 

(3,183

)

Inventories

 

 

(232

)

 

 

(1,211

)

 

 

 

 

 

(1,443

)

Other assets

 

 

728

 

 

 

(1,225

)

 

 

 

 

 

(497

)

Accounts payable

 

 

(2,961

)

 

 

(239

)

 

 

 

 

 

(3,200

)

Accrued liabilities

 

 

3,772

 

 

 

1,181

 

 

 

 

 

 

4,953

 

Intercompany

 

 

274

 

 

 

(274

)

 

 

 

 

 

 

Net cash provided by operating activities

 

 

77,669

 

 

 

18,163

 

 

 

 

 

 

95,832

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to rental fleet, excluding acquisitions

 

 

(36,757

)

 

 

(9,188

)

 

 

 

 

 

(45,945

)

Proceeds from sale of rental fleet

 

 

8,599

 

 

 

1,003

 

 

 

 

 

 

9,602

 

Additions to property, plant and equipment,

   excluding acquisitions

 

 

(10,010

)

 

 

(2,806

)

 

 

 

 

 

(12,816

)

Proceeds from sale of property, plant and equipment

 

 

78

 

 

 

702

 

 

 

 

 

 

780

 

Net cash used in investing activities

 

 

(38,090

)

 

 

(10,289

)

 

 

 

 

 

(48,379

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net repayments under lines of credit

 

 

(96

)

 

 

(185

)

 

 

 

 

 

(281

)

Deferred financing costs

 

 

(12

)

 

 

 

 

 

 

 

 

(12

)

Principal payments on capital lease obligations

 

 

(5,481

)

 

 

(45

)

 

 

 

 

 

(5,526

)

Issuance of common stock

 

 

4,685

 

 

 

 

 

 

 

 

 

4,685

 

Dividend payments

 

 

(30,120

)

 

 

 

 

 

 

 

 

(30,120

)

Purchase of treasury stock

 

 

(8,359

)

 

 

 

 

 

 

 

 

(8,359

)

Net cash used in financing activities

 

 

(39,383

)

 

 

(230

)

 

 

 

 

 

(39,613

)

Effect of exchange rate changes on cash

 

 

 

 

 

632

 

 

 

 

 

 

632

 

Net increase in cash

 

 

196

 

 

 

8,276

 

 

 

 

 

 

8,472

 

Cash and cash equivalents at beginning of period

 

 

1,260

 

 

 

2,877

 

 

 

 

 

 

4,137

 

Cash and cash equivalents at end of period

 

$

1,456

 

 

$

11,153

 

 

$

 

 

$

12,609

 

 

 

 

32


 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and the accompanying notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC. This discussion contains forward-looking statements. Forward-looking statements are based on current expectations and assumptions that involve risks and uncertainties. Our actual results may differ materially from those anticipated in our forward-looking statements. The tables and information in this “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” section were derived from exact numbers and may have immaterial rounding differences.

Overview

Executive Summary

We believe we are the world’s leading provider of portable storage solutions, maintaining a strong leadership position in virtually all markets served. Our mission is to be the leader in portable storage solutions to customers throughout North America and the U.K. and tank and pump solutions in the U.S.  We are committed to providing our customers with superior service and access to a high-quality and diverse fleet.  In managing our business, we focus on renting rather than selling our units, with rental revenues representing approximately 94% of our total revenues for the nine months ended September 30, 2018.  We believe this strategy is highly attractive and provides predictable, recurring revenue. Additionally, our assets have long useful lives and relatively low maintenance costs. We also sell new and used units and provide delivery, and other ancillary products and value-added services.

We operate our portable storage business in North America as “Mobile Mini Storage Solutions” and our tank and pump business as “Mobile Mini Tank + Pump Solutions”.  As of September 30, 2018, our network of locations included 119 Storage Solutions locations, 21 Tank & Pump Solutions locations and 17 combined locations.  Our Storage Solutions fleet consisted of approximately 194,300 units and our Tank & Pump Solutions fleet consisted of approximately 12,600 units.

Asset impairment charge and loss on divestiture, net. Consistent with our strategy to focus on high returning assets, during the second quarter of 2018 we initiated an organization-wide project to assess the economic and operational status of our fleet and other assets as well as an in depth analysis of our fleet management process to identify inefficiencies.  The result of this review was the identification of specific assets over which a further determination as to the economics of continued retention and repair could be made.  In July 2018 management presented a proposed plan of sale for certain identified assets to the Board of Directors, and on July 24, the Board of Directors made the strategic decision to approve the plan and authorized management to begin actively marketing the assets for sale.  As a result, we have classified these assets, which were primarily rental fleet, as held for sale and recognized a loss of $98.3 million in the third quarter of 2018.  The assets represent a subset of larger asset groups held by the Company and we expect to complete the sale of the assets by December 31, 2018.  We also identified and placed as held for sale, property, plant and equipment and inventory that were not being used efficiently.

Because the majority of these units were not producing revenue we do not anticipate the disposal of these assets to have any impact on our ability to generate revenue or to meet customer demand, nor do we expect a material impact on our liquidity or free cash flow, including planned capital expenditures. Overall, between the disposal of fleet and our strengthened processes, we expect operating expense savings of approximately $5 million to $7 million annually.  The savings includes reductions in labor, repairs and maintenance and lease costs.  In the third quarter we realized savings of approximately $0.6 million related to the fleet divestiture and new strengthened processes around fleet management.  We expect to implement all costs savings measures by the end of the first quarter of 2019.  In addition, as a result of the reduction to our fleet and property, plant and equipment we expect depreciation expense to decrease approximately $0.9 million per quarter. We are currently reviewing our labor force and our lease contracts and expect to recognize exit costs of approximately $0.5 million to $1.0 million as we eliminate unnecessary positions and exit yards, or portions of yards that we no longer need.

Business Environment and Outlook.  Approximately 65% of our consolidated rental revenue during the twelve-month period ended September 30, 2018 was derived from our North American Storage Solutions business, 15% was derived from our U.K. Storage Solutions business and 20% was derived from the Tank & Pump Solutions business.  Our business is subject to the general health of the economy and we utilize a variety of general economic indicators to assess market trends and determine the direction of our business. On June 23, 2016, the U.K. voted to leave the European Union (the “E.U.”) in a referendum vote, which may have currently unknown social, geopolitical and economic impacts. The withdrawal negotiations began in 2017, and are still continuing.  The date of the U.K.’s departure from the E.U. is set for March 29, 2019. As developments and their impact become more clear, we may adjust our strategy and operations accordingly.

33


 

Based on our assessment, we expect that the majority of our end markets will continue to drive demand for our products.  In particular, construction, which represents approximately 37% of our consolidated rental revenue, is forecasted to continue to show growth.  Economic indicators related to our industrial and commercial end-segment are also favorable.  Industrial and commercial customers, which comprise approximately 25% of rental revenue, generally operate in industries such as:  large processing plants for organic and inorganic chemicals, refineries, distributors and trucking and utility companies.  Our national retail accounts typically involve seasonal demand in the third and fourth quarter during the holiday season.  Retail and consumer service customers comprise approximately 25% of our revenue and include department, drug, grocery and strip mall stores as well as hotels, restaurants, service stations and dry cleaners.

Accounting and Operating Overview

Our principal operating revenues and expenses are:

Revenues:

 

Rental revenues include all rent and ancillary revenues we receive for our rental fleet.

 

Sales revenues consist primarily of sales of new and used fleet and, to a lesser extent, parts and supplies sold to customers.

Costs and expenses:

 

Rental, selling and general expenses include, among other expenses, payroll and payroll-related costs (including share-based compensation and commissions for our sales team), fleet transportation and fuel costs, repair and maintenance costs for our rental fleet and transportation equipment, real estate lease expense, insurance costs, and general corporate expenses.

 

Cost of sales is the net book value of the units that were sold during the reported period and includes both our cost to buy, transport, remanufacture and modify used containers and our cost to manufacture Storage Solutions units and other structures.

 

Depreciation and amortization includes depreciation on our rental fleet, our property, plant and equipment, and amortization of definite-lived intangible assets.

Our principal asset is our rental fleet, which is capitalized at cost and depreciated over the estimated useful life of the unit using the straight-line method. Rental fleet is depreciated whether or not it is out on rent. Capitalized cost of rental fleet includes the price paid to acquire the unit and freight charges to the location when the unit is first placed in service and, when applicable, the cost of manufacturing or remanufacturing, which includes the cost of customizing units. Ordinary repair and maintenance costs are charged to operations as incurred.

The table below outlines the composition of our Storage Solutions rental fleet at September 30, 2018: 

 

 

 

Rental Fleet

 

 

Number of

Units

 

 

Percentage of

Gross Fleet

in Dollars

 

 

Percentage of

Units

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel storage containers

 

$

596,403

 

 

 

165,559

 

 

 

63

 

%

 

85

 

%

Steel ground level offices

 

 

342,712

 

 

 

27,865

 

 

 

36

 

 

 

14

 

 

Other

 

 

7,530

 

 

 

863

 

 

 

1

 

 

 

1

 

 

Storage Solutions rental fleet

 

 

946,645

 

 

 

194,287

 

 

 

100

 

%

 

100

 

%

Accumulated depreciation

 

 

(149,158

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Storage Solutions rental fleet, net

 

$

797,487

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34


 

The table below outlines the composition of our Tank & Pump Solutions rental fleet at September 30, 2018:

 

 

 

Rental Fleet

 

 

Number of

Units

 

 

Percentage of

Gross Fleet

in Dollars

 

 

Percentage of

Units

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel tanks

 

$

68,689

 

 

 

3,046

 

 

 

39

 

%

 

24

 

%

Roll-off boxes

 

 

33,887

 

 

 

5,763

 

 

 

19

 

 

 

46

 

 

Stainless steel tank trailers

 

 

28,969

 

 

 

644

 

 

 

16

 

 

 

5

 

 

Vacuum boxes

 

 

16,790

 

 

 

1,557

 

 

 

9

 

 

 

12

 

 

Dewatering boxes

 

 

8,250

 

 

 

810

 

 

 

5

 

 

 

6

 

 

Pumps and filtration equipment

 

 

14,239

 

 

 

758

 

 

 

8

 

 

 

7

 

 

Other

 

 

7,512

 

 

n/a

 

 

 

4

 

 

 

 

 

 

Tank & Pump Solutions rental fleet

 

 

178,336

 

 

 

12,578

 

 

 

100

 

%

 

100

 

%

Accumulated depreciation

 

 

(49,867

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Tank & Pump Solutions rental fleet, net

 

$

128,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

We are a capital-intensive business.  Therefore, in addition to focusing on measurements calculated in accordance with GAAP, we focus on EBITDA, adjusted EBITDA and free cash flow to measure our operating results.  EBITDA, adjusted EBITDA and the resultant margins, and free cash flow are non-GAAP financial measures.  As such, we include in this Quarterly Report on Form 10-Q reconciliations to their most directly comparable GAAP financial measures.  We also evaluate our operations on a constant currency basis. These reconciliations and a description of the limitations of these measures are included below.

Non-GAAP Data and Reconciliations

EBITDA and Adjusted EBITDA. EBITDA is defined as net income before discontinued operation, net of tax (if applicable), interest expense, income taxes, depreciation and amortization, and debt restructuring or extinguishment expense (if applicable), including any write-off of deferred financing costs. Adjusted EBITDA further excludes certain non-cash expenses, as well as transactions that management believes are not indicative of our ongoing business.  Because EBITDA and adjusted EBITDA, as defined, exclude some but not all items that affect our cash flow from operating activities, they may not be comparable to similarly titled performance measures presented by other companies.

We present EBITDA and adjusted EBITDA because we believe they provide an overall evaluation of our financial condition and useful information regarding our ability to meet our future debt payment requirements, capital expenditures and working capital requirements. EBITDA and adjusted EBITDA have certain limitations as analytical tools and should not be used as substitutes for net income, cash flows, or other consolidated income or cash flow data prepared in accordance with GAAP. EBITDA and adjusted EBITDA margins are calculated as EBITDA and adjusted EBITDA divided by total revenues expressed as a percentage.

Reconciliation of net income, the most directly comparable GAAP measure, to EBITDA and adjusted EBITDA is as follows:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

 

2018

 

 

 

2017

 

 

2018

 

 

 

2017

 

 

 

 

(In thousands, except percentages)

 

 

Net (loss) income

 

$

(52,165

)

 

 

$

11,228

 

 

$

(22,310

)

 

 

$

30,157

 

 

Interest expense

 

 

10,487

 

 

 

 

9,203

 

 

 

30,179

 

 

 

 

26,412

 

 

Income tax (benefit) provision

 

 

(19,594

)

 

 

 

6,383

 

 

 

(11,182

)

 

 

 

16,279

 

 

Depreciation and amortization

 

 

16,191

 

 

 

 

15,935

 

 

 

50,206

 

 

 

 

46,941

 

 

EBITDA

 

 

(45,081

)

 

 

 

42,749

 

 

 

46,893

 

 

 

 

119,789

 

 

Share-based compensation expense (1)

 

 

2,230

 

 

 

 

1,920

 

 

 

7,503

 

 

 

 

4,705

 

 

Restructuring expenses (2)

 

 

 

 

 

 

625

 

 

 

1,306

 

 

 

 

2,062

 

 

Asset impairment charge and loss on divestiture, net (3)

 

 

98,278

 

 

 

 

 

 

 

98,278

 

 

 

 

 

 

Acquisition-related expenses (4)

 

 

 

 

 

 

26

 

 

 

 

 

 

 

123

 

 

Other (5)

 

 

 

 

 

 

211

 

 

 

 

 

 

 

2,500

 

 

Adjusted EBITDA

 

$

55,427

 

 

 

$

45,531

 

 

$

153,980

 

 

 

$

129,179

 

 

EBITDA margin

 

 

(30.1

)

%

 

 

31.3

 

%

 

10.8

 

%

 

 

31.0

 

%

Adjusted EBITDA margin

 

 

37.0

 

 

 

 

33.3

 

 

 

35.6

 

 

 

 

33.4

 

 

35


 

 

Reconciliation of net cash provided by operating activities to EBITDA is as follows:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

 

2018

 

 

 

2017

 

 

2018

 

 

 

2017

 

 

 

 

(In thousands)

 

 

Net cash provided by operating activities

 

$

46,268

 

 

 

$

32,611

 

 

$

116,220

 

 

 

$

95,832

 

 

Interest paid

 

 

13,576

 

 

 

 

12,192

 

 

 

31,753

 

 

 

 

30,379

 

 

Income and franchise taxes paid

 

 

939

 

 

 

 

213

 

 

 

2,346

 

 

 

 

1,313

 

 

Share-based compensation expense (1)

 

 

(2,230

)

 

 

 

(2,070

)

 

 

(7,866

)

 

 

 

(5,890

)

 

Asset impairment charge and loss on divestiture, net (3)

 

 

(98,278

)

 

 

 

 

 

 

(98,278

)

 

 

 

 

 

Gain on sale of rental fleet

 

 

1,263

 

 

 

 

1,447

 

 

 

4,523

 

 

 

 

4,273

 

 

Loss on disposal of property, plant and equipment

 

 

(71

)

 

 

 

(190

)

 

 

(548

)

 

 

 

(472

)

 

Change in certain assets and liabilities, net of effect of

   businesses acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivables

 

 

6,034

 

 

 

 

7,794

 

 

 

7,049

 

 

 

 

7

 

 

Inventories

 

 

127

 

 

 

 

539

 

 

 

922

 

 

 

 

1,443

 

 

Other assets

 

 

(1,479

)

 

 

 

(2,297

)

 

 

(1,875

)

 

 

 

497

 

 

Accounts payable and accrued liabilities

 

 

(11,230

)

 

 

 

(7,490

)

 

 

(7,353

)

 

 

 

(7,593

)

 

EBITDA

 

$

(45,081

)

 

 

$

42,749

 

 

$

46,893

 

 

 

$

119,789

 

 

 

(1)

Share-based compensation represents non-cash compensation expense associated with the granting of equity instruments. See additional information in Note 12 “Share-Based Compensation” to the accompanying condensed consolidated financial statements.  

(2)

The Company has undergone restructuring actions to align its business operations.  These activities materially change the scope of the business or the manner in which the business is conducted.  For more information, see Note 13 “Restructuring” to the accompanying condensed consolidated financial statements.

(3)

Loss resulting from the impairment of assets placed as held for sale including subsequent adjustments to the loss upon the sale.  For more information, see Note 17 “Held for Sale Assets” to the accompanying condensed consolidated financial statements.

(4)

Incremental costs associated with acquisitions.

(5)

Other expenses include severance and transition expenses for senior executives.

Free Cash Flow. Free cash flow is defined as net cash provided by operating activities, minus or plus, net cash used in or provided by investing activities, excluding acquisitions and certain transactions. Free cash flow is a non-GAAP financial measure and is not intended to replace net cash provided by operating activities, the most directly comparable financial measure prepared in accordance with GAAP. We present free cash flow because we believe it provides useful information regarding our liquidity and ability to meet our short-term obligations. In particular, free cash flow indicates the amount of cash available after capital expenditures for, among other things, investments in our existing business, debt service obligations, payment of authorized quarterly dividends, repurchase of our common stock and strategic small acquisitions.

Reconciliation of net cash provided by operating activities to free cash flow is as follows:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

 

2017

 

 

2018

 

 

 

2017

 

 

 

(In thousands)

 

 

(In thousands)

 

Net cash provided by operating activities

 

$

46,268

 

 

 

$

32,611

 

 

$

116,220

 

 

 

$

95,832

 

Additions to rental fleet, excluding acquisitions

 

 

(27,144

)

 

 

 

(22,918

)

 

 

(65,620

)

 

 

 

(45,945

)

Proceeds from sale of rental fleet

 

 

3,770

 

 

 

 

3,319

 

 

 

11,447

 

 

 

 

9,602

 

Additions to property, plant and equipment, excluding

   acquisitions

 

 

(5,554

)

 

 

 

(4,109

)

 

 

(14,635

)

 

 

 

(12,816

)

Proceeds from sale of property, plant and equipment

 

 

136

 

 

 

 

12

 

 

 

603

 

 

 

 

780

 

Net capital expenditures, excluding acquisitions

 

 

(28,792

)

 

 

 

(23,696

)

 

 

(68,205

)

 

 

 

(48,379

)

Free cash flow

 

$

17,476

 

 

 

$

8,915

 

 

$

48,015

 

 

 

$

47,453

 

 

36


 

Constant Currency.  We calculate the effect of currency fluctuations on current periods by translating the results for our business in the U.K. during the current periods using the average exchange rates from the same period in the prior year. We present constant currency information to provide useful information to assess our underlying business excluding the effect of material foreign currency rate fluctuations.  The table below shows certain financial information as calculated on a constant currency basis:

 

 

 

Three Months Ended September 30, 2018

 

 

 

Calculated in

Constant

Currency

 

 

As Reported

 

 

Difference

 

 

 

(In thousands)

 

Rental revenues

 

$

141,025

 

 

$

140,924

 

 

$

101

 

Rental, selling and general expenses

 

 

90,829

 

 

 

90,764

 

 

 

65

 

Adjusted EBITDA

 

 

55,466

 

 

 

55,427

 

 

 

39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

Calculated in

Constant

Currency

 

 

As Reported

 

 

Difference

 

 

 

(In thousands)

 

Rental revenues

 

$

402,785

 

 

$

406,149

 

 

$

(3,364

)

Rental, selling and general expenses

 

 

266,747

 

 

 

269,033

 

 

 

(2,286

)

Adjusted EBITDA

 

 

152,821

 

 

 

153,980

 

 

 

(1,159

)

 


37


 

RESULTS OF OPERATIONS

Three Months Ended September 30, 2018, Compared to Three Months Ended September 30, 2017

 

 

 

Three Months Ended

September 30,

 

 

Percentage of Revenue

Three Months Ended

September 30,

 

 

 

Increase (Decrease)

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

 

2017

 

 

 

2018 versus 2017

 

 

 

 

(In thousands, except percentages)

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

140,924

 

 

$

127,695

 

 

 

94.1

 

%

 

 

93.5

 

%

 

$

13,229

 

 

 

10.4

 

%

Sales

 

 

8,716

 

 

 

8,438

 

 

 

5.8

 

 

 

 

6.2

 

 

 

 

278

 

 

 

3.3

 

 

Other

 

 

67

 

 

 

503

 

 

 

0.0

 

 

 

 

0.4

 

 

 

 

(436

)

 

 

(86.7

)

 

Total revenues

 

 

149,707

 

 

 

136,636

 

 

 

100.0

 

 

 

 

100.0

 

 

 

 

13,071

 

 

 

9.6

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

 

90,764

 

 

 

87,745

 

 

 

60.6

 

 

 

 

64.2

 

 

 

 

3,019

 

 

 

3.4

 

 

Cost of sales

 

 

5,770

 

 

 

5,519

 

 

 

3.9

 

 

 

 

4.0

 

 

 

 

251

 

 

 

4.5

 

 

Restructuring expenses

 

 

 

 

 

625

 

 

n/a

 

 

 

 

0.5

 

 

 

 

(625

)

 

n/a

 

 

Asset impairment charge and loss on

   divestiture, net

 

 

98,278

 

 

 

 

 

 

65.6

 

 

 

n/a

 

 

 

 

98,278

 

 

n/a

 

 

Depreciation and amortization

 

 

16,191

 

 

 

15,935

 

 

 

10.8

 

 

 

 

11.7

 

 

 

 

256

 

 

 

1.6

 

 

Total costs and expenses

 

 

211,003

 

 

 

109,824

 

 

 

140.9

 

 

 

 

80.4

 

 

 

 

101,179

 

 

 

92.1

 

 

(Loss) income from operations

 

 

(61,296

)

 

 

26,812

 

 

 

(40.9

)

 

 

 

19.6

 

 

 

 

(88,108

)

 

 

(328.6

)

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

n/a

 

 

Interest expense

 

 

(10,487

)

 

 

(9,203

)

 

 

(7.0

)

 

 

 

(6.7

)

 

 

 

(1,284

)

 

 

14.0

 

 

Foreign currency exchange

 

 

24

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

26

 

 

n/a

 

 

(Loss) income before income tax provision

 

 

(71,759

)

 

 

17,611

 

 

 

(47.9

)

 

 

 

12.9

 

 

 

 

(89,370

)

 

 

 

 

 

Income tax (benefit) provision

 

 

(19,594

)

 

 

6,383

 

 

 

(13.1

)

 

 

 

4.7

 

 

 

 

(25,977

)

 

 

 

 

 

Net (loss) income

 

$

(52,165

)

 

$

11,228

 

 

 

(34.8

)

%

 

 

8.2

 

%

 

$

(63,393

)

 

 

 

 

 

 

 

 

Three Months Ended

September 30,

 

 

Percentage of Revenue

Three Months Ended

September 30,

 

 

 

Increase (Decrease)

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

 

2017

 

 

 

2018 versus 2017

 

 

 

 

(In thousands, except percentages)

 

 

EBITDA

 

$

(45,081

)

 

$

42,749

 

 

 

(30.1

)

%

 

 

31.3

 

%

 

$

(87,830

)

 

 

(205.5

)

%

Adjusted EBITDA

 

 

55,427

 

 

 

45,531

 

 

 

37.0

 

 

 

 

33.3

 

 

 

 

9,896

 

 

 

21.7

 

 

Free Cash Flow

 

 

17,476

 

 

 

8,915

 

 

 

11.7

 

 

 

 

6.5

 

 

 

 

8,561

 

 

 

96.0

 

 

 

Total Revenues.  The following table depicts revenues by type of business for the three-month periods ended September 30:

 

 

 

Storage Solutions

 

 

 

 

Three Months Ended September 30,

 

 

 

 

2018

 

 

2017

 

 

Increase (Decrease)

2018 versus 2017

 

 

 

 

(In thousands, except percentages)

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

112,639

 

 

$

104,488

 

 

$

8,151

 

 

 

7.8

 

%

Sales

 

 

7,696

 

 

 

6,743

 

 

 

953

 

 

 

14.1

 

 

Other

 

 

40

 

 

 

401

 

 

 

(361

)

 

 

(90.0

)

 

Total revenues

 

$

120,375

 

 

$

111,632

 

 

$

8,743

 

 

 

7.8

 

 

 

38


 

 

 

Tank & Pump Solutions

 

 

 

 

Three Months Ended September 30,

 

 

 

 

2018

 

 

2017

 

 

Increase (Decrease)

2018 versus 2017

 

 

 

 

(In thousands, except percentages)

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

28,285

 

 

$

23,207

 

 

$

5,078

 

 

 

21.9

 

%

Sales

 

 

1,020

 

 

 

1,695

 

 

 

(675

)

 

 

(39.8

)

 

Other

 

 

27

 

 

 

102

 

 

 

(75

)

 

 

(73.5

)

 

Total revenues

 

$

29,332

 

 

$

25,004

 

 

$

4,328

 

 

 

17.3

 

 

 

Of the $149.7 million of total revenues for the three months ended September 30, 2018, $120.4 million, or 80.4%, related to the Storage Solutions business and $29.3 million, or 19.6%, related to the Tank & Pump Solutions business.  Of the $136.6 million of total revenues for the three-month period ended September 30, 2017, $111.6 million, or 81.7%, related to the Storage Solutions business and $25.0 million, or 18.3%, related to the Tank & Pump Solutions business.

Rental Revenues. Storage Solutions rental revenues increased 7.8% during the three-month period ended September 30, 2018, as compared to the prior-year period.  This increase was driven by a 2.4% increase in year-over-year rental rates and a 2.6% increase in units on rent, as well as favorable mix and increases in delivery and pickup revenue. Beginning in the second half of 2017, we have successfully leveraged our technology, footprint and fleet capacity to partner with our national account customers, which has continued to drive growth. Yield (calculated as rental revenues divided by average units on rent and adjusted to a 28 day period) increased 5.1% as compared to the prior-year period, due to increased rates, favorable mix and increased delivery and pickup revenue.  

Rental revenues within the Tank & Pump Solutions business increased $5.1 million, or 21.9%, for the three-month period ended September 30, 2018, as compared to the prior-year period.  This increase was driven by an approximately 19.4% increase in fleet on rent for the current quarter, as well as favorable mix and increases in delivery and pickup revenue, partially offset by slight rate decreases.  Demand from our downstream customers is increasing overall and maintenance projects that were postponed throughout much of 2017 are returning to normalized levels.  We believe we are performing better than the market by leveraging our superior service and national footprint with our larger customers.  Additionally, upstream business is seeing a year-over-year uptick due to increasing activity in the oil and gas segment.  Our salesforce has also successfully pursued new diversified customers in local geographies and we are beginning to gain traction on several new or extended customer contracts signed late in 2017 and early 2018.

Sales Revenues. We focus on rental revenues. In general, sales of units from our fleet occur due to a particular customer need, or due to having fleet in excess of demand at a particular location.  Storage Solutions sales revenue of $7.7 million for the quarter ended September 30, 2018 increased $1.0 million, or 14.1%, compared to the prior-year period. This increase was primarily driven by a one-time sale in the U.K.  Tank & Pump Solutions sales revenue of $1.0 million for the quarter ended September 30, 2018 decreased $0.7 million from the prior-year period.

Costs and expenses. The following table depicts costs and expenses by type of business for the three-month periods ended September 30:

 

 

 

Storage Solutions

 

 

 

 

Three Months Ended September 30,

 

 

 

 

2018

 

 

2017

 

 

Increase (Decrease)

2018 versus 2017

 

 

 

 

(In thousands, except percentages)

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

$

71,121

 

 

$

70,195

 

 

$

926

 

 

 

1.3

 

%

Cost of sales

 

 

5,226

 

 

 

4,477

 

 

 

749

 

 

 

16.7

 

 

Restructuring expenses

 

 

 

 

 

500

 

 

 

(500

)

 

n/a

 

 

Asset impairment charge and loss on divestiture, net

 

 

96,092

 

 

 

 

 

 

96,092

 

 

n/a

 

 

Depreciation and amortization

 

 

9,758

 

 

 

9,836

 

 

 

(78

)

 

 

(0.8

)

 

Total costs and expenses

 

$

182,197

 

 

$

85,008

 

 

$

97,189

 

 

 

114.3

 

 

 

39


 

 

 

Tank & Pump Solutions

 

 

 

 

Three Months Ended September 30,

 

 

 

 

2018

 

 

2017

 

 

Increase (Decrease)

2018 versus 2017

 

 

 

 

(In thousands, except percentages)

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

$

19,643

 

 

$

17,550

 

 

$

2,093

 

 

 

11.9

 

%

Cost of sales

 

 

544

 

 

 

1,042

 

 

 

(498

)

 

 

(47.8

)

 

Restructuring expenses

 

 

 

 

 

125

 

 

 

(125

)

 

n/a

 

 

Asset impairment charge and loss on divestiture, net

 

 

2,186

 

 

 

 

 

 

2,186

 

 

n/a

 

 

Depreciation and amortization

 

 

6,433

 

 

 

6,099

 

 

 

334

 

 

 

5.5

 

 

Total costs and expenses

 

$

28,806

 

 

$

24,816

 

 

$

3,990

 

 

 

16.1

 

 

 

Rental, Selling and General Expenses.  Rental, selling and general expenses for the three months ended September 30, 2018 of $90.8 million increased $3.0 million, or 3.4%, as compared to the prior-year period.  As a percentage of total revenues, rental, selling and general expenses were 60.6% for the three months ended September 30, 2018, which was a decrease from 64.2% in the prior-year period.  

Storage Solutions business rental, selling and general expenses for the three months ended September 30, 2018 increased $0.9 million, a 1.3% increase from the prior-year period. The increase was primarily due to higher transportation costs, as well as increased re-rent costs required to support the additional rental activity.  These increases were largely offset by decreased variable compensation costs within this segment.

Rental, selling and general expenses for the Tank & Pump Solutions business increased $2.1 million, or 11.9%, in the current-year quarter, as compared to the prior-year quarter.  The increase was largely due to increased transportation costs to support the additional rental activity as well as an increase in variable compensation in the current-year period, as compared to the prior-year period.

Cost of Sales. Cost of sales is the cost related to our sales revenue only. Within the Storage Solutions business, cost of sales was $5.2 million and $4.5 million for the three months ended September 30, 2018 and 2017, respectively.  Storage Solutions sales revenue, less cost of sales (sales profit), was $2.5 million and $2.3 million for the three-month periods ended September 30, 2018 and 2017, respectively.  Sales profit expressed as a percentage of sales revenue (sales profit margin) was 32.1% in the quarter ended September 30, 2018 and 33.6% in the prior-year quarter.

Within the Tank & Pump Solutions business, cost of sales was $0.5 million and $1.0 million in the quarters ended September 30, 2018 and 2017, respectively.  Tank & Pump Solutions sales profit was $0.5 million and $0.6 million for the three-month periods ended September 30, 2018 and 2017, respectively.

Restructuring. Of the $0.6 million of restructuring expense recognized in the three months ended September 30, 2017, approximately $0.1 million of expenses largely related to the abandonment of yards, or portions of yard, as well as related fleet and other costs due to the divestiture of our wood mobile office business.  The remaining expense is related primarily to the integration of our wholly owned subsidiary, ETS, into our existing infrastructure.

Asset impairment charge and loss on divestiture, net. As discussed in the overview section of this management’s discussion and analysis of financial conditions and results of operations, during the quarter we identified specific underperforming assets to classify as held for sale.  As a result, we recognized a loss of $98.3 million in the third quarter of 2018.

Depreciation and Amortization Expense. Total depreciation and amortization expense of $16.2 million for the three months ended September 30, 2018 increased $0.3 million, or 1.6%, as compared to the prior-year period.

Interest Expense. Interest expense was $10.5 million for the three months ended September 30, 2018 and $9.2 million in the prior-year period. This increase is due to a higher effective interest rate on our lines of credit, slightly offset by an overall decrease in debt outstanding.  Our average debt outstanding in the quarter ended September 30, 2018 was $923.4 million, compared to $935.9 million in the prior-year quarter. The weighted average interest rate on our debt was 4.3% and 3.7% for the three-month periods ended September 30, 2018 and 2017, respectively, excluding the amortization of deferred financing costs. Taking into account the amortization of deferred financing costs, the weighted average interest rate was 4.5% and 3.9% for the three-month periods ended September 30, 2018 and 2017, respectively.  

40


 

Provision for Income Taxes. During the quarter ended September 30, 2018, we had a $19.6 million benefit for income taxes, compared to a $6.4 million provision in the prior-year quarter. Our effective income tax rate decreased to 27.3% for the three months ended September 30, 2018, compared to 36.2% for the prior-year quarter.  During the quarter ended September 30, 2018 we recognized a $2.6 million reduction in our provisional tax expense related to the repatriation of foreign earnings for the impact of the U.S. federal tax reform enacted in the fourth quarter of 2017.  

Excluding the tax effect of the $98.3 million asset impairment charge and loss on divestiture discussed above, as well as the $2.6 million reduction to our provisional tax expense, our income tax provision was $7.4 million and the tax rate was 28.0%. The decrease in the effective tax rate as compared to the 2017 effective rate was primarily due to the reduction of the U.S. federal tax rate from 35% to 21%, partially offset by the increase in disallowed deductions for officers’ compensation, both of which are a result of the U.S. federal tax reform enacted in the fourth quarter of 2017. Additionally, income tax expense was recognized due to state tax rate changes enacted in the third quarter of 2018.

Net Income. For the three months ended September 30, 2018 we had net loss of $52.5 million.  The loss was driven by our asset impairment charge and loss on divestiture, which more than offset our increased revenues.  This loss compares to prior-year net income of $11.2 million.

Adjusted EBITDA. For the three-month period ended September 30, 2018, we realized adjusted EBITDA of $55.4 million, an increase of $9.9 million, or 21.7%, as compared to adjusted EBITDA of $45.5 million in the prior-year period. The increase was generated by strong growth in both our Storage Solutions and Tank & Pump Solutions business, and was partially offset by overall increased rental, selling and general costs. Our adjusted EBITDA margins were 37.0% and 33.3% for the quarters ended September 30, 2018 and 2017, respectively.  The increase in adjusted EBITDA margin is due to increased efficiencies and our ability to leverage our infrastructure to grow revenue at a higher rate than expense.

During the three months ended September 30, 2018, adjusted EBITDA related to the Storage Solutions business increased $7.1 million, or 18.2%, to $46.2 million from $39.1 million in the prior-year period. Adjusted EBITDA related to the Tank & Pump Solutions business increased $2.8 million, or 42.8%, to $9.2 million during the three months ended September 30, 2018 from $6.5 million during the prior-year period.  Adjusted EBITDA margins for the quarter ended September 30, 2018 were 38.4% for the Storage Solutions business and 31.5% for the Tank & Pump Solutions business.

41


 

Nine Months Ended September 30, 2018, Compared to Nine Months Ended September 30, 2017

 

 

 

Nine Months Ended

September 30,

 

 

Percentage of Revenue

Nine Months Ended

September 30,

 

 

 

Increase (Decrease)

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

 

2017

 

 

 

2018 versus 2017

 

 

 

 

(In thousands, except percentages)

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

406,149

 

 

$

360,288

 

 

 

93.9

 

%

 

 

93.1

 

%

 

$

45,861

 

 

 

12.7

 

%

Sales

 

 

25,700

 

 

 

24,817

 

 

 

5.9

 

 

 

 

6.4

 

 

 

 

883

 

 

 

3.6

 

 

Other

 

 

511

 

 

 

1,748

 

 

 

0.1

 

 

 

 

0.5

 

 

 

 

(1,237

)

 

 

(70.8

)

 

Total revenues

 

 

432,360

 

 

 

386,853

 

 

 

100.0

 

 

 

 

100.0

 

 

 

 

45,507

 

 

 

11.8

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

 

269,033

 

 

 

248,954

 

 

 

62.2

 

 

 

 

64.4

 

 

 

 

20,079

 

 

 

8.1

 

 

Cost of sales

 

 

16,925

 

 

 

16,039

 

 

 

3.9

 

 

 

 

4.1

 

 

 

 

886

 

 

 

5.5

 

 

Restructuring expenses

 

 

1,306

 

 

 

2,062

 

 

 

0.3

 

 

 

 

0.5

 

 

 

 

(756

)

 

n/a

 

 

Asset impairment charge and loss on

   divestiture, net

 

 

98,278

 

 

 

 

 

 

22.7

 

 

 

n/a

 

 

 

 

98,278

 

 

n/a

 

 

Depreciation and amortization

 

 

50,206

 

 

 

46,941

 

 

 

11.6

 

 

 

 

12.1

 

 

 

 

3,265

 

 

 

7.0

 

 

Total costs and expenses

 

 

435,748

 

 

 

313,996

 

 

 

100.8

 

 

 

 

81.2

 

 

 

 

121,752

 

 

 

38.8

 

 

(Loss) income from operations

 

 

(3,388

)

 

 

72,857

 

 

 

(0.8

)

 

 

 

18.8

 

 

 

 

(76,245

)

 

 

(104.7

)

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

6

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

n/a

 

 

Interest expense

 

 

(30,179

)

 

 

(26,412

)

 

 

(7.0

)

 

 

 

(6.8

)

 

 

 

(3,767

)

 

 

14.3

 

 

Foreign currency exchange

 

 

69

 

 

 

(29

)

 

 

 

 

 

 

 

 

 

 

98

 

 

n/a

 

 

(Loss) income before income tax provision

 

 

(33,492

)

 

 

46,436

 

 

 

(7.7

)

 

 

 

12.0

 

 

 

 

(79,928

)

 

 

 

 

 

Income tax (benefit) provision

 

 

(11,182

)

 

 

16,279

 

 

 

(2.6

)

 

 

 

4.2

 

 

 

 

(27,461

)

 

 

 

 

 

Net (loss) income

 

$

(22,310

)

 

$

30,157

 

 

 

(5.2

)

%

 

 

7.8

 

%

 

$

(52,467

)

 

 

 

 

 

 

 

 

Nine Months Ended

September 30,

 

 

Percentage of Revenue

Nine Months Ended

September 30,

 

 

 

Increase (Decrease)

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

 

2017

 

 

 

2018 versus 2017

 

 

 

 

(In thousands, except percentages)

 

 

EBITDA

 

$

46,893

 

 

$

119,789

 

 

 

10.8

 

%

 

 

31.0

 

%

 

$

(72,896

)

 

 

(60.9

)

%

Adjusted EBITDA

 

 

153,980

 

 

 

129,179

 

 

 

35.6

 

 

 

 

33.4

 

 

 

 

24,801

 

 

 

19.2

 

 

Free Cash Flow

 

 

48,015

 

 

 

47,453

 

 

 

11.1

 

 

 

 

12.3

 

 

 

 

562

 

 

 

1.2

 

 

 

Total Revenues.  The following table depicts revenues by type of business for the nine-month periods ended September 30:

 

 

 

Storage Solutions

 

 

 

 

Nine Months Ended September 30,

 

 

 

 

2018

 

 

2017

 

 

Increase (Decrease)

2018 versus 2017

 

 

 

 

(In thousands, except percentages)

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

325,293

 

 

$

293,780

 

 

$

31,513

 

 

 

10.7

 

%

Sales

 

 

21,785

 

 

 

20,763

 

 

 

1,022

 

 

 

4.9

 

 

Other

 

 

399

 

 

 

1,418

 

 

 

(1,019

)

 

 

(71.9

)

 

Total revenues

 

$

347,477

 

 

$

315,961

 

 

$

31,516

 

 

 

10.0

 

 

 

42


 

 

 

Tank & Pump Solutions

 

 

 

 

Nine Months Ended September 30,

 

 

 

 

2018

 

 

2017

 

 

Increase (Decrease)

2018 versus 2017

 

 

 

 

(In thousands, except percentages)

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

80,856

 

 

$

66,508

 

 

$

14,348

 

 

 

21.6

 

%

Sales

 

 

3,915

 

 

 

4,054

 

 

 

(139

)

 

 

(3.4

)

 

Other

 

 

112

 

 

 

330

 

 

 

(218

)

 

 

(66.1

)

 

Total revenues

 

$

84,883

 

 

$

70,892

 

 

$

13,991

 

 

 

19.7

 

 

 

Of the $432.4 million of total revenues for the nine months ended September 30, 2018, $347.5 million, or 80.4%, related to the Storage Solutions business and $84.9 million, or 19.6%, related to the Tank & Pump Solutions business.  Of the $386.9 million of total revenues for the nine-month period ended September 30, 2017, $316.0 million, or 81.7%, related to the Storage Solutions business and $70.9 million, or 18.3%, related to the Tank & Pump Solutions business.

Rental Revenues. Storage Solutions rental revenues increased 9.6% during the nine-month period ended September 30, 2018, as compared to the prior-year period, and adjusted for constant currency.  This increase was driven by a 2.6% increase in year-over-year rental rates and a 3.8% increase in units on rent, as well as favorable mix and increases in delivery and pickup revenue. Beginning in the second half of 2017, we have successfully leveraged our technology, footprint and fleet capacity to partner with our national account customers, which has continued to drive growth in 2018. Yield increased 6.7% as compared to the prior-year period, due to increased rates, favorable mix and increased delivery and pickup revenue.  In constant currency, yield increased 5.6%.

Rental revenues within the Tank & Pump Solutions business increased $14.3 million, or 21.6%, for the nine-month period ended September 30, 2018, as compared to the prior-year period.  The increase was driven by an approximately 22.2% increase in fleet on rent for the current period, partially offset by decreased rates.  Demand from our downstream customers is increasing overall and maintenance projects that were postponed throughout much of 2017 are returning to normalized levels.  We believe we are performing better than the market by leveraging our superior service and national footprint with our larger customers.  Additionally, upstream business is seeing a year-over-year uptick due to increasing activity in the oil and gas segment.  Our salesforce has also successfully pursued new diversified customers in local geographies and we are beginning to gain traction on several new or extended customer contracts signed late in 2017 and early 2018.

Sales Revenues. In general, sales of units from our fleet occur due to a particular customer need, or due to having fleet in excess of demand at a particular location.  Storage Solutions sales revenue of $21.8 million for the nine months ended September 30, 2018 increased $1.0 million, or 4.9%, compared to the prior-year period. Tank & Pump Solutions sales revenue of $3.9 million for the nine months ended September 30, 2018 decreased $0.1 million from the prior-year period.

Costs and expenses. The following table depicts costs and expenses by type of business for the nine-month periods ended September 30:

 

 

 

Storage Solutions

 

 

 

 

Nine Months Ended September 30,

 

 

 

 

2018

 

 

2017

 

 

Increase (Decrease)

2018 versus 2017

 

 

 

 

(In thousands, except percentages)

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

$

212,248

 

 

$

198,551

 

 

$

13,697

 

 

 

6.9

 

%

Cost of sales

 

 

14,695

 

 

 

13,808

 

 

 

887

 

 

 

6.4

 

 

Restructuring expenses

 

 

1,306

 

 

 

1,933

 

 

 

(627

)

 

n/a

 

 

Asset impairment charge and loss on divestiture, net

 

 

96,092

 

 

 

 

 

 

96,092

 

 

n/a

 

 

Depreciation and amortization

 

 

31,398

 

 

 

28,496

 

 

 

2,902

 

 

 

10.2

 

 

Total costs and expenses

 

$

355,739

 

 

$

242,788

 

 

$

112,951

 

 

 

46.5

 

 

43


 

 

 

 

Tank & Pump Solutions

 

 

 

 

Nine Months Ended September 30,

 

 

 

 

2018

 

 

2017

 

 

Increase (Decrease)

2018 versus 2017

 

 

 

 

(In thousands, except percentages)

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

$

56,785

 

 

$

50,403

 

 

$

6,382

 

 

 

12.7

 

%

Cost of sales

 

 

2,230

 

 

 

2,231

 

 

 

(1

)

 

 

(0.0

)

 

Restructuring expenses

 

 

 

 

 

129

 

 

 

(129

)

 

n/a

 

 

Asset impairment charge and loss on divestiture, net

 

 

2,186

 

 

 

 

 

 

2,186

 

 

n/a

 

 

Depreciation and amortization

 

 

18,808

 

 

 

18,445

 

 

 

363

 

 

 

2.0

 

 

Total costs and expenses

 

$

80,009

 

 

$

71,208

 

 

$

8,801

 

 

 

12.4

 

 

 

Rental, Selling and General Expenses.  Rental, selling and general expenses for the nine months ended September 30, 2018 of $269.0 million increased $20.1 million, or 8.1%, as compared to the prior-year period.  As a percentage of total revenues, rental, selling and general expenses were 62.2% for the nine months ended September 30, 2018, which was a decrease from 64.4% in the prior-year period.  

Within the Storage Solutions business rental, selling and general expenses in the prior-year period was $2.6 million of expense related to the severance and transition of an executive.  Excluding this expense, rental, selling and general expenses for the nine months ended September 30, 2018 increased $16.3 million, an 8.3% increase from the prior-year period. Excluding the prior-year executive transition expenses and adjusting for the effect of changes in currency exchange rates, rental, selling and general expenses increased 7.2% over the prior-year period.  The increase was primarily due to higher transportation, salary and re-rent costs required to support the additional rental activity as well as an increase in variable compensation in the current-year period, as compared to the prior-year period. Also contributing to the year-over-year difference is increased stock-based compensation expense due to the anticipated achievement of certain goals related to our performance-based stock award plan.

Rental, selling and general expenses for the Tank & Pump Solutions business increased $6.4 million, or 12.7%, in the first nine months of 2018, as compared to the same period in the prior-year.  The increase was largely due to increased transportation costs to support the additional rental activity as well as an increase in variable compensation in the current-year period, as compared to the prior-year period.

Cost of Sales. Cost of sales is the cost related to our sales revenue only. Within the Storage Solutions business, cost of sales was $14.7 million and $13.8 million for the nine months ended September 30, 2018 and 2017, respectively.  Sales profit was $7.1 million and $7.0 million for the nine-month periods ended September 30, 2018 and 2017, respectively.  Sales profit expressed as a percentage of sales revenue (sales profit margin) was 32.5% for the nine months ended September 30, 2018 and 33.5% in the prior-year period.

Within the Tank & Pump Solutions business, cost of sales was $2.2 million for both nine-month periods ended September 30, 2018 and 2017.  Tank & Pump Solutions sales profit was $1.7 million and $1.8 million for the nine-month periods ended September 30, 2018 and 2017, respectively.

Restructuring. Of the $1.3 million of restructuring expenses recognized in the nine months ended September 30, 2018, $0.9 million related to the restructuring of our corporate service center, including the severance of an executive.  The remainder primarily related to projects initiated in prior years that were not accruable during such period.  Of the $2.1 million of restructuring expense recognized in the nine months ended September 30, 2017 approximately $0.8 million of expenses largely related to the abandonment of yards, or portions of yard, as well as related fleet and other costs due to the divestiture of our wood mobile office business.  The remaining $1.2 million of expense is related to the integration of our wholly owned subsidiary, ETS, into our existing infrastructure.

Asset impairment charge and loss on divestiture, net. As discussed in the overview section of this management’s discussion and analysis of financial conditions and results of operations, during the current period we identified specific underperforming assets to classify as held for sale.  As a result, we recognized a loss of $98.3 million in the current period.

Depreciation and Amortization Expense. Total depreciation and amortization expense of $50.2 million for the nine months ended September 30, 2018 increased $3.3 million, or 7.0%, as compared to the prior-year period.  The majority of this increase relates to depreciation on property, plant and equipment.

44


 

Interest Expense. Interest expense was $30.2 million for the nine months ended September 30, 2018 and $26.4 million in the prior-year period. This increase is due to a higher effective interest rate on our lines of credit, partially offset by an overall decrease in debt outstanding.  Our average debt outstanding in the nine months ended September 30, 2018 was $921.5 million, compared to $933.6 million in the prior-year period. The weighted average interest rate on our debt was 4.1% and 3.5% for the nine-month periods ended September 30, 2018 and 2017, respectively, excluding the amortization of deferred financing costs. Taking into account the amortization of deferred financing costs, the weighted average interest rate was 4.4% and 3.8% for the nine-month periods ended September 30, 2018 and 2017, respectively.  

Provision for Income Taxes. During the nine months ended September 30, 2018, we had an $11.2 million benefit for income taxes, compared to a $16.3 million provision in the prior-year period. Our effective income tax rate decreased to 33.4% for the nine months ended September 30, 2018, compared to 35.1% for the prior-year period.  During the current-year period we recognized a $2.9 million reduction in our provisional tax expense related to the repatriation of foreign earnings for the impact of the U.S. federal tax reform enacted in the fourth quarter of 2017.  

Excluding the tax effects of the $98.3 million asset impairment charge and loss on divestiture and the $1.3 million of restructuring expenses discussed above, as well as the $2.9 million reduction to our provisional tax expense, our income tax provision was $16.2 million and the tax rate was 24.4%. The decrease in the effective tax rate as compared to the 2017 effective rate was primarily due to the reduction of the U.S. federal tax rate from 35% to 21%, partially offset by the increase in disallowed deductions for officers’ compensation, both of which are a result of the U.S. federal tax reform enacted in the fourth quarter of 2017. Additionally, income tax benefits were recognized due to state tax rate changes enacted in the period.

Net (Loss) Income. For the nine months ended September 30, 2018 we had a net loss of $22.3 million.  The loss was driven by our impairment charge and loss on divestiture, which more than offset our increased revenues.  This loss compares to net income of $30.2 million for the nine months ended September 30, 2017.

Adjusted EBITDA. For the nine-month period ended September 30, 2018, we realized adjusted EBITDA of $154.0 million, an increase of $24.8 million, or 19.2%, as compared to adjusted EBITDA of $129.2 million in the prior-year period. Excluding the favorable effect of currency translation rates, adjusted EBITDA increased 18.3%.  The increase was generated by strong growth in both our Storage Solutions and Tank & Pump Solutions business, and was partially offset by overall increased rental, selling and general costs. Our adjusted EBITDA margins were 35.6% and 33.4% for the nine-month periods ended September 30, 2018 and 2017, respectively. The increase in adjusted EBITDA margin is due to increased efficiencies and our ability to leverage our infrastructure to grow revenue at a higher rate than expense.

During the nine months ended September 30, 2018, adjusted EBITDA related to the Storage Solutions business increased $17.1 million, or 15.4%, to $127.8 million from $110.7 million in the prior-year period. Excluding the favorable effect of currency translation rates, adjusted EBITDA related to the Storage Solutions business increased 14.4%. Adjusted EBITDA related to the Tank & Pump Solutions business increased $7.7 million, or 41.9%, to $26.2 million during the nine months ended September 30, 2018 from $18.4 million during the prior-year period.  Adjusted EBITDA margins for the nine months ended September 30, 2018 were 36.8% for the Storage Solutions business and 30.8% for the Tank & Pump Solutions business.

LIQUIDITY AND CAPITAL RESOURCES

Renting is a capital-intensive business that requires us to acquire assets before they generate revenues, cash flow and earnings. The majority of the assets that we rent have very long useful lives and require relatively little maintenance expenditures. Most of the capital we have deployed in our rental business historically has been used to expand our operations geographically, execute opportunistic acquisitions, increase the number of units available for rent at our existing locations, and add to the mix of products we offer. During recent years, our operations have generated annual cash flow that exceeds our pre-tax earnings, particularly due to cash flow from operations and the deferral of income taxes caused by accelerated depreciation of our fixed assets in our tax return filings. Our strong cash flows from operating activities for the nine-month periods ended September 30, 2018 and 2017 of $116.2 million and $95.8 million, respectively, resulted in free cash flow of $48.0 million and $47.5 million, respectively.  In addition to free cash flow, our principal current source of liquidity is our Credit Agreement, as described below.

Revolving Credit Facility. The Credit Agreement provides for a five-year, $1.0 billion first lien senior secured revolving credit facility maturing on or before December 14, 2020. The Credit Agreement also provides for the issuance of irrevocable standby letters of credit by U.S.-based lenders in amounts totaling up to $50.0 million, by U.K.-based lenders in amounts totaling up to $20.0 million, and by Canadian-based lenders in amounts totaling up to $20.0 million.

45


 

Our and our subsidiary guarantors’ obligations under the Credit Agreement are secured by a blanket lien on substantially all of our assets. At September 30, 2018, we had $610.2 million of borrowings outstanding and $386.4 million of additional borrowing availability under the Credit Agreement. We were in compliance with the terms of the Credit Agreement as of September 30, 2018 and were above the minimum borrowing availability threshold and, therefore, are not subject to any financial maintenance covenants.

We believe our cash provided by operating activities will provide for our normal capital needs for the next twelve months. If not, we have sufficient borrowings available under our Credit Agreement to meet any additional funding requirements. We monitor the financial strength of our lenders on an ongoing basis using publicly-available information. Based upon that information, we do not presently believe that there is a likelihood that any of our lenders will be unable to honor their respective commitments under the Credit Agreement.

Senior Notes. The 2024 Notes, issued on May 9, 2016, bear interest at a rate of 5.875% per year, have an eight-year term and mature on July 1, 2024. Interest on the 2024 Notes is payable semiannually in arrears on January 1 and July 1. The 2024 Notes are senior unsecured obligations of the Company and are unconditionally guaranteed on a senior unsecured basis by certain of our existing and future domestic subsidiaries.

Cash Flow Summary.

 

 

 

For the Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Net (loss) income

 

$

(22,310

)

 

$

30,157

 

Adjustments to reconcile net (loss) income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Asset impairment charge and loss on divestiture, net

 

 

98,278

 

 

 

 

Deferred income taxes

 

 

(12,891

)

 

 

15,167

 

Other adjustments

 

 

57,662

 

 

 

53,878

 

Total adjustments to reconcile net (loss) income to net cash provided by

   operating activities:

 

 

143,049

 

 

 

69,045

 

Changes in certain assets and liabilities

 

 

(4,519

)

 

 

(3,370

)

Net cash provided by operating activities

 

 

116,220

 

 

 

95,832

 

Net cash used in investing activities

 

 

(64,697

)

 

 

(48,379

)

Net cash used in financing activities

 

 

(61,108

)

 

 

(39,613

)

Effect of exchange rate changes on cash

 

 

1,069

 

 

 

632

 

Net (decrease) increase in cash

 

$

(8,516

)

 

$

8,472

 

 

Operating Activities. Net cash provided by operating activities was $116.2 million for the nine months ended September 30, 2018, compared to $95.8 million in the prior-year period, an increase of $20.4 million.  The increase was driven by growth in our underlying business.  Although we had a net loss for the nine months ended September 30, 2018 compared to net income of $30.2 million in the prior-year period, the loss was driven by non-cash items.  Net cash provided by operating activities was reduced by $4.5 million and $3.4 million related to changes in certain assets and liabilities for the nine months ended September 30, 2018 and 2017, respectively.

46


 

Investing Activities. Net cash used in investing activities was $64.7 million in the nine months ended September 30, 2018, compared to $48.4 million in the prior-year period.  Rental fleet expenditures were as follows for the periods indicated:

 

 

 

Additions to Rental Fleet, Excluding

Acquisitions

For the Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

North America Storage Solutions

 

$

39,400

 

 

$

31,833

 

United Kingdom Storage Solutions

 

 

5,805

 

 

 

9,037

 

Tank & Pump Solutions

 

 

20,415

 

 

 

5,075

 

Consolidated additions to rental fleet, excluding acquisitions

 

 

65,620

 

 

 

45,945

 

Proceeds from sale of rental fleet

 

 

(11,447

)

 

 

(9,602

)

Rental fleet net capital expenditures

 

$

54,173

 

 

$

36,343

 

Rental fleet expenditures were $65.6 million in the nine months ended September 30, 2018, an increase of $19.7 million compared to the prior-year period.  Expenditures for rental fleet were made to meet overall increases in Tank & Pump Solutions demand as well as for Storage Solutions demand in geographic areas of high utilization for which it did not make economic sense to reposition our fleet, as well as to meet customer demand for specific types of units.  Proceeds from the sale of rental fleet units increased $1.8 million in the first nine months of 2018, compared to the prior-year period.  In general, sales of units from our fleet occur due to a particular customer need, or due to having fleet in excess of demand at a particular location; as such, the proceeds from sale of rental units will normally fluctuate from period to period.

Gross capital expenditures for property, plant and equipment were $14.6 million for the nine months ended September 30, 2018, compared to $12.8 million for the nine-month period ended September 30, 2017.  The current and prior-year periods include hardware and software-related costs of approximately $5.6 million and $6.8 million, respectively largely driven by our ongoing technology innovations.  Also during the current-year period, we received $3.5 million in proceeds related to the assets held for sale.

Financing Activities. Net cash used in financing activities during the nine months ended September 30, 2018 was $61.1 million, compared to $39.6 million for the prior-year period.  In the current-year period, we repaid $24.1 million under our lines of credit. Also in the nine months ended September 30, 2018, we paid $33.3 million of dividends. We did not repurchase any treasury stock under our repurchase program in the current nine-month period. In the prior-year period, we repaid $0.3 million under our lines of credit. Also in the nine months ended September 30, 2017, we paid $30.1 million of dividends and purchased $8.4 million of treasury stock.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Our contractual obligations primarily consist of our outstanding balance under the Credit Agreement, the principal amount of the 2024 Notes and obligations under capital leases. We also have operating lease commitments for: (i) real estate properties for the majority of our locations with remaining lease terms typically ranging from one to five years, (ii) delivery, transportation and yard equipment, typically under a seven-year lease with purchase options at the end of the lease term at a stated or fair market value price, and (iii) office related equipment.

At September 30, 2018, primarily in connection with securing our insurance policies, we have provided certain insurance carriers and others with approximately $3.4 million in letters of credit. We currently do not have any obligations under purchase agreements or commitments.

OFF-BALANCE SHEET TRANSACTIONS

We do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

47


 

SEASONALITY

Demand from our Storage Solutions customers is somewhat seasonal. Construction customers typically reflect higher demand during months with more temperate weather, while demand for our Storage Solutions units by large retailers is stronger from September through December because these retailers need to store more inventories for the holiday season. Our retail customers usually return these rented units to us in December and early in the following year. In the Tank & Pump Solutions business, demand from customers is typically higher in the middle of the year from March to October, driven by the timing of customer maintenance projects. The demand for rental of our pumps may also be impacted by weather, specifically when temperatures drop below freezing.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

A comprehensive discussion of our critical accounting policies and management estimates and significant accounting policies are included in the “Management’s Discussion and Analysis of Financial Conditions and Results of Operations’ section and in Note 2 “Summary of Significant Accounting Policies” to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

There have been no significant changes in our critical accounting policies, estimates and judgments during the nine-month period ended September 30, 2018.

RECENT ACCOUNTING PRONOUNCEMENTS

For discussions of the adoption and potential impacts of recently issued accounting standards, refer to Note 2 “Impact of Recently Issued Accounting Standards” to the accompanying condensed consolidated financial statements.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This section and other sections of this Quarterly Report on Form 10-Q contain forward-looking information about our financial results and estimates and our business prospects that involve substantial risks and uncertainties. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Forward-looking statements are expressions of our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They include words such as “may,” “plan,” “seek,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “continue,” “project,” “should,” “likely,” “future,” “target,” “forecast,” “goal,” “observe,” and “strategy” or the negative thereof or variations thereon or similar terminology in connection with any discussion of future operating or financial performance. The forward-looking statements in this Quarterly Report on Form 10-Q reflect management’s beliefs, plans, objectives, goals, expectations, anticipations and intentions with respect to our financial condition, results of operations, future performance and business, and include statements regarding, among other things, our future actions; financial position; management forecasts; efficiencies; impacts on our liquidity or free cash flow; planned capital expenditures; cost savings, synergies and opportunities to increase productivity and profitability; our plans and expectations regarding acquisitions; income and margins; liquidity; anticipated growth; the economy; business strategy; budgets; projected costs and plans and objectives of management for future operations; sales efforts; taxes; refinancing of existing debt; and the outcome of contingencies such as legal proceedings and financial results.  Factors that could cause actual results to differ materially from projected results include, without limitation:

 

an economic slowdown in the U.S. and/or the U.K. that affects any significant portion of our customer base, or the geographic regions where we operate in those countries;

 

our ability to manage growth at existing or new locations;

 

our ability to obtain borrowings under our revolving credit facility or additional debt or equity financings on acceptable terms;

 

changes in the supply and price of new and used products we lease;

 

our ability to increase revenue and control operating costs;

 

our ability to raise or maintain rental rates;

 

our ability to leverage and protect our information technology systems;

 

our ability to protect our patents and other intellectual property;

 

oil and gas prices;

 

currency exchange and interest rate fluctuations;

48


 

 

governmental laws and regulations affecting domestic and foreign operations, including tax obligations, environmental, and labor laws;

 

changes in the supply and cost of the raw materials we use in refurbishing or remanufacturing Storage Solutions units;

 

competitive developments affecting our industry, including pricing pressures or new entrants;

 

the timing, effectiveness and number of new markets we enter;

 

changes impacting our customers in their respective industries;

 

our ability to integrate acquisitions;

 

our ability to optimize our scalable ERP system;

 

changes in GAAP;

 

changes in local zoning laws affecting either our ability to operate in certain areas or our customer’s ability to use our products;

 

any changes in business, political and economic conditions due to the threat of future terrorist activity in the U.S. and other parts of the world and related U.S. military action overseas; and

 

our ability to utilize our deferred tax assets.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.

In addition to the information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 under the heading “Risk Factors.”

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk.  As of September 30, 2018, we had $610.2 million of indebtedness under our Credit Agreement, which bears interest at variable rates.  The average interest rate applicable to our Credit Agreement was 3.4% for the nine months ended September 30, 2018.  Based upon the average amount of our variable rate debt of $619.4 million outstanding during the nine months ended September 30, 2018, our annual interest expense would increase by approximately $6.2 million for each one percentage point increase in the interest rate of our lines of credit.

Impact of Foreign Currency Rate Changes. We currently have operations outside the U.S., and we bill those customers primarily in their local currency, which is subject to foreign currency rate changes. Our operations in Canada are billed in the Canadian Dollar, and our operations in the U.K. are billed in Pound Sterling. We are exposed to foreign exchange rate fluctuations as the financial results of our non-U.S. operations are translated into U.S. dollars. The impact of foreign currency rate changes has historically been insignificant with our Canadian operations, but we have more exposure to volatility with our U.K. operations. Based on the level of our U.K. operations during the nine months ended September 30, 2018, a 10% change in the value of the Pound Sterling as compared to the U.S. dollar would have changed net income by approximately $0.5 million for the nine months ended September 30, 2018.  We do not currently hedge our currency transaction or translation exposure, nor do we have any current plans to do so.

On June 23, 2016, the U.K. held a referendum in which British citizens approved an exit from the E.U., commonly referred to as “Brexit.” As a result of the referendum, the global markets and currencies have been adversely impacted, including volatility in the value of the Pound Sterling as compared to the U.S. dollar. Volatility in exchange rates is expected to continue in the short term as the U.K. negotiates its exit from the E.U. In order to help minimize our exchange rate gain and loss volatility, we finance our U.K. entities through our revolving credit facility, which allows us, at our option, to borrow funds locally in Pound Sterling denominated debt. In the longer term, any impact from Brexit on us will depend, in part, on the outcome of tariff, trade, regulatory and other negotiations. Although it is unknown what the result of those negotiations will be, it is possible that new terms may adversely affect our operations and financial results.

 

 

49


 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures were effective such that the information relating to the Company required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) is accumulated and communicated to the Company’s management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There were no changes in our internal control over financial reporting during the quarterly period ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

50


 

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

We refer you to documents filed by us with the SEC, specifically “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which identify important risk factors that could materially affect our business, financial condition and future results. We also refer you to the factors and cautionary language set forth in the section entitled “Cautionary Statements Regarding Forward-looking Statements” in “Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations” of this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including the accompanying condensed consolidated financial statements and related notes, should be read in conjunction with such risks and other factors for a full understanding of our operations and financial condition. The risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and herein are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

We are including the below risk factor regarding tariffs on steel imports.  Except for the update set forth below, there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10‑K for the fiscal year ended December 31, 2017.

Any tariffs on steel imports could result in increased container prices and adversely affect our results of operations.

On June 15, 2018, the U.S. government issued part 2 of the 25% ad valorem tariff that will be applied to Chinese exports to the U.S. The list of proposed commodities that would be subject to this 25% tariff included intermodal containers. While this was later reversed and containers were removed from the list of items subject to the tariffs, there cannot be any guarantee that they will not later be subject to future tariffs. Because most portable storage containers currently in the United States are originally manufactured in China to transport goods before eventually being sold for domestic use, any proposed future tariff would immediately increase the cost of new and used containers being sold into the U.S. If such a tariff were to be enacted, steel container prices would increase. We may not be able to pass such price increases on to our customers and may not be able to secure adequate alternative sources of containers on a timely or cost-effective basis. Either of these occurrences could adversely affect our results of operations and financial condition.

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below summarizes the information about purchases of our common stock during the quarterly period ended September 30, 2018:

 

Period

 

Total Number

of Shares

Purchased (1)

 

 

Average

Price Paid

per Share (2)

 

 

Total Number

of Shares

Purchased as

Part of Publicly

Announced Plans

or Programs (3)

 

 

Approximate

Dollar Value

of Shares That

May Yet be

Purchased

Under the Plans

or Programs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

July 2018

 

 

68

 

 

$

47.75

 

 

 

 

 

$

70,837

 

August 2018

 

 

1,077

 

 

 

42.84

 

 

 

 

 

 

70,837

 

September 2018

 

 

 

 

 

 

 

 

 

 

 

70,837

 

Total

 

 

1,145

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The shares purchased during the quarter were withheld from employees to satisfy minimum tax withholding obligations upon the vesting of restricted stock and were not purchased as part of a publicly announced plan or program.

(2)

The weighted average price paid per share of common stock does not include the cost of commissions.

(3)

In November 2013, the Board approved a share repurchase program authorizing up to $125.0 million of the Company’s outstanding shares of common stock to be repurchased.  In April 2015, the Board approved an increase of $50.0 million to the share repurchase program. The shares may be repurchased from time to time in the open market or in privately negotiated transactions.  The share repurchase program does not have an expiration date and may be suspended or terminated at any time by the Board.

 

 

51


 

ITEM 6. EXHIBITS

 

Number

 

Description

 

 

 

  31.1*

 

Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K

 

 

 

  31.2*

 

Certification of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-K

 

 

 

  32.1**

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Item 601(b)(32) of Regulation S-K

 

 

 

101.INS*

 

XBRL Instance Document

 

 

 

101.SCH*

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

*

Filed herewith.

**

Furnished herewith.

 

 

52


 

SIGNATURES

Pursuant to the requirements 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.

 

 

 

MOBILE MINI, INC.

 

 

 

Date: October 19, 2018

 

/s/ Van A. Welch

 

 

Van A. Welch

 

 

Chief Financial Officer

 

 

(Principal Financial Officer)

 

 

53