☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITY AND EXCHANGE ACT OF 1934

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

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, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period of 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 ☒

As of ~~October 26, 2022,~~May 3, 2023, ~~24,382,445~~24,476,738 shares of Registrant’s Common Stock were outstanding.

Statements contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”) which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, regarding McGrath RentCorp’s (the “Company’s”) expectations, strategies, prospects or targets are forward looking statements. These forward-looking statements also can be identified by the use of forward-looking terminology such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plan,” “predict,” “project,” or “will,” or the negative of these terms or other comparable terminology.

Management cautions that forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking ~~statements, including the economic impact of the COVID-19 pandemic and its variants.~~statements. Further, our future business, financial condition and results of operations could differ materially from those anticipated by such forward-looking statements and are subject to risks and uncertainties as set forth under “Risk Factors” in this Form 10-Q.

Forward-looking statements are made only as of the date of this Form 10-Q and are based on management’s reasonable assumptions, however these assumptions can be wrong or affected by known or unknown risks and uncertainties. No forward-looking statement can be guaranteed and subsequent facts or circumstances may contradict, obviate, undermine or otherwise fail to support or substantiate such statements. Readers should not place undue reliance on these forward-looking statements and are cautioned that any such forward-looking statements are not guarantees of future performance. Except as otherwise required by law, we are under no duty to update any of the forward-looking statements after the date of this Form 10-Q to conform such statements to actual results or to changes in our expectations.

We have reviewed the accompanying condensed consolidated balance sheet of McGrath RentCorp (a California Corporation) and subsidiaries (the “Company”) as of ~~September 30, 2022,~~March 31, 2023, and the related condensed consolidated statements of income, comprehensive income, ~~and~~ shareholders’ equity, ~~for the three-month~~ and ~~nine-month periods ended September 30, 2022 and 2021,~~ cash flows for the ~~nine-month periods~~three-months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ and the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company as of December 31, ~~2021,~~2022, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February ~~23, 2022,~~22, 2023, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, ~~2021,~~2022, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our reviews in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(in thousands, except per share amounts)	2022			2021			2022			2021			2023			2022
Revenues
Rental	$	118,361		$	103,269		$	333,226		$	283,937		$	110,247		$	90,050
Rental related services		35,361			31,513			88,497			73,870			27,132			19,032
Rental operations		153,722			134,782			421,723			357,807			137,379			109,082
Sales		45,391			37,636			97,738			80,503			23,660			15,219
Other		1,423			874			3,479			2,612			2,679			752
Total revenues		200,536			173,292			522,940			440,922			163,718			125,053
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment		24,176			23,802			72,114			68,216			21,833			19,862
Rental related services		25,971			24,356			64,967			56,236			19,268			13,760
Other		31,708			24,711			92,356			67,696			31,135			24,854
Total direct costs of rental operations		81,855			72,869			229,437			192,148			72,236			58,476
Costs of sales		29,241			24,618			59,737			50,021			14,115			8,542
Total costs of revenues		111,096			97,487			289,174			242,169			86,351			67,018
Gross profit		89,440			75,805			233,766			198,753			77,367			58,035
Selling and administrative expenses		44,095			39,907			124,010			109,305			57,498			32,605
Income from operations		45,345			35,898			109,756			89,448			19,869			25,430
Other expense:
Other (expense) income:
Interest expense		(4,177	)		(3,168	)		(9,998	)		(7,208	)		(7,464	)		(2,276	)
Foreign currency exchange loss		(236	)		(128	)		(404	)		(185	)
Income before provision for income taxes		40,932			32,602			99,354			82,055
Provision for income taxes		10,365			9,350			23,857			20,797
Foreign currency exchange gain														226			13
Income from continuing operations before provision for income taxes														12,631			23,167
Provision for income taxes from continuing operations														1,113			5,489
Income from continuing operations														11,518			17,678

Discontinued operations:
Income from discontinued operations before provision for income taxes														1,709			1,388
Provision for income taxes from discontinued operations														453			273
Gain on sale of discontinued operations, net of tax														58,883			—
Income from discontinued operations														60,139			1,115

Net income	$	30,567		$	23,252		$	75,497		$	61,258		$	71,657		$	18,793

Earnings per share from continuing operations:
Basic													$	0.47		$	0.73
Diluted													$	0.47		$	0.72
Earnings per share from discontinued operations:
Basic													$	2.46		$	0.05
Diluted													$	2.45		$	0.05
Earnings per share:
Basic	$	1.25		$	0.96		$	3.10		$	2.53		$	2.93		$	0.77
Diluted	$	1.25		$	0.95		$	3.08		$	2.50		$	2.92		$	0.77
Shares used in per share calculation:
Basic		24,379			24,245			24,342			24,209			24,416			24,285
Diluted		24,504			24,507			24,516			24,506			24,542			24,534
Cash dividends declared per share	$	0.455		$	0.435		$	1.365		$	1.305		$	0.465		$	0.455

The accompanying notes are an integral part of these condensed consolidated financial statements.


	September 30,			December 31,			March 31,			December 31,
(in thousands)	2022			2021			2023			2022
Assets
Cash	$	1,561		$	1,491		$	690		$	957
Accounts receivable, net of allowance for credit losses of $2,125 in 2022 and 2021		189,959			159,499
Accounts receivable, net of allowance for credit losses of $2,612 in 2023 and $2,300 in 2022								177,006			169,937
Rental equipment, at cost:
Relocatable modular buildings		1,085,060			1,040,094			1,412,084			1,123,268
Electronic test equipment		396,068			361,391			401,801			398,267
Liquid and solid containment tanks and boxes		309,607			309,908
		1,790,735			1,711,393			1,813,885			1,521,535
Less: accumulated depreciation		(690,913	)		(646,169	)		(546,617	)		(531,218	)
Rental equipment, net		1,099,822			1,065,224			1,267,268			990,317
Property, plant and equipment, net		139,203			135,325			144,295			138,713
Prepaid expenses and other assets		72,258			54,945			80,490			69,837
Intangible assets, net		42,607			47,049			68,055			35,431
Goodwill		132,305			132,393			323,799			106,403
Assets of discontinued operations								—			196,249
Total assets	$	1,677,715		$	1,595,926		$	2,061,603		$	1,707,844
Liabilities and Shareholders' Equity
Liabilities:
Notes payable	$	419,464		$	426,451		$	658,777		$	413,742
Accounts payable and accrued liabilities		154,942			136,313			219,260			151,208
Deferred income		92,115			58,716			100,289			82,417
Deferred income taxes, net		238,126			242,425			223,739			203,361
Liabilities of discontinued operations								—			53,171
Total liabilities		904,647			863,905			1,202,065			903,899
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,382 shares as of September 30, 2022 and 24,260 shares as of December 31, 2021		107,463			108,610
Issued and outstanding - 24,466 shares as of March 31, 2023 and 24,388 shares as of December 31, 2022								105,487			110,080
Retained earnings		665,530			623,465			754,147			693,943
Accumulated other comprehensive income (loss)		75			(54	)
Accumulated other comprehensive loss								(96	)		(78	)
Total shareholders’ equity		773,068			732,021			859,538			803,945
Total liabilities and shareholders’ equity	$	1,677,715		$	1,595,926		$	2,061,603		$	1,707,844

The accompanying notes are an integral part of these condensed consolidated financial statements.


	Common Stock					Retained			Accumulated Other Comprehensive			Total Shareholders’			Common Stock					Retained			Accumulated Other Comprehensive			Total Shareholders’
(in thousands, except per share amounts)	Shares		Amount			Earnings			Income (Loss)			Equity			Shares		Amount			Earnings			Loss			Equity
Balance at December 31, 2021		24,260	$	108,610		$	623,465		$	(54	)	$	732,021
Balance at December 31, 2022																24,388	$	110,080		$	693,943		$	(78	)	$	803,945
Net income		—		—			18,793			—			18,793			—		—			71,657			—			71,657
Share-based compensation		—		1,760			—			—			1,760			—		1,493			—			—			1,493
Common stock issued under stock plans, net of shares withheld for employee taxes		75		—			—			—			—			78		—			—			—			—
Taxes paid related to net share settlement of stock awards		—		(3,605	)		—			—			(3,605	)		—		(6,086	)		—			—			(6,086	)
Dividends accrued of $0.455 per share		—		—			(11,084	)		—			(11,084	)
Other comprehensive income		—		—			—			3			3
Balance at March 31, 2022		24,335	$	106,765		$	631,174		$	(51	)	$	737,888
Net income		—		—			26,137			—			26,137
Share-based compensation		—		1,652			—			—			1,652
Common stock issued under stock plans, net of shares withheld for employee taxes		43		—			—			—			—
Taxes paid related to net share settlement of stock awards		—		(2,523	)		—			—			(2,523	)
Dividends accrued of $0.455 per share		—		—			(11,181	)		—			(11,181	)
Other comprehensive income		—		—			—			61			61
Balance at June 30, 2022		24,378	$	105,894		$	646,130		$	10		$	752,034
Net income		—		—			30,567			—			30,567
Share-based compensation		—		1,694			—			—			1,694
Common stock issued under stock plans, net of shares withheld for employee taxes		4		—			—			—			—
Taxes paid related to net share settlement of stock awards		—		(125	)		—			—			(125	)
Dividends accrued of $0.455 per share		—		—			(11,167	)		—			(11,167	)
Other comprehensive income		—		—			—			65			65
Balance at September 30, 2022		24,382	$	107,463		$	665,530		$	75		$	773,068
Dividends accrued of $0.465 per share																—		—			(11,453	)		—			(11,453	)
Other comprehensive loss																—		—			—			(18	)		(18	)
Balance at March 31, 2023																24,466	$	105,487		$	754,147		$	(96	)	$	859,538

The accompanying notes are an integral part of these condensed consolidated financial statements.


	Common Stock					Retained			Accumulated Other Comprehensive			Total Shareholders’			Common Stock					Retained			Accumulated Other Comprehensive			Total Shareholders’
(in thousands, except per share amounts)	Shares		Amount			Earnings			Income (Loss)			Equity			Shares		Amount			Earnings			Loss			Equity
Balance at December 31, 2020		24,128	$	106,289		$	576,419		$	(104	)	$	682,604
Balance at December 31, 2021																24,260	$	108,610		$	623,465		$	(54	)	$	732,021
Net income		—		—			17,398			—			17,398			—		—			18,793			—			18,793
Share-based compensation		—		1,777			—			—			1,777			—		1,760			—			—			1,760
Common stock issued under stock plans, net of shares withheld for employee taxes		78		—			—			—			—			75		—			—			—			—
Taxes paid related to net share settlement of stock awards		—		(3,482	)		—			—			(3,482	)		—		(3,605	)		—			—			(3,605	)
Dividends accrued of $0.435 per share		—		—			(10,650	)		—			(10,650	)
Dividends accrued of $0.455 per share																—		—			(11,084	)		—			(11,084	)
Other comprehensive income		—		—			—			38			38			—		—			—			3			3
Balance at March 31, 2021		24,206	$	104,584		$	583,167		$	(66	)	$	687,685
Net income		—		—			20,608			—			20,608
Share-based compensation		—		1,820			—			—			1,820
Common stock issued under stock plans, net of shares withheld for employee taxes		39		—			—			—			—
Taxes paid related to net share settlement of stock awards		—		(1,346	)		—			—			(1,346	)
Dividends accrued of $0.435 per share		—		—			(10,643	)		—			(10,643	)
Other comprehensive loss		—		—			—			(3	)		(3	)
Balance at June 30, 2021		24,245	$	105,058		$	593,132		$	(69	)	$	698,121
Net income		—		—			23,252			—			23,252
Share-based compensation		—		1,705			—			—			1,705
Common stock issued under stock plans, net of shares withheld for employee taxes		2		—			—			—			—
Taxes paid related to net share settlement of stock awards		—		(19	)		—			—			(19	)
Dividends accrued of $0.435 per share		—		—			(10,630	)		—			(10,630	)
Other comprehensive income		—		—			—			27			27
Balance at September 30, 2021		24,247	$	106,744		$	605,754		$	(42	)	$	712,456
Balance at March 31, 2022																24,335	$	106,765		$	631,174		$	(51	)	$	737,888

The accompanying notes are an integral part of these condensed consolidated financial statements.


	Nine Months Ended September 30,						Three Months Ended March 31,
(in thousands)	2022			2021			2023			2022
Cash Flows from Operating Activities:
Net income	$	75,497		$	61,258		$	71,657		$	18,793
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		83,272			79,047			27,590			27,584
Deferred income taxes		(4,299	)		15,403			(45,496	)		(3,676	)
Provision for doubtful accounts		307			193
Provision for credit losses								744			13
Share-based compensation		5,106			5,302			1,493			1,760
Gain on sale of discontinued operations								(58,883	)		—
Gain on sale of used rental equipment		(26,705	)		(17,788	)		(3,089	)		(5,364	)
Foreign currency exchange loss		404			185
Foreign currency exchange gain								(226	)		(13	)
Amortization of debt issuance costs		13			11			2			4
Change in:
Accounts receivable		(30,767	)		(33,471	)		16,209			7,922
Prepaid expenses and other assets		(17,313	)		(11,409	)		(7,345	)		4,213
Accounts payable and accrued liabilities		14,384			17,428			29,837			(4,716	)
Deferred income		33,399			20,128			3,218			5,223
Net cash provided by operating activities		133,298			136,287			35,711			51,743
Cash Flows from Investing Activities:
Proceeds from sale of discontinued operations								262,454			—
Purchases of rental equipment		(130,395	)		(90,379	)		(77,731	)		(39,430	)
Purchases of property, plant and equipment		(10,594	)		(969	)		(6,857	)		(5,417	)
Cash paid for acquisition of businesses		—			(285,624	)		(453,592	)		—
Proceeds from sales of used rental equipment		54,193			41,556			12,197			10,308
Net cash used in investing activities		(86,796	)		(335,416	)		(263,529	)		(34,539	)
Cash Flows from Financing Activities:
Net (payments) borrowings under bank lines of credit		(7,000	)		176,758
Borrowings under note purchase agreement		—			100,000
Principal payment of Series B senior notes		—			(40,000	)
Net borrowings (payments) under bank lines of credit								245,033			(2,482	)
Taxes paid related to net share settlement of stock awards		(6,253	)		(4,847	)		(6,086	)		(3,605	)
Payment of dividends		(33,175	)		(31,635	)		(11,400	)		(11,006	)
Net cash (used in) provided by financing activities		(46,428	)		200,276
Net cash provided by (used in) financing activities								227,547			(17,093	)
Effect of foreign currency exchange rate changes on cash		(4	)		(5	)		4			1
Net increase in cash		70			1,142
Net (decrease) increase in cash								(267	)		112
Cash balance, beginning of period		1,491			1,238			957			1,491
Cash balance, end of period	$	1,561		$	2,380		$	690		$	1,603
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period	$	8,982		$	6,477		$	7,817		$	2,137
Net income taxes paid, during the period	$	24,885		$	8,074		$	413		$	420
Dividends accrued during the period, not yet paid	$	11,167		$	10,002		$	11,851		$	11,357
Rental equipment acquisitions, not yet paid	$	9,555		$	2,199		$	5,697		$	12,869

The accompanying notes are an integral part of these condensed consolidated financial statements.

NOTE 1. CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The condensed consolidated financial statements for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ have not been audited, but in the opinion of management, all adjustments (consisting of normal recurring accruals, consolidating and eliminating entries) necessary for the fair presentation of the consolidated financial position, results of operations and cash flows of McGrath RentCorp (the “Company”) have been made. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to those rules and regulations. The consolidated results for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 should not be considered as necessarily indicative of the consolidated results for the entire fiscal year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K, filed with the SEC on February ~~23, 2022~~22, 2023 for the year ended December 31, ~~2021~~2022 (the ~~“2021~~“2022 Annual Report”).

NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS

InOn March ~~2022,~~27, 2023, the ~~FASB~~Financial Accounting Standards Board issued Accounting Standards Update ~~(“ASU”~~("ASU") 2023-01, Leases (Topic 842): Common Control Arrangements, which requires a lessee involved in a common control lease agreement to amortize leasehold improvements over the useful life of the improvements to the common control group, regardless of the lease term, as long as the lessee controls the use of the underlying asset. If the lessor obtains the right to control the use of the underlying asset through a lease with another entity not within the same control group, the amortization period cannot exceed the period of the common control group. Furthermore, the ASU requires the accounting for a transfer between entities under common control through an adjustment to equity when the lessee no longer controls the use of the underlying asset. The ASU is effective for fiscal years beginning after December 15, 2023. The Company does not expect the adoption of this ASU will have a material impact on the Company's consolidated financial statements.

NOTE 3. IMPLEMENTED ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2023, the Company adopted the ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the separate recognition and measurement guidance for troubled debt restructurings by creditors. In addition, the ASU requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of FASB ASC 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. ~~This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.~~ The ~~Company does not expect the~~ adoption of this ~~ASU to~~new guidance did not have a material impact on ~~its~~the Company's consolidated financial statements.

NOTE 4. ACQUISITIONS

On February 1, 2023, the Company completed the acquisition of Vesta Housing Solutions Holdings, Inc. (“Vesta Modular”), a portfolio company of Kinderhook Industries, for $437.2 million cash consideration on the closing date, which included certain adjustments, including net working capital and certain qualified capital expenditures. In connection with the acquisition, the Company purchased a representation and warranty insurance policy to provide certain recourse in the event of breaches of representations and warranties of Vesta Modular and the seller of Vesta Modular under the stock purchase agreement. Vesta Modular is a leading provider of temporary and permanent modular space solutions serving customers between its modular leasing and modular construction divisions. The acquisition was accounted for as a purchase of a “business” in accordance with criteria in ASC 805, Business Combinations, using the purchase method of accounting. Under the purchase method of accounting, the total purchase price is assigned to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values on the closing date. The excess of the purchase price over those fair values is recorded as goodwill. The financial results of Vesta Modular were a part of the Mobile Modular segment since February 1, 2023, including $9.5 million of transaction costs.

On March 1, 2023, the Company completed the purchase of assets of Jerald R. Brekke, Inc., DBA Brekke Storage ("Brekke Storage"), for a total purchase price of $16.4 million. Brekke Storage is a regional provider of portable storage solutions in the Colorado market. The acquisition expanded the Mobile Modular Portable Storage fleet by approximately 2,700 units and provided a new regional operation to serve the Colorado market. The acquisition was accounted for as a purchase of a “business” in accordance with criteria in

ASC 805 using the purchase method of accounting. The financial results of Brekke Storage were a part of the Mobile Modular segment since March 1, 2023, including $0.2 million of transaction costs.

The following tables summarize the preliminary purchase price allocations reflecting estimated fair values of assets acquired and liabilities assumed in the Vesta Modular and Brekke Storage acquisitions, with excess amounts allocated to goodwill. The estimated fair values of the assets acquired and liabilities assumed at the acquisition date are determined based on preliminary valuations and analyses. Accordingly, the Company has made provisional estimates for the assets acquired and liabilities assumed. The valuation of intangible assets acquired is based on certain valuation assumptions including cash flow projections, discount rates, contributory asset charges and other valuation model inputs. The valuation of tangible long-lived assets acquired is dependent upon various analyses including an analysis of the condition and estimated remaining economic lives of the assets acquired.

Vesta Modular:


(dollar amounts in thousands)
Rental equipment	$	226,753
Intangible assets:
Goodwill		213,313
Customer relationships		26,000
Non-compete		7,100
Trade name		800
Cash		11
Accounts receivable		22,401
Property, plant and equipment		1,437
Prepaid expenses and other assets		3,550
Accounts payable and accrued liabilities		(27,558	)
Deferred income		(14,273	)
Deferred income taxes		(22,324	)
Total purchase price	$	437,210

Brekke Storage:


(dollar amounts in thousands)
Rental equipment	$	10,798
Intangible assets:
Goodwill		4,083
Customer relationships		949
Non-compete		59
Property, plant and equipment		875
Deferred income		(382	)
Total purchase price	$	16,382

The value assigned to identifiable intangible assets was determined based on discounted estimated future cash flows associated with such assets to their present value. The combined acquired goodwill of $217.4 million reflects the strategic fit of Vesta Modular and Brekke Storage with the Company’s modular and portable storage business operations. The Company amortizes the acquired customer relationships over their expected useful lives of 11 years for Vesta Modular and 8 years for Brekke Storage. The expected useful life for the non-compete agreements is 5 years. The trade name intangible acquired from the Vesta Modular acquisition will be amortized over it's useful life of nine months. Goodwill is expected to have an indefinite life and will be subject to future impairment testing. The goodwill is deductible for tax purposes over 15 years.

The following unaudited pro forma financial information shows the combined results of continuing operations of the Company and Vesta Modular as if the acquisition occurred as of the beginning of the periods presented. The pro forma results include the effects of the amortization of the purchased intangible assets and depreciation expense of acquired rental equipment valuation step up, interest expense on the debt incurred to finance the acquisitions. A pro forma adjustment has been made to reflect the income taxes that would have been recorded at the combined federal and state statutory rate of 26.5% on the acquisitions’ combined net income. The pro forma results for the three months ended March 31, 2023 and 2022, have been adjusted to include transaction related costs. This pro forma

data is presented for informational purposes only and does not purport to be indicative of the results of the future operations or the results that would have occurred had the acquisitions taken place in the periods noted below:


	(Unaudited)
	Three months ended March 31,
(dollar amounts in thousands, except for per share amounts)	2023		2022
Pro-forma total revenues	$	171,361	$	148,551
Pro-forma net income	$	11,222	$	10,276
Pro-forma basic earnings per share	$	0.46	$	0.42
Pro-forma diluted earnings per share	$	0.46	$	0.42

Vesta Modular
Actual total revenues	$	17,584
Actual net income	$	3,679
Actual basic earnings per share	$	0.15
Actual diluted earnings per share	$	0.15

NOTE 5. DISCONTINUED OPERATIONS

On February 1, 2023, the Company completed the sale of Adler Tank Rentals, LLC to Ironclad Environmental Solutions, Inc. ("Ironclad"), a portfolio company of Kinderhook Industries, for a sale price of $264.5 million. The divestiture of the Company's Adler Tanks business represents the Company's strategic shift to concentrate its operations on its core modular and storage businesses. The sale price was subject to certain adjustments, including net working capital, certain qualified capital expenditures and certain transaction expenses to be borne by the Company. In connection with the sale, the Company entered into a number of ancillary agreements, including an escrow agreement associated with net working capital adjustments, a restricted covenant agreement, a transition services agreement, and a number of leases whereby Ironclad or one of its affiliates would be a lessee to certain properties owned by the Company that the Adler Tanks business would continue to utilize after the sale. These ancillary agreements do not provide for continued involvement by the Company in Adler Tanks. In accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations and ASC 360, Property, Plant and Equipment, the Company determined that the criteria for the presentation of discontinued operations and held-for-sale, respectively, were met during the first quarter of 2023.

The following table presents the results of Adler Tanks as reported in income from discontinued operations within the condensed consolidated statements of income for the three months ended March 31, 2023 and 2022:


(dollar amounts in thousands)	Three Months Ended March 31,
	2023			2022
Revenues
Rental	$	6,520		$	14,191
Rental related services		2,584			5,285
Rental operations		9,104			19,476
Sales		269			657
Other		65			187
Total revenues		9,438			20,320
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment		1,325			4,012
Rental related services		2,020			4,383
Other		1,270			2,969
Total direct costs of rental operations		4,614			11,364
Costs of sales		159			502
Total costs of revenues		4,773			11,866
Gross Profit
Rental		3,926			7,210
Rental related services		564			902
Rental operations		4,490			8,112
Sales		110			155
Other		65			187
Total gross profit		4,665			8,454
Selling and administrative expenses		2,582			6,522
Operating income		2,083			1,932
Interest expense allocation		(374	)		(544	)
Income from discontinued operations before provision for income taxes		1,709			1,388
Provision for income taxes from discontinued operations		453			273
Income from discontinued operations	$	1,256		$	1,115

Other Selected Information
Adjusted EBITDA	$	3,682		$	6,707

The following table presents the carrying value of the divested business' assets and liabilities as presented within assets and liabilities of discontinued operations on the condensed consolidated balance sheets as of December 31, 2022:


	December 31,
(in thousands)	2022
Assets
Accounts receivable, net of allowance for credit losses of $450	$	20,086
Rental equipment, net		137,738
Property, plant and equipment, net		6,632
Prepaid expenses and other assets		191
Intangible assets, net		5,700
Goodwill		25,902
Total assets of discontinued operations	$	196,249
Liabilities
Accounts payable and accrued liabilities	$	9,621
Deferred income taxes, net		43,550
Total liabilities of discontinued operations	$	53,171

For the three months ended March 31, 2023 and 2022, significant operating and investing items related to Adler Tanks were as follows:


	March 31,			March 31,
(in thousands)	2023			2022
Operating activities of discontinued operations:
Depreciation and amortization	$	1,457		$	4,450
Gain on sale of used rental equipment		(111	)		(155	)
Investing activities of discontinued operations:
Proceeds from sales of used rental equipment		269			657
Purchases of rental equipment		(25	)		(108	)
Purchases of property, plant and equipment		(40	)		(12	)

The following table presents the reconciliation of income from discontinued operations to Adjusted EBITDA for the three months ended March 31, 2023 and 2022:


	March 31,		March 31,
(in thousands)	2023		2022
Income from discontinued operations	$	1,256	$	1,115
Provision for income taxes from discontinued operations		453		273
Interest expense		374		544
Depreciation and amortization		1,457		4,450
EBITDA		3,540		6,382
Share-based compensation		118		248
Transaction costs		24		—
Adjusted EBITDA from discontinued operations	$	3,682	$	6,630

The Company’s accounting for revenues is governed by two accounting standards. The majority of the Company’s revenues are considered lease or lease related and are accounted for in accordance with Accounting Standards Codification (ASC) 842, Leases. Revenues determined to be non-lease related are accounted for in accordance with ASC 606, Revenue from Contracts with Customers. The Company accounts for revenues when approval and commitment from both parties have been obtained, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company typically recognizes non-lease related revenues at a point in time because the customer does not simultaneously consume the benefits of the Company’s promised goods and services, or performance obligations, and obtains control when delivery and installation are complete. For contracts that have multiple performance obligations, the transaction price is allocated to each performance obligation in the contract based on the Company’s best estimate of the standalone selling prices of each distinct performance obligation in the contract. The standalone selling price is typically determined based upon the expected cost plus an estimated margin of each performance obligation.

Revenue from contracts that satisfies the criteria for over time recognition is recognized as work is performed by using the ratio of costs incurred to estimated total contract costs for each contract. The majority of revenue for these contracts is derived from long-term projects which typically span multiple quarters. The timing of revenue recognition, billings, and cash collections results in billed contract receivables and contract assets on the Company's consolidated balance sheet. In the Company’s contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. Billings can occur subsequent to revenue recognition, resulting in contract assets, or in advance, resulting in contract liabilities. These contract assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. The contract liabilities included in Deferred income on the Company’s consolidated balance sheet totaled $46.2 million and $27.4 million at March 31, 2023 and December 31, 2022, respectively. Sales revenues totaling $4.4 million were recognized during the three months ended March 31, 2023, which were included in the contract liability balance at December 31, 2022. For certain modular building sales, the customer retains a small portion of the contract price until full completion of the contract, or revenue is recognizable prior to customer billing, which results in revenue earned in excess of billings. These unbilled contract assets are included in Accounts receivable on the Company’s consolidated balance sheet and totaled $4.4 million and $0.6 million at March 31, 2023 and December 31, 2022, respectively.

The Company generally rents and sells to customers on 30 day payment terms. The Company does not typically offer variable payment terms or accept non-monetary consideration. Amounts billed and due from the Company’s customers are classified as Accounts receivable on the Company’s consolidated balance sheet. For certain sales of modular buildings, progress payments from the customer are received during the manufacturing of new equipment, or the preparation of used equipment. The advance payments are not

considered a significant financing component because the payments are used to meet working capital needs during the contract and to protect the Company from the customer failing to adequately complete their obligations under the contract. ~~These contract liabilities are included in Deferred income on the Company’s consolidated balance sheet and totaled $35.8~~ ~~million and $16.8~~ ~~million at September 30, 2022 and December 31, 2021, respectively. Sales revenues totaling $2.4~~ ~~million and $8.8~~ million were recognized during the three and nine months ended September 30, 2022, which were included in the contract liability balance at December 31, 2021. For certain modular building sales, the customer retains a small portion of the contract price until full completion of the contract, which results in revenue earned in excess of billings. These unbilled contract assets are included in Accounts receivable on the Company’s consolidated balance sheet and totaled $~~1.0~~ ~~million and $1.3~~ ~~million at September 30, 2022 and December 31, 2021, respectively.~~

Lease Revenues

Rental revenues from operating leases are recognized on a straight-line basis over the term of the lease for all operating segments. Rental billings for periods extending beyond period end are recorded as deferred income and are recognized in the period earned. Rental related services revenues are primarily associated with relocatable modular ~~buildings and liquid and solid containment tanks and boxes leases.~~buildings. For modular building leases, rental related services revenues for modifications, delivery, installation, dismantle and return

delivery are lease related because the payments are considered minimum lease payments that are an integral part of the negotiated lease agreement with the customer. These revenues are recognized on a straight-line basis over the term of the lease. Certain leases are accounted for as finance leases. For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and the unearned interest is recognized over the lease term on a basis which results in a constant rate of return on the unrecovered lease investment. Other revenues include interest income on finance leases and rental income on facility leases.

In the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, the Company’s lease revenues were $~~136.5~~136.6 million, ~~and $381.8~~ ~~million, respectively,~~ consisting of $~~136.2~~ ~~million and $379.7~~136.0 million of operating lease revenues ~~respectively,~~ and $~~0.3~~ ~~million and $2.1~~0.6 million of finance lease ~~revenues, respectively.~~revenues. The Company has entered into finance leases to finance certain equipment sales to customers. The lease agreements have a bargain purchase option at the end of the lease term. For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and the unearned interest is recognized over the lease term on a straight-line basis, which results in a constant rate of return on the unrecovered lease investment. The Company’s finance lease revenues for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 include $~~0.2~~ ~~million and $1.8~~0.5 million of sales revenues ~~respectively,~~ and $0.1 million ~~and $0.3~~ ~~million~~ of interest ~~income, respectively.~~income.

Non-Lease Revenues

Non-lease revenues are recognized in the period when control of the performance obligation is transferred, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. For liquid and solid containment solutions, portable storage containers and electronic test equipment, rental related services revenues for delivery and return delivery are considered non-lease revenues.

Sales revenues are typically recognized at a point in time, which occurs upon the completion of delivery, installation and acceptance of the equipment by the customer. Accounting for non-lease revenues requires judgment in determining the point in time the customer gains control of the equipment and the appropriate accounting period to recognize revenue.

Sales taxes charged to customers are reported on a net basis and are excluded from revenues and expenses.

The following table disaggregates the Company’s revenues by lease (within the scope of ASC 842) and non-lease revenues (within the scope of ASC 606) and the underlying service provided for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


(in thousands)	Mobile Modular		TRS- RenTelco		Adler Tanks		Enviroplex		Consolidated		Mobile Modular		TRS- RenTelco		Enviroplex		Adler Tanks (Discontinued)		Consolidated
Three Months Ended September 30,
Three Months Ended March 31,
2023
Leasing											$	99,659	$	30,322	$	—	$	6,612	$	136,593
Non-lease:
Rental related services												8,974		726		—		2,557		12,257
Sales												17,605		4,623		941		269		23,438
Other												419		449		—		—		868
Total non-lease												26,998		5,798		941		2,826		36,563
Total revenues											$	126,657	$	36,120	$	941	$	9,438	$	173,156

2022
Leasing	$	86,428	$	32,265	$	17,825	$	—	$	136,518	$	74,595	$	29,411	$	—	$	14,478	$	118,484
Non-lease:
Rental related services		10,427		684		7,069		—		18,180		5,650		551		—		5,185		11,386
Sales		28,922		5,291		976		9,978		45,167		10,375		3,278		917		657		15,227
Other		61		287		323		—		671		25		251		—		—		276
Total non-lease		39,410		6,262		8,368		9,978		64,018		16,050		4,080		917		5,842		26,889
Total revenues	$	125,838	$	38,527	$	26,193	$	9,978	$	200,536	$	90,645	$	33,491	$	917	$	20,320	$	145,373

2021
Leasing	$	73,375	$	29,692	$	15,011	$	—	$	118,078
Non-lease:
Rental related services		10,628		591		6,239		—		17,458
Sales		26,362		4,502		960		5,541		37,365
Other		29		289		73		—		391
Total non-lease		37,019		5,382		7,272		5,541		55,214
Total revenues	$	110,394	$	35,074	$	22,283	$	5,541	$	173,292

Nine Months Ended September 30,
2022
Leasing	$	240,693	$	92,585	$	48,548	$	—	$	381,826
Non-lease:
Rental related services		22,960		1,919		18,890		—		43,769
Sales		64,113		14,031		2,234		15,545		95,923
Other		94		824		504		—		1,422
Total non-lease		87,167		16,774		21,628		15,545		141,114
Total revenues	$	327,860	$	109,359	$	70,176	$	15,545	$	522,940

2021
Leasing	$	196,362	$	86,223	$	40,958	$	—	$	323,543
Non-lease:
Rental related services		18,418		1,821		16,713		—		36,952
Sales		48,766		13,485		2,161		14,897		79,309
Other		68		931		119		—		1,118
Total non-lease		67,252		16,237		18,993		14,897		117,379
Total revenues	$	263,614	$	102,460	$	59,951	$	14,897	$	440,922

Customer returns of rental equipment prior to the end of the rental contract term are typically billed a cancellation fee, which is recorded as rental revenue in the period billed. Sales of new relocatable modular buildings, portable storage containers, electronic test equipment and related accessories and liquid and solid containment tanks and boxes not manufactured by the Company are typically covered by warranties provided by the manufacturer of the products sold. The Company typically provides limited 90-day warranties for certain sales of used rental equipment and one-year warranties on equipment manufactured by Enviroplex. Although the Company’s policy is to provide reserves for warranties when required for specific circumstances, warranty costs have not been significant to date.

The Company’s incremental cost of obtaining lease contracts, which consists of salesperson commissions, are deferred and amortized over the initial lease term for modular leases. Incremental costs for obtaining a contract for all other operating segments are expensed in the period incurred because the lease term is typically less than 12 months.

NOTE 5.8. GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill were as follows:


(dollar amounts in thousands)	Mobile Modular			Adler Tanks (Discontinued)			Total
Balance at December 31, 2021	$	106,491		$	25,902		$	132,393
Changes to Design Space purchase accounting		(88	)		—			(88	)
Balance at December 31, 2022		106,403			25,902			132,305
Goodwill acquired through business combination		217,396			—			217,396
Derecognition of goodwill divested		—			(25,902	)		(25,902	)
Balance at March 31, 2023	$	323,799		$	—		$	323,799

Intangible assets consist of the following:


(dollar amounts in thousands)	Estimated useful life in years	Average remaining life in years	Cost		Accumulated amortization			Net book value		Estimated useful life in years	Average remaining life in years	Cost		Accumulated amortization			Net book value
September 30, 2022
March 31, 2023
Customer relationships										8 to 11	7.6	$	68,419	$	(10,951	)	$	57,468
Non-compete agreements										5	4.3		10,455		(1,561	)		8,894
Trade name										0.75 to 8	1.3		2,000		(478	)		1,522
Total amortizing													80,874		(12,990	)		67,884
Trade name - non-amortizing										Indefinite			171		—			171
Total												$	81,045	$	(12,990	)	$	68,055

December 31, 2022
Customer relationships	8 to 11	6.6	$	50,285	$	(16,826	)	$	33,459	8 to 11	6.3	$	50,284	$	(18,098	)	$	32,186
Non-compete agreements	5	3.5		3,296		(994	)		2,302	5	3.2		3,296		(1,159	)		2,137
Customer backlog	—	—		1,900		(1,900	)		—	—	—		1,900		(1,900	)		—
Trade name	8	6.5		1,200		(225	)		975	8	6.3		1,200		(263	)		937
Total amortizing				56,681		(19,945	)		36,736				56,680		(21,420	)		35,260
Trade name - non-amortizing	Indefinite			5,871		—			5,871	Indefinite			5,871		—			5,871
Total			$	62,552	$	(19,945	)	$	42,607			$	62,551	$	(21,420	)	$	41,131

December 31, 2021
Customer relationships	8 to 11	7.3	$	50,285	$	(12,991	)	$	37,294
Non-compete agreements	5	4.2		3,296		(499	)		2,797
Customer backlog	0.5	—		1,900		(1,900	)		—
Trade name	8	7.3		1,200		(113	)		1,087
Total amortizing				56,681		(15,503	)		41,178
Trade name - non-amortizing	Indefinite			5,871		—			5,871
Total			$	62,552	$	(15,503	)	$	47,049

The Company assesses potential impairment of its goodwill and intangible assets when there is evidence that events or circumstances have occurred that would indicate the recovery of an asset’s carrying value is unlikely. The Company also assesses potential impairment of its goodwill and intangible assets with indefinite lives on an annual basis regardless of whether there is evidence of impairment. If indicators of impairment were to be present in intangible assets used in operations and future discounted cash flows were not expected to be sufficient to recover the asset’s carrying amount, an impairment loss would be charged to expense in the period identified. The amount of an impairment loss that would be recognized is the excess of the asset’s carrying value over its fair value. Factors the Company considers important, which may cause impairment include, among others, significant changes in the manner of use of the acquired asset, negative industry or economic trends, and significant underperformance relative to historical or projected operating results. The Company last conducted a qualitative analysis of its goodwill and intangible assets in the fourth quarter ~~2021,~~2022, with no indicators of impairment. In addition, no impairment triggering events occurred during the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. Determining fair value of a reporting unit is judgmental and involves the use of significant estimates and assumptions. The Company bases its fair value estimates on assumptions that it believes are reasonable but are uncertain and subject to changes in market conditions.

Intangible assets with finite useful lives are amortized over their respective useful lives. Amortization expense in the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ was $~~4.4~~2.3 million and $~~4.2~~1.5 million, respectively. Based on the carrying values at ~~September 30, 2022~~March 31, 2023 and assuming no subsequent impairment of the underlying assets, the amortization expense is expected to be $~~1.5~~8.0 million for the remainder of fiscal year ~~2022,~~2023, $~~5.9~~9.8 million ~~annually~~ in ~~2023 through~~2024, $9.7 million in 2025, $~~5.4~~9.3 million in 2026, ~~and~~ $~~5.2~~9.1 million in ~~2027.~~2027 and $7.8 million in 2028.

NOTE 6.9. SEGMENT REPORTING

The ~~Company’s~~Company historically operated four reportable segments and divested it's Adler Tanks business segment on February 1, 2023, see Note 5 to the consolidated financial statements for more information on the divestiture of Adler Tanks. The three reportable segments from continuing operations are (1) its modular building and portable storage container rental segment (“Mobile Modular”); (2) its electronic test equipment segment (“TRS-RenTelco”); ~~(3) its containment solutions for the storage of hazardous~~ and ~~non-hazardous liquids and solids segment (“Adler Tanks”); and (4)~~(3) its classroom manufacturing segment selling modular buildings used primarily as classrooms in California (“Enviroplex”). The operations of each of these segments are described in Part I – Item 1, “Business,” and the accounting policies of the segments are described in “Note 1 – Summary of Significant Accounting Policies” in the Company’s ~~2021~~2022 Annual Report. Management focuses on several key measures to evaluate and assess each segment’s performance, including rental revenue growth, gross profit and gross margins, income from operations, income before provision for income taxes and adjusted EBITDA. Excluding interest expense, allocations of revenue and expense not directly associated with one of these segments are generally allocated to Mobile Modular ~~TRS-RenTelco~~ and ~~Adler Tanks~~TRS-RenTelco based on their pro-rata share of direct revenues. Interest expense is allocated amongst Mobile Modular ~~TRS-RenTelco~~ and ~~Adler Tanks~~TRS-RenTelco based on their pro-rata share of average rental equipment at cost, intangible assets, accounts receivable, deferred income and customer security deposits. The Company does not report total assets by business segment. Summarized financial information for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ for the Company’s reportable segments isand discontinued operations are shown in the following table:


(dollar amounts in thousands)	Mobile Modular			TRS- RenTelco			Adler Tanks			Enviroplex 1			Consolidated			Mobile Modular			TRS- RenTelco			Enviroplex1			Adler Tanks (Discontinued)3			Consolidated
Nine Months Ended September 30,
Three Months Ended March 31,
2023
Rental revenues																$	81,113		$	29,134		$ —			$	6,520		$	116,767
Rental related services revenues																	26,252			880			—			2,584			29,716
Sales and other revenues																	19,292			6,106			941			334			26,673
Total revenues																	126,657			36,120			941			9,438			173,156
Depreciation of rental equipment																	9,444			12,389			—			1,325			23,158
Gross profit																	61,622			15,620			125			4,665			82,032
Selling and administrative expenses																	46,514			9,451			1,533			2,582			60,080
Income (loss) from operations																	15,108			6,169			(1,408	)		2,083			21,952
Interest (expense) income allocation																	(6,271	)		(1,742	)		549			(374	)		(7,838	)
Income (loss) before provision for income taxes																	8,837			4,653			(859	)		1,709			14,340
Adjusted EBITDA																	42,445			20,635			(1,330	)		3,682			65,432
Rental equipment acquisitions																	60,117			10,112			—			—			70,229
Accounts receivable, net (period end)																	148,880			24,493			3,633			—			177,006
Rental equipment, at cost (period end)																	1,412,084			401,801		—				—			1,813,885
Rental equipment, net book value (period end)																	1,096,164			171,104		—				—			1,267,268
Utilization (period end) 2																	78.9	%		59.0	%
Average utilization 2																	79.6	%		59.2	%
2022
Rental revenues	$	195,598		$	89,990		$	47,638		$ —			$	333,226		$	61,538		$	28,512		$ —			$	14,191		$	104,241
Rental related services revenues		66,947			2,329			19,221		—				88,497			18,361			671			—			5,285			24,317
Sales and other revenues		65,315			17,040			3,317			15,545			101,217			10,746			4,308			917			844			16,815
Total revenues		327,860			109,359			70,176			15,545			522,940			90,645			33,491			917			20,320			145,373
Depreciation of rental equipment		23,329			36,789			11,996		—				72,114			7,833			12,029			—			4,012			23,874
Gross profit		149,405			48,824			31,933			3,604			233,766			43,141			14,690			204			8,454			66,489
Selling and administrative expenses		79,245			19,930			20,642			4,193			124,010			24,692			6,590			1,323			6,522			39,127
Income (loss) from operations		70,160			28,894			11,291			(589	)		109,756			18,449			8,100			(1,119	)		1,932			27,362
Interest (expense) income allocation		(6,616	)		(2,160	)		(1,941	)		719			(9,998	)		(1,821	)		(586	)		131			(544	)		(2,820	)
Income before provision for income taxes		63,544			26,330			9,350			130			99,354
Adjusted EBITDA		105,912			66,675			25,520			(377	)		197,730
Rental equipment acquisitions		73,895			57,169			3,067		—				134,131
Accounts receivable, net (period end)		139,730			24,353			18,185			7,691			189,959
Rental equipment, at cost (period end)		1,085,060			396,068			309,607		—				1,790,735
Rental equipment, net book value (period end)		780,939			177,221			141,662		—				1,099,822
Utilization (period end) 2		81.2	%		65.2	%		58.3	%
Average utilization 2		78.5	%		64.8	%		51.7	%
2021
Rental revenues	$	159,118		$	84,340		$	40,479		$ —			$	283,937
Rental related services revenues		54,726			2,149			16,995		—				73,870
Sales and other revenues		49,770			15,971			2,477			14,897			83,115
Total revenues		263,614			102,460			59,951			14,897			440,922
Depreciation of rental equipment		20,437			35,429			12,350		—				68,216
Gross profit		125,357			44,867			24,167			4,362			198,753
Selling and administrative expenses		67,977			18,381			18,853			4,094			109,305
Income from operations		57,380			26,486			5,314			268			89,448
Interest (expense) income allocation		(4,401	)		(1,588	)		(1,560	)		341			(7,208	)
Income before provision for income taxes		52,979			24,713			3,754			609			82,055
Income (loss) before provision for income taxes																	16,628			7,527			(988	)		1,388			24,555
Adjusted EBITDA		89,634			63,378			20,144			456			173,612			30,405			20,653			(1,046	)		6,707			56,719
Rental equipment acquisitions		162,579			53,161			164		—				215,904			23,088			23,351			—			109			46,548
Accounts receivable, net (period end)		118,467			24,854			16,062			9,448			168,831			106,682			25,124			4,970			14,788			151,564
Rental equipment, at cost (period end)		1,023,344			363,799			311,677		—				1,698,820			1,059,030			378,766		—				308,790			1,746,586
Rental equipment, net book value (period end)		737,807			169,250			156,405		—				1,063,462			763,710			171,863		—				147,382			1,082,955
Utilization (period end) 2		76.7	%		66.9	%		50.4	%								77.6	%		64.7	%					50.4	%
Average utilization 2		76.0	%		67.4	%		44.0	%								77.1	%		64.6	%					48.3	%

Gross Enviroplex sales revenues were $~~16,401~~941 and $~~15,909~~917 for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. There were $~~856~~ ~~and $1,012~~no inter-segment sales to Mobile Modular in the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively,~~ which required elimination in consolidation.

Utilization is calculated each month by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding accessory equipment, and ~~for Mobile Modular and Adler Tanks, excluding~~ new equipment inventory. The Average utilization for the period is calculated using the average costs of rental equipment.

The financial results of Adler Tanks included in this table are through the date of the business divestiture, which occurred on February 1, 2023.

No single customer accounted for more than 10% of total revenues for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. Revenues from foreign country customers accounted for3% and 4% of the Company’s total revenues for the same ~~periods.~~periods, respectively.

NOTE ~~7. ACQUISITIONS~~10. SUBSEQUENT EVENT

On ~~May 17, 2021,~~April 1, 2023, the Company completed the purchase of ~~substantially all of the~~ assets of ~~Design Space Modular Buildings PNW, LP (“Design Space”~~Dixie Temporary Storage, LLC ("Dixie Storage"), for a purchase price of $~~267.3~~4.9 ~~million in cash consideration on the closing date. Design Space provides modular buildings and~~million. Dixie Storage is a regional provider of portable storage ~~containers rental and sale~~ solutions ~~to customers~~ in the ~~West~~South Carolina market and ~~Pacific Northwest states in~~is highly complementary to the ~~U.S.~~Company's portable storage business segment. The acquisition ~~was~~grew the Mobile Modular Portable Storage fleet by approximately 800 units and provided a new regional operation to serve the South Carolina market. The acquisition will be accounted for as a purchase of a “business” in accordance with criteria in ASC 805, Business Combinations, using the purchase method of accounting. Under the purchase method of accounting, the total purchase price is assigned to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values on the closing date. The excess of the purchase price over those fair values is recorded as goodwill. The financial results of Design Space were a part of the Mobile Modular segment since May 17, 2021, including $~~1.7~~ ~~million of transaction costs.~~

~~On April 1, 2021 the Company completed the purchase of assets of GRS Holding LLC, DBA Kitchens To Go (“Kitchens To Go”) for $18.3~~ million in cash consideration. Kitchens To Go provides interim and permanent modular kitchen solutions for foodservice providers that require flexible facilities to continue or expand operations. The acquisition was accounted for as a purchase of a “business” in accordance with criteria in ASC 805 using the purchase method of accounting. The financial results of Kitchens To Go were a part of the Mobile Modular segment since April 1, 2021, including $~~0.3~~ ~~million of transaction costs.~~

The following tables summarize the purchase price allocations reflecting estimated fair values of assets acquired and liabilities assumed in the Design Space and Kitchens To Go acquisitions, with excess amounts allocated to goodwill. The valuation of intangible assets acquired is based on certain valuation assumptions including cash flow projections, discount rates, contributory asset charges and other valuation model inputs. The valuation of tangible long-lived assets acquired is dependent upon various analyses including an analysis of the condition and estimated remaining economic lives of the assets acquired.

~~Design Space:~~

(dollar amounts in thousands)

Rental equipment

$
116,272

Intangible assets:

   Goodwill

101,874

   Customer relationships

37,900

   Non-compete

2,500

   Customer backlog

1,600

Accounts receivable

12,025

Property, plant and equipment

4,139

Prepaid expenses and other assets

5,366

Accounts payable and accrued liabilities

(11,613
)
Deferred income

(2,784
)
Total purchase price

$
267,279

~~Kitchens To Go:~~

(dollar amounts in thousands)

Rental equipment

$
12,853

Intangible assets:

   Goodwill

2,322

   Customer relationships

1,700

   Trade name

1,200

   Non-compete

600

   Customer backlog

300

Accounts receivable

212

Property, plant and equipment

365

Prepaid expenses and other assets

1,199

Accounts payable and accrued liabilities

(1,659
)
Deferred income

(747
)
Total purchase price

$
18,345

The value assigned to identifiable intangible assets was determined based on discounted estimated future cash flows associated with such assets to their present value. The combined acquired goodwill of $~~104,196~~ reflects the strategic fit of Design Space and Kitchens to Go with the Company’s modular business operations. The Company amortizes the acquired customer relationships, tradename and non-compete over their expected useful lives of ~~8 years~~, ~~8 years~~ ~~and~~ ~~5 years~~, respectively. As of the nine months ended September 30, 2022, the customer backlog has been amortized in full. Goodwill is expected to have an indefinite life and will be subject to future impairment testing. The goodwill is deductible for tax purposes over 15 ~~years.~~

The following unaudited pro forma financial information shows the combined results of operations of the Company, Design Space and Kitchens To Go as if the acquisitions occurred as of the beginning of the periods presented. The pro forma results include the effects of the amortization of the purchased intangible assets and depreciation expense of acquired rental equipment valuation step up, interest expense on the debt incurred to finance the acquisitions. A pro forma adjustment has been made to reflect the income taxes that would have been recorded at the combined federal and state statutory rate of 28~~% on the acquisitions’ combined net income. The pro forma results for the nine months ended September 30, 2021 have been adjusted to include transaction related costs.~~ This pro forma data is presented for informational purposes only and does not purport to be indicative of the results of the future operations or the results that would have occurred had the acquisitions taken place in the periods noted below:

(Unaudited)

Nine months ended September 30,

(dollar amounts in thousands, except for per share amounts)

2022

2021

Pro-forma total revenues

$
522,940

$
471,955

Pro-forma net income

$
75,497

$
64,618

Pro-forma basic earnings per share

$
3.10

$
2.67

Pro-forma diluted earnings per share

$
3.08

$
2.64

Design Space and Kitchens To Go

Actual total revenues

$
56,227

Actual net income

$
6,231

Actual basic earnings per share

$
0.26

Actual diluted earnings per share

$
0.25

~~On December 31, 2021 the Company completed the purchase of the assets of Titan Storage Containers, LLC (“Titan”) for $6.9~~ million in cash consideration. The acquisition was accounted for as a purchase of “assets” in accordance with criteria in ASC 805 and the assessment of the fair value of the purchased assets was allocated primarily to rental equipment totaling $~~6.2~~ ~~million and rolling stock assets totaling $0.8~~ ~~million, partially offset by accrued liabilities of $0.2~~ million. The rolling stock assets included delivery trucks, delivery trailers, trucks and forklifts. Supplemental pro forma prior year information has not been provided as the historical financial results of Titan were not significant. Incremental transaction costs associated with the asset purchase were not significant.

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

This Form 10-Q, including the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contains forward-looking statements under federal securities laws. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. Our actual results could differ materially from those indicated by forward-looking statements as a result of various factors. These factors include, but are not limited to, those set forth under this Item, those discussed in Part II—Item 1a, “Risk Factors” and elsewhere in this Form 10-Q and those that may be identified from time to time in our reports and registration statements filed with the SEC.

This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes included in Part I—Item 1 of this Form 10-Q and the Consolidated Financial Statements and related Notes and the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, as filed with the SEC on February ~~23, 2022~~22, 2023 (the ~~“2021~~“2022 Annual Report”). In preparing the following MD&A, we presume that readers have access to and have read the MD&A in our ~~2021~~2022 Annual Report, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K. We undertake no duty to update any of these forward-looking statements after the date of filing of this Form 10-Q to conform such forward-looking statements to actual results or revised expectations, except as otherwise required by law.

The full impact of the COVID-19 pandemic continues to evolve as of the date of this report. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. The following discussions are subject to the future effects of the COVID-19 pandemic and its variants.

The Company, incorporated in 1979, is a leading rental provider of relocatable modular buildings for classroom and office space and electronic test equipment for general purpose and communications ~~needs, and liquid and solid containment tanks and boxes.~~needs. The Company’s primary emphasis is on equipment rentals. The Company is comprised of ~~four~~three reportable business segments: (1) its modular building and portable storage container rental segment (“Mobile Modular”); (2) its electronic test equipment segment (“TRS-RenTelco”); ~~(3) its containment solutions for the storage of hazardous~~ and ~~non-hazardous liquids and solids segment (“Adler Tanks”); and (4)~~(3) its classroom manufacturing segment selling modular buildings used primarily as classrooms in California (“Enviroplex”).

The Mobile Modular business segment includes the results of operations of the Mobile Modular Portable Storage division, which represented approximately ~~11%~~14% of the Company’s total revenues from continuing operations in the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. Mobile Modular Portable Storage offers portable storage units and high security portable office units for rent, lease and purchase. ~~Kitchens To Go~~Vesta Modular was acquired on ~~April~~February 1, ~~2021,~~2023, with its results included in the Mobile Modular segment since that date. ~~Design Space~~Brekke Storage was acquired on ~~May 17, 2021,~~March 1, 2023, with its results included in the Mobile Modular segment since that date. See Note 74 to the ~~Condensed Consolidated Financial Statements~~consolidated financial statements for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, for more details about the acquisitions.

In the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, Mobile Modular, TRS-RenTelco ~~Adler Tanks~~ and Enviroplex contributed ~~64%~~70%, ~~26%, 9%~~37% and 1%-7% of the Company’s income from continuing operations before provision for taxes (the equivalent of “pretax income”), respectively, compared to ~~64%~~72%, ~~30%, 5%~~33% and 1%-5% for the same period in ~~2021.~~2022.

The Company generates its revenues primarily from the rental of its equipment on operating leases and from sales of equipment occurring in the normal course of business. The Company requires significant capital outlay to purchase its rental inventory and recovers its investment through rental and sales revenues. Rental revenues and certain other service revenues negotiated as part of lease agreements with customers and related costs are recognized on a straight-line basis over the terms of the leases. Sales revenues and related costs are recognized upon delivery and installation of the equipment to customers. Sales revenues are less predictable and can fluctuate from quarter to quarter and year to year depending on customer demands and requirements. Generally, rental revenues less cash operating costs recover the equipment’s capitalized cost in a short period of time relative to the equipment’s potential rental life and when sold, sale proceeds are usually above its net book value.

The Company’s modular revenues (consisting of revenues from Mobile Modular, Mobile Modular Portable Storage, Kitchens To Go and Enviroplex) are derived from rentals and sales to commercial and education customers. Modular revenues are affected by demand for classrooms, which in turn is affected by shifting and fluctuating school populations, the levels of state funding to public schools, the need for temporary classroom space during reconstruction of older schools and changes in policies regarding class size. As a result of any reduced funding, lower expenditures by these schools may result in certain planned programs to increase the number of classrooms, such as those that the Company provides, to be postponed or terminated. However, reduced expenditures may also result in schools reducing their long-term facility construction projects in favor of using the Company’s modular classroom solutions. At this time, the Company can provide no assurances as to whether public schools will either reduce or increase their demand for the Company's modular classrooms as a result of fluctuations in state funding of public schools. Looking forward, the Company believes that any

interruption in the passage of facility bonds or contraction of class size reduction programs by public schools may have a material adverse effect on both rental and sales revenues of the Company. (For more information, see “Item 1. Business – Relocatable Modular Buildings – Classroom Rentals and Sales to Public Schools (K-12)” in the Company’s ~~2021~~2022 Annual Report and “Item 1a. Risk Factors – Significant reductions of, or delays in, funding to public schools have caused the demand and pricing for our modular classroom units

to decline, which has in the past caused, and may cause in the future, a reduction in our revenues and profitability” in Part II – Other Information of this Form 10-Q.)

Revenues of TRS-RenTelco are derived from the rental and sale of general purpose and communications test equipment to a broad range of companies, from Fortune 500 to middle and smaller market companies primarily in the aerospace, defense, communications, manufacturing and semiconductor industries. Electronic test equipment revenues are primarily affected by the business activity within these industries related to research and development, manufacturing, and communication infrastructure installation and maintenance.

Revenues of Adler Tanks are derived from the rental and sale of fixed axle tanks (“tanks”) and vacuum containers, dewatering containers and roll-off containers (collectively referred to as “boxes”). These tanks and boxes are rented to a broad range of industries and applications including oil and gas exploration and field services, refinery, chemical and industrial plant maintenance, environmental remediation and field services, infrastructure building construction, marine services, pipeline construction and maintenance, tank terminals services, wastewater treatment, and waste management and landfill services for the containment of hazardous and non-hazardous liquids and solids.

The Company’s rental operations include rental and rental related service revenues which comprised approximately ~~81%~~84% and 87% of consolidated revenues from continuing operations in the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021.~~respectively. Of the total continuing rental operations revenues for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, Mobile Modular and TRS-RenTelco comprised 78% and ~~Adler Tanks comprised 62%,~~ 22% ~~and 16%~~, respectively, compared to ~~60%, 24%~~73% and ~~16%~~27%, respectively, in the same period of ~~2021.~~2022. The Company’s direct costs of rental operations include depreciation of rental equipment, rental related service costs, impairment of rental equipment (if applicable), and other direct costs of rental operations (which include direct labor, supplies, repairs, insurance, property taxes, license fees, cost of sub-rentals and amortization of certain lease costs).

The Company’s Mobile Modular ~~TRS-RenTelco~~ and ~~Adler Tanks~~TRS-RenTelco business segments sell modular units and electronic test equipment, ~~and liquid and solid containment tanks and boxes,~~ respectively, which are either new or previously rented. In addition, Enviroplex sells new modular buildings used primarily as classrooms in California. For the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ sales and other revenues of modular and electronic test equipment ~~and liquid and solid containment tanks and boxes~~ comprised approximately ~~19%~~16% and 13% of the Company’s consolidated ~~revenues.~~revenues from continuing operations, respectively. Of the total sales and other revenues from continuing operations for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ Mobile Modular and Enviroplex together comprised ~~80%~~77% and ~~78%, respectively, TRS-RenTelco comprised 17% and 19%~~73%, respectively, and ~~Adler Tanks~~TRS-RenTelco comprised ~~3% in both periods.~~23% and 27%, respectively. The Company’s cost of sales includes the carrying value of the equipment sold and the direct costs associated with the equipment sold, such as delivery, installation, modifications and related site work.

Selling and administrative expenses primarily include personnel and benefit costs, which include share-based compensation, depreciation and amortization, bad debt expense, advertising costs, and professional service fees. The Company believes that sharing of common facilities, financing, senior management, and operating and accounting systems by all of the Company’s operations results in an efficient use of overhead. Historically, the Company’s operating margins have been impacted favorably to the extent its costs and expenses are leveraged over a large installed customer base. However, there can be no assurances as to the Company’s ability to maintain a large installed customer base or ability to sustain its historical operating margins.

On ~~August 19, 2022,~~April 1, 2023, the Company ~~entered into an amended and restated Credit Facility Letter Agreement and a Credit Line Note in favor~~completed the purchase of ~~MUFG Union Bank, N.A.~~assets of Dixie Temporary Storage, LLC ("Dixie Storage"), ~~which provides~~ for a ~~$20.0 million line~~purchase price of ~~credit facility related~~$4.9 million. Dixie Storage is a regional provider of portable storage solutions in the South Carolina market and is highly complementary to ~~its cash management services (“Sweep Service Facility”).~~the Company's portable storage business segment. The ~~Sweep Service Facility matures on~~acquisition expanded the ~~earlier~~Mobile Modular Portable Storage fleet by approximately 800 units and provided a new regional operation to serve the South Carolina market. The acquisition will be accounted for as a purchase of ~~July 15, 2027, or~~a “business” in accordance with criteria in ASC 805, Business Combinations, using the ~~date the Company ceases to utilize MUFG Union Bank, N.A. for its cash management services. The Sweep Service Facility replaced the Company’s prior $12.0 million sweep service facility, dated as~~purchase method of ~~March 30, 2020.~~accounting.

On ~~September 15, 2022,~~February 22, 2023, the Company announced that the Board of Directors declared a quarterly cash dividend of ~~$0.455~~$0.465 per common share for the quarter ended ~~September 30, 2022,~~March 31, 2023, an increase of 5%2% over the prior year’s comparable quarter.

The outbreak of a new strain of coronavirus, COVID-19, which began in December 2019, has continued to spread globally including to every state in the United States. The Center for Disease Control ("CDC") and World Health Organization ("WHO")

recognized this outbreak as a pandemic, which has caused shutdowns to businesses and cities worldwide while disrupting supply chains, business operations, travel, consumer confidence and business sentiment. The Company has taken a number of precautionary health and safety measures to safeguard its employees and customers, while maintaining business continuity. The Company has implemented remote work policies and enhanced cleaning and hygiene protocols in all of its facilities, products and vehicles. The Company is continuing to monitor and assess orders issued by federal, state and local governments to ensure compliance with evolving COVID-19 guidelines. The Company also continues to monitor the impact of COVID-19 on its existing customers who themselves may be impacted by governmental shutdowns and other impacts due to the governmental orders.

While the Company has not seen a significant impact from COVID-19 in the financial results for the three and nine months ended September 30, 2022 as set forth in the below sections discussing the results of operations for the three and nine months ended September 30, 2022, the Company is currently unable to determine or predict the full nature, duration or scope of the overall impact the COVID-19 pandemic and related business and operational pressures will have on its business, results of operations, liquidity or capital resources. The Company will continue to actively monitor the situation and may take further actions that alter its business operations as may be required by federal, state or local authorities or that the Company determines are in the best interests of employees, customers and shareholders.

Consolidated revenues for the three months ended ~~September 30, 2022~~March 31, 2023, increased ~~16%~~19% to ~~$200.5~~$173.2 million, from ~~$173.3~~$145.4 million in the same period in ~~2021.~~2022. Consolidated net income for the three months ended ~~September 30, 2022 increased~~March 31, 2023, excluding the gain on sale of discontinued operations from the divestiture of Adler Tanks, decreased 32% to ~~$30.6~~$12.8 million, from ~~$23.3~~$18.8 million for the same period in ~~2021.~~2022. The decrease in consolidated net income during the current period was primarily attributed to acquisition and divestiture related transaction costs of $14.2 million incurred during 2023. Earnings per diluted share for the three months ended ~~September 30, 2022~~March 31, 2023, increased ~~31%~~by $2.15 to ~~$1.25 from $0.95~~$2.92, which was primarily the result of the $58.9 million gain on sale of discontinued operations, compared to $0.77 for the same period in ~~2021.~~2022.

Revenues from discontinued operations for the three months ended March 31, 2023, was $9.4 million, compared to $20.3 million for the same period in 2022. Income from discontinued operations for the three months ended March 31, 2023, was $60.1 million, which included the gain on sale of discontinued operations of $58.9 million, compared to $1.1 million for the same period in 2022. Earnings per diluted share from discontinued operations for the three months ended March 31, 2023 was $2.45, compared to $0.05 for the same period in 2022. For additional information on discontinued operations and the divestiture of Adler Tanks, refer to Note 5 of the consolidated financial statements.

For the three months ended ~~September 30, 2022,~~March 31, 2023, on a consolidated ~~basis:~~basis from continuing operations:

For the three months ended ~~September 30, 2022,~~March 31, 2023, Mobile Modular’s total revenues increased ~~$15.4~~$36.0 million, or ~~14%~~40%, to ~~$125.8~~$126.7 million compared to the same period in ~~2021, primarily~~2022, largely due to contributions from the Vesta Modular acquisition, which contributed to the higher rental, rental related services, and sales revenues. The revenue increase, together with higher gross profit on rental, sales and rental related services revenues, ~~partly~~ offset by higher selling and administrative expenses, resulted in a ~~16% increase~~$7.8 million decrease in pre-tax income to ~~$25.0~~$8.7 million for the three months ended ~~September 30, 2022,~~March 31, 2023, from ~~$21.6~~$16.6 million for the same period in ~~2021.~~2022.

The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.

Mobile Modular – Three Months Ended ~~9/30/22~~3/31/23 compared to Three Months Ended ~~9/30/21~~3/31/22 (Unaudited)


(dollar amounts in thousands)	Three Months Ended September 30,						Increase (Decrease)						Three Months Ended March 31,						Increase (Decrease)
	2022			2021			$			%			2023			2022			$			%
Revenues
Rental	$	69,111		$	59,223		$	9,888			17	%	$	81,113		$	61,538		$	19,575			32	%
Rental related services		27,353			24,468			2,885			12	%		26,252			18,361			7,891			43	%
Rental operations		96,464			83,691			12,773			15	%		107,365			79,899			27,466			34	%
Sales		28,922			26,362			2,560			10	%		17,605			10,375			7,230			70	%
Other		452			341			111			33	%		1,687			371			1,316		nm
Total revenues		125,838			110,394			15,444			14	%		126,657			90,645			36,012			40	%
Costs and Expenses									��
Direct costs of rental operations:
Depreciation of rental equipment		7,747			7,544			203			3	%		9,444			7,833			1,611			21	%
Rental related services		19,973			18,508			1,465			8	%		18,607			13,180			5,427			41	%
Other		22,837			16,533			6,304			38	%		25,910			20,162			5,748			29	%
Total direct costs of rental operations		50,557			42,585			7,972			19	%		53,961			41,175			12,786			31	%
Costs of sales		18,696			18,145			551			3	%		11,074			6,329			4,745			75	%
Total costs of revenues		69,253			60,730			8,523			14	%		65,035			47,504			17,531			37	%
Gross Profit
Rental		38,527			35,146			3,381			10	%		45,759			33,543			12,216			36	%
Rental related services		7,380			5,960			1,420			24	%		7,645			5,181			2,464			48	%
Rental operations		45,907			41,106			4,801			12	%		53,404			38,724			14,680			38	%
Sales		10,226			8,217			2,009			24	%		6,531			4,046			2,485			61	%
Other		452			341			111			33	%		1,687			371			1,316		nm
Total gross profit		56,585			49,664			6,921			14	%		61,622			43,141			18,481			43	%
Selling and administrative expenses		28,798			26,138			2,660			10	%		46,514			24,692			21,822			88	%
Income from operations		27,787			23,526			4,261			18	%		15,108			18,449			(3,341	)		(18	)%
Interest expense allocation		(2,795	)		(1,975	)		820			42	%		(6,271	)		(1,821	)		4,450		nm
Pre-tax income	$	24,992		$	21,551		$	3,441			16	%	$	8,837		$	16,628		$	(7,791	)		(47	)%
Other Selected Information
Adjusted EBITDA	$	39,734		$	36,160		$	3,574			10	%	$	42,445		$	30,405		$	12,040			40	%
Average rental equipment 1	$	1,030,792		$	975,119		$	55,673			6	%	$	1,176,874		$	1,006,903		$	169,971			17	%
Average rental equipment on rent	$	825,129		$	746,184		$	78,945			11	%	$	936,903		$	776,360		$	160,543			21	%
Average monthly total yield 2		2.23	%		2.02	%					10	%		2.30	%		2.04	%					13	%
Average utilization 3		80.1	%		76.5	%					5	%		79.6	%		77.1	%					3	%
Average monthly rental rate 4		2.79	%		2.65	%					5	%		2.89	%		2.64	%					9	%
Period end rental equipment 1	$	1,036,770		$	981,231		$	55,539			6	%	$	1,305,554		$	1,013,791		$	291,763			29	%
Period end utilization 3		81.2	%		76.7	%					6	%		78.9	%		77.6	%					2	%

Mobile Modular’s gross profit for the three months ended ~~September 30, 2022~~March 31, 2023 increased ~~$6.9~~$18.5 million, or ~~14%~~43%, to ~~$56.6~~$61.6 million. For the three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021:~~2022:

For the three months ended ~~September 30, 2022,~~March 31, 2023, selling and administrative expenses increased ~~$2.7~~$21.8 million, or ~~10%~~88%, to ~~$28.8~~$46.5 million, primarily due to ~~$1.6~~$8.4 million higher marketing and administrative costs, which includes $7.5 million in acquisition related transaction costs, $7.8 million higher allocated corporate expenses, which includes $5.4 million in allocated divestiture transaction costs, and ~~increased~~a $4.6 million increase in employee salaries and benefit costs, ~~totaling $1.2 million.~~largely due to the addition of Vesta Modular employees.

For the three months ended ~~September 30, 2022,~~March 31, 2023, TRS-RenTelco’s total revenues increased ~~$3.5~~$2.6 million to ~~$38.5~~$36.1 million compared to the same period in ~~2021,~~2022, primarily due to higher sales and rental ~~and sales~~ revenues. ~~Higher~~Gross profit increase of $0.9 million, which was offset by higher selling and administrative expenses, ~~and an increase in gross profit~~ resulted in a ~~16% increase~~38% decrease in pre-tax income to ~~$10.1~~$4.7 million for the three months ended ~~September 30, 2022,~~March 31, 2023, from ~~$8.7~~$7.5 million for the same period in ~~2021.~~2022.

The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.

TRS-RenTelco – Three Months Ended ~~9/30/22~~3/31/23 compared to Three Months Ended ~~9/30/21~~3/31/22 (Unaudited)

TRS-RenTelco’s gross profit for the three months ended September 30, 2022 increased $2.5 million, or 16%, to $18.0 million. For the three months ended September 30, 2022 compared to the same period in 2021:

~~For the three months ended September 30, 2022, selling and administrative expenses increased $0.7 million, or 12%, to $6.7 million, primarily due to higher allocated corporate expenses.~~

For the three months ended September 30, 2022, Adler Tanks’ total revenues increased $3.9 million, or 18%, to $26.2 million compared to the same period in 2021, due to higher rental, rental related services, and other revenues. Higher gross profit on rental, rental related services and other revenues, partly offset by an increase in selling and administrative expenses, resulted in a $2.5 million increase in pre-tax income to $4.6 million for the three months ended September 30, 2022, compared to the same period in 2021.

~~The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.~~

~~Adler Tanks – Three Months Ended 9/30/22 compared to Three Months Ended 9/30/21 (Unaudited)~~


(dollar amounts in thousands)	Three Months Ended September 30,						Increase (Decrease)						Three Months Ended March 31,						Increase (Decrease)
	2022			2021			$			%			2023			2022			$			%
Revenues
Rental	$	17,490		$	14,842		$	2,648			18	%	$	29,134		$	28,512		$	622			2	%
Rental related services		7,163			6,346			817			13	%		880			671			209			31	%
Rental operations		24,653			21,188			3,465			16	%		30,014			29,183			831			3	%
Sales		977			960			17			2	%		5,114			3,927			1,187			30	%
Other		563			135			428		nm				992			381			611		nm
Total revenues		26,193			22,283			3,910			18	%		36,120			33,491			2,629			8	%
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment		4,002			4,107			(105	)		(3	)%		12,389			12,029			360			3	%
Rental related services		5,395			5,185			210			4	%		661			580			81			14	%
Other		3,505			3,163			342			11	%		5,225			4,692			533			11	%
Total direct costs of rental operations		12,902			12,455			447			4	%		18,275			17,301			974			6	%
Costs of sales		693			680			13			2	%		2,225			1,500			725			48	%
Total costs of revenues		13,595			13,135			460			4	%		20,500			18,801			1,699			9	%
Gross Profit
Rental		9,983			7,572			2,411			32	%		11,520			11,791			(271	)		(2	)%
Rental related services		1,768			1,161			607			52	%		219			91			128		nm
Rental operations		11,751			8,733			3,018			35	%		11,739			11,882			(143	)		(1	)%
Sales		284			280			4			1	%		2,889			2,427			462			19	%
Other		563			135			428		nm				992			381			611		nm
Total gross profit		12,598			9,148			3,450			38	%		15,620			14,690			930			6	%
Selling and administrative expenses		7,141			6,333			808			13	%		9,451			6,590			2,861			43	%
Income from operations		5,457			2,815			2,642			94	%		6,169			8,100			(1,931	)		(24	)%
Interest expense allocation		(822	)		(638	)		184			29	%		(1,742	)		(586	)		1,156		nm
Foreign currency exchange loss														226			13			(213	)	nm
Pre-tax income	$	4,635		$	2,177		$	2,458			113	%	$	4,653		$	7,527		$	(2,874	)		(38	)%
Other Selected Information
Adjusted EBITDA	$	10,192		$	7,708		$	2,484			32	%	$	20,635		$	20,653		$	(18	)	nm
Average rental equipment 1	$	307,153		$	311,876		$	(4,723	)		(2	)%	$	396,835		$	366,667		$	30,168			8	%
Average rental equipment on rent	$	168,659		$	150,005		$	18,654			12	%	$	234,829		$	236,889		$	(2,060	)		(1	)%
Average monthly total yield 2		1.90	%		1.59	%					19	%		2.40	%		2.59	%					(7	)%
Average utilization 3		54.9	%		48.1	%					14	%		59.2	%		64.6	%					(8	)%
Average monthly rental rate 4		3.46	%		3.30	%					5	%		4.14	%		4.01	%					3	%
Period end rental equipment 1	$	307,430		$	310,691		$	(3,261	)		(1	)%	$	397,565		$	374,392		$	23,173			6	%
Period end utilization 3		58.3	%		50.4	%					16	%		59.0	%		64.7	%					(9	)%

Adler Tanks’ gross profit for the three months ended September 30, 2022 increased $3.5 million, or 38%, to $12.6 million. For the three months ended September 30, 2022 compared to the same period in 2021:

For the three months ended September 30, 2022, selling and administrative expenses increased $0.8 million, or 13%, to $7.1 million compared to the same period in 2021, primarily due to higher allocated corporate expenses and higher employee salaries and benefit costs.

Consolidated revenues for the nine months ended September 30, 2022 increased to $522.9 million from $440.9 million for the same period in 2021. Consolidated net income for the nine months ended September 30, 2022 increased 23% to $75.5 million, from $61.3 million for the same period in 2021. Earnings per diluted share for the nine months ended September 30, 2022 increased 23% to $3.08 from $2.50 for the same period in 2021.

For the nine months ended September 30, 2022, Mobile Modular’s total revenues increased $64.2 million, or 24%, to $327.9 million compared to the same period in 2021, primarily due to higher rental, sales, and rental related services revenues. The revenue increase, together with higher gross profit on rental, sales and rental related services revenues, partly offset by higher selling and administrative expenses resulted in a 20% increase in pre-tax income to $63.5 million for the nine months ended September 30, 2022, from $53.0 million for the same period in 2021.

~~The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.~~

~~Mobile Modular – Nine Months Ended 9/30/22 compared to Nine Months Ended 9/30/21 (Unaudited)~~

Mobile Modular’s gross profit for the nine months ended September 30, 2022 increased $24.0 million, or 19%, to $149.4 million. For the nine months ended September 30, 2022 compared to the same period in 2021:

For the nine months ended September 30, 2022, selling and administrative expenses increased $11.3 million, or 17%, to $79.2 million, primarily due to increased employee salaries and benefit costs of $5.5 million, primarily due to the addition of Design Space and Kitchens To Go employees, and $4.5 million higher allocated corporate expenses.

For the nine months ended September 30, 2022, TRS-RenTelco’s total revenues increased $6.9 million, to $109.4 million compared to the same period in 2021, primarily due to higher rental and sales revenues. Pre-tax income increased $1.6 million, or 7%, to $26.3 million for the nine months ended September 30, 2022, compared to the same period in 2021, primarily due to higher gross profit on rental, sales, and rental related services revenues, partly offset by higher selling and administrative expenses.

~~The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.~~

~~TRS-RenTelco – Nine Months Ended 9/30/22 compared to Nine Months Ended 9/30/21 (Unaudited)~~

TRS-RenTelco’s gross profit for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 increased ~~$4.0~~$0.9 million, or 9%6%, to ~~$48.8~~$15.6 million. For the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021:~~2022:

For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, selling and administrative expenses increased ~~$1.5~~$2.9 million, or 8%43%, to ~~$19.9~~$9.5 million, primarily due to ~~increased~~$2.3 million in higher allocated corporate expenses and $0.3 million in higher employee salaries and benefit ~~costs and higher allocated corporate expenses.~~costs.

For the nine months ended September 30, 2022, Adler Tanks’ total revenues increased $10.2 million, or 17%, to $70.2 million compared to the same period in 2021, primarily due to higher rental and rental related services revenues. Higher gross profit on rental and rental related services, partly offset by higher selling and administrative expenses, resulted in a $5.6 million increase in pre-tax income to $9.4 million for the nine months ended September 30, 2022, compared to the same period in 2021.

~~The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.~~

~~Adler Tanks – Nine Months Ended 9/30/22 compared to Nine Months Ended 9/30/21 (Unaudited)~~

Adler Tanks’ gross profit for the nine months ended September 30, 2022 increased $7.8 million, or 32%, to $31.9 million. For the nine months ended September 30, 2022 compared to the same period in 2021:

For the nine months ended September 30, 2022, selling and administrative expenses increased 9% to $20.6 million compared to the same period in 2021, primarily due to increased employee salaries and benefit costs and higher allocated corporate expenses.

To supplement the Company’s financial data presented on a basis consistent with accounting principles generally accepted in the United States of America (“GAAP”), the Company presents “Adjusted EBITDA”, which is defined by the Company as net income before interest expense, provision for income taxes, depreciation, amortization, share-based compensation and ~~share-based compensation.~~transaction costs. The Company presents Adjusted EBITDA as a financial measure as management believes it provides useful information to investors regarding the Company’s liquidity and financial condition and because management, as well as the Company’s lenders, use this measure in evaluating the performance of the Company.

Management uses Adjusted EBITDA as a supplement to GAAP measures to further evaluate period-to-period operating performance, compliance with financial covenants in the Company’s revolving lines of credit and senior notes and the Company’s ability to meet future capital expenditure and working capital requirements. Management believes the exclusion of non-cash charges, including share-based compensation, and transaction costs is useful in measuring the Company’s cash available for operations and performance of the Company. Because management finds Adjusted EBITDA useful, the Company believes its investors will also find Adjusted EBITDA useful in evaluating the Company’s performance.

Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows, or other consolidated income or cash flow data prepared in accordance with GAAP or as a measure of the Company’s profitability or liquidity. Adjusted EBITDA is not in accordance with or an alternative for GAAP, and may be different from non−GAAP measures used by other companies. Unlike EBITDA, which may be used by other companies or investors, Adjusted EBITDA does not include share-based compensation ~~charges.~~charges and transaction costs. The Company believes that Adjusted EBITDA is of limited use in that it does not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP and does not accurately reflect real cash flow. In addition, other companies may not use Adjusted EBITDA or may use other non-GAAP measures, limiting the usefulness of Adjusted EBITDA for purposes of comparison. The Company’s presentation of Adjusted EBITDA should not be construed as an inference that the Company will not incur expenses that are the same as or similar to the adjustments in this presentation. Therefore, Adjusted EBITDA should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures. The Company compensates for the limitations of Adjusted EBITDA by relying upon GAAP results to gain a complete picture of the Company’s performance. Because Adjusted EBITDA is a non-GAAP financial measure, as defined by the SEC, the Company includes in the tables below reconciliations of Adjusted EBITDA to the most directly comparable financial measures calculated and presented in accordance with GAAP.


(dollar amounts in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,						Twelve Months Ended September 30,						Three Months Ended March 31,						Twelve Months Ended March 31,
	2022			2021			2022			2021			2022			2021			2023			2022			2023			2022
Net income	$	30,567		$	23,252		$	75,497		$	61,258		$	103,944		$	92,433
Provision for income taxes		10,365			9,350			23,857			20,797			35,111			28,931
Income from continuing operations																			$	11,518		$	17,678		$	97,169		$	85,804
Provision for income taxes from continuing operations																				1,113			5,489			26,981			31,412
Interest expense		4,177			3,168			9,998			7,208			13,245			9,191			7,464			2,276			17,418			9,168
Depreciation and amortization		27,917			28,488			83,272			79,047			110,920			102,441			26,133			23,134			96,639			93,035
EBITDA		73,026			64,258			192,624			168,310			263,220			232,996			46,228			48,577			238,207			219,419
Share-based compensation		1,694			1,705			5,106			5,302			7,470			5,957			1,375			1,512			6,764			6,582
Transaction costs 3																				14,147			—			18,200			2,045
Adjusted EBITDA 1	$	74,720		$	65,963		$	197,730		$	173,612		$	270,690		$	238,953		$	61,750		$	50,089		$	263,171		$	228,046
Adjusted EBITDA margin 2		37	%		38	%		38	%		39	%		39	%		41	%		38	%		40	%		39	%		41	%

~~Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities~~

As of March 31, 2023, total Adjusted EBITDA from both continuing and discontinued operations was $65.4 million, compared to $56.7 million for the same period in 2022, excluding the gain on divestiture of Adler Tanks. For the three months ended March 31, 2023 and 2022, the total Adjusted EBITDA from continuing operations was $61.7 million and $50.1 million, respectively, and the total Adjusted EBITDA from discontinued operations was $3.7 million and $6.6 million, respectively. The reconciliation of income from discontinued operations to Adjusted EBITDA can be found in Note 5 of the consolidated financial statements.

The following table reconciles Adjusted EBITDA on a combined basis, including both continuing and discontinued operations, to the net cash provided by operating activities on the Company's condensed consolidated statement of cash flows.

Adjusted EBITDA is a component of two restrictive financial covenants for the Company’s unsecured Credit Facility, the Note Purchase Agreement, ~~Series C Senior Notes,~~ Series D Senior Notes and Series E Senior Notes (as defined and more fully described under the heading “Liquidity and Capital Resources” in this MD&A). These instruments contain financial covenants requiring the Company to not:

At ~~September 30, 2022,~~March 31, 2023, the Company was in compliance with each of the aforementioned covenants. There are no anticipated trends that the Company is aware of that would indicate non-compliance with these covenants, although, significant deterioration in our financial performance could impact the Company’s ability to comply with these covenants.

The Company’s rental businesses are capital intensive and generate significant cash flows. Cash flows for the Company for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021~~2022 are summarized as follows:

Cash Flows from Operating Activities: The Company’s operations provided net cash of ~~$133.3~~$35.7 million in ~~2022,~~2023, compared to ~~$136.3~~net cash provided of $51.7 million in ~~2021.~~2022. The 2%$16.0 million decrease in net cash provided by operating activities was primarily attributable to $41.8 million lower deferred income taxes and ~~increased gain on sale of used rental equipment, partly~~$11.6 million higher prepaid expenses and other assets, partially offset by a $34.6 million increase in accounts payable and accrued liabilities, primarily due to higher ~~deferred income.~~income taxes payable.

Cash Flows from Investing Activities: Net cash used in investing activities was ~~$86.8~~$263.5 million in ~~2022,~~2023, compared to ~~$335.4~~$34.5 million in ~~2021.~~2022. The ~~$248.6~~$229.0 million ~~decrease~~increase in cash used was primarily due to the ~~$285.6~~$453.6 million acquisition of ~~Design Space~~Vesta Modular and ~~Kitchens To Go~~Brekke Storage in ~~2021,~~2023, partly offset by ~~$40.0~~$262.4 million ~~higher purchases~~in proceeds from the sale of ~~rental equipment in 2022.~~discontinued operations from the divestiture of Adler Tanks.

Cash Flows from Financing Activities: Net cash ~~used in~~provided by financing activities was ~~$46.4~~$227.5 million in ~~2022,~~2023, compared to net cash ~~provided~~used of ~~$200.3~~$17.1 million in ~~2021.~~2022. The $244.6 million change in net cash during ~~2022~~2023 was primarily attributable to ~~reduced~~increased borrowings under bank lines of credit and note purchase agreements, as the borrowings were primarily ~~related~~attributed to the funding of the ~~Design Space~~Vesta Modular and ~~Kitchens to Go~~Brekke Storage acquisitions.

Significant capital expenditures are required to maintain and grow the Company’s rental assets. During the last three years, the Company has financed its working capital and capital expenditure requirements through cash flow from operations, proceeds from the sale of rental equipment and from borrowings. Sales occur routinely as a normal part of the Company’s rental business. However, these

sales can fluctuate from period to period depending on customer requirements and funding. Although the net proceeds received from sales may fluctuate from period to period, the Company believes its liquidity will not be adversely impacted from lower sales in any given year because it believes it has the ability to increase its bank borrowings and conserve its cash in the future by reducing the amount of cash it uses to purchase rental equipment, pay dividends, or repurchase the Company’s common stock.

On July 15th, 2022, the Company entered into an amended and restated credit agreement with Bank of America, N.A., as Administrative Agent, Swing Line Lender, L/C Issuer and lender, and other lenders named therein (the “Credit Facility”). The Credit Facility provides for a $650.0 million unsecured revolving credit facility (which may be further increased to $950.0 million by adding one or more tranches of term loans and/or increasing the aggregate revolving commitments), which includes a $40.0 million sublimit for the issuance of standby letters of credit and a $20.0 million sublimit for swingline loans. The proceeds of the Credit Facility are available to be used for general corporate purposes, including permitted acquisitions. The Credit Facility permits the Company’s existing indebtedness to remain, which includes the Company’s $12.0 million Treasury Sweep Note due March 31, 2025, the Company’s existing senior notes issued pursuant to the Note Purchase and Private Shelf Agreement with Prudential Investment Management, Inc., dated as of April 21, 2011 (as amended): (i) the $60.0 million aggregate outstanding principal of notes issued November 5, 2015 and due November 5, 2022, (ii) the $40.0 million aggregate outstanding principal of notes issued March 17, 2021 and due March 17, 2028, and (iii) the $60.0 million aggregate outstanding principal of notes issued June 16, 2021 and due June 16, 2026. In addition, the Company may incur additional senior note indebtedness in an aggregate amount not to exceed $250.0 million. The Credit Facility matures on July 15, 2027 and replaced the Company’s prior $420.0 million credit facility dated March 31, 2020 with Bank of America, N.A., as agent, as amended. All obligations outstanding under the prior credit facility as of the date of the Credit Facility were refinanced by the Credit Facility on July 15, 2022.

On August 19, 2022, the Company entered into an amended and restated Credit Facility Letter Agreement and a Credit Line Note in favor of MUFG Union Bank, N.A., which provides for a $20.0 million line of credit facility related to its cash management services (“Sweep Service Facility”). The Sweep Service Facility matures on the earlier of July 15, 2027, or the date the Company ceases to utilize MUFG Union Bank, N.A. for its cash management services. The Sweep Service Facility replaced the Company’s prior $12.0 million sweep service facility, dated as of March 30, 2020.

At ~~September 30, 2022,~~March 31, 2023, under the Credit Facility and Sweep Service Facility, the Company had unsecured lines of credit that permit it to borrow up to $650.0 million of which ~~$259.5~~$558.8 million was outstanding and had capacity to borrow up to an additional ~~$390.5~~$91.2 million. The Credit Facility contains financial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to such terms in the Credit Facility):

At ~~September 30, 2022,~~March 31, 2023, the Company was in compliance with each of the aforementioned covenants. There are no anticipated trends that the Company is aware of that would indicate non-compliance with these covenants, although significant deterioration in our financial performance could impact the Company’s ability to comply with these covenants.

On March 31, 2020, the Company entered into an Amended and Restated Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”) with PGIM, Inc. (“PGIM”) and the holders of Series B and Series C Notes previously issued pursuant to the Prior NPA, among the Company and the other parties to the Note Purchase Agreement. The Note Purchase Agreement amended and restated, and superseded in its entirety, the Prior NPA. Pursuant to the Prior NPA, the Company issued (i) $40.0 million aggregate principal amount of its 3.68% Series B Senior Notes, which were repaid on March 17, 2021, and (ii) $60.0 million aggregate principal amount of its 3.84% Series C Senior Notes, ~~due~~which were repaid on November 5, 2022, to which the terms of the Note Purchase Agreement shall apply.

In addition, pursuant to the Note Purchase Agreement, the Company may authorize the issuance and sale of additional senior notes (the “Shelf Notes”) in the aggregate principal amount of (x) $250 million minus (y) the amount of other notes (such as the ~~Series C Senior Notes,~~ Series D Senior Notes and Series E Senior Notes, each defined below) then outstanding, to be dated the date of issuance thereof, to mature, in case of each Shelf Note so issued, no more than 15 years after the date of original issuance thereof, to have an average life, in the case of each Shelf Note so issued, of no more than 15 years after the date of original issuance thereof, to bear interest on the unpaid balance thereof from the date thereof at the rate per annum, and to have such other particular terms, as shall be set forth, in the case of each Shelf

Note so issued, in accordance with the Note Purchase Agreement. Shelf Notes may be issued and sold from

time to time at the discretion of the Company’s Board of Directors and in such amounts as the Board of Directors may determine, subject to prospective purchasers’ agreement to purchase the Shelf Notes. The Company will sell the Shelf Notes directly to such purchasers. The full net proceeds of each Shelf Note will be used in the manner described in the applicable Request for Purchase with respect to such Shelf Note.

On November 5, 2015, the Company issued and sold to the purchasers a $60.0 million aggregate principal amount of its 3.84% Series C Senior Notes (the “Series C Senior Notes”) pursuant to the terms of the Prior NPA. The Series C Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 3.84% per annum and mature on November 5, 2022. Interest on the Series C Senior Notes is payable semi-annually beginning on May 5, 2016 and continuing thereafter on November 5 and May 5 of each year until maturity. The principal balance is due when the notes mature on November 5, 2022. The full net proceeds from the Series C Senior Notes were used to reduce the outstanding balance on the Company’s revolving credit line. At September 30, 2022, the principal balance outstanding under the Series C Senior Notes was $60.0 million.Private Shelf Agreement expired March 31, 2023.

On March 17, 2021, the Company issued and sold to the purchasers $40 million aggregate principal amount of 2.57% Series D Notes (the “Series D Senior Notes”) pursuant to the terms of the Amended and Restated Note Purchase and Private Shelf Agreement, dated March 31, 2020 (the “Note Purchase Agreement”), among the Company, PGIM, Inc. and the noteholders party thereto.

The Series D Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 2.57% per annum and mature on March 17, 2028. Interest on the Series D Senior Notes is payable semi-annually beginning on September 17, 2021 and continuing thereafter on March 17 and September 17 of each year until maturity. The principal balance is due when the notes mature on March 17, 2028. The full net proceeds from the Series D Senior Notes were used to pay off the Company’s $40 million Series B Senior Notes. At ~~September 30, 2022,~~March 31, 2023, the principal balance outstanding under the Series D Senior Notes was $40.0 million.

On June 16, 2021, the Company issued and sold to the purchasers $60 million aggregate principal amount of 2.35% Series E Notes (the "Series E Notes") pursuant to the terms of the Amended and Restated Note Purchase and Private Shelf Agreement, dated March 31, 2020 (the “Note Purchase Agreement”), among the Company, PGIM, Inc. and the noteholders party thereto.

The Series E Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 2.35% per annum and mature on June 16, 2026. Interest on the Series E Senior Notes is payable semi-annually beginning on December 16, 2021 and continuing thereafter on June 16 and December 16 of each year until maturity. The principal balance is due when the notes mature on June 16, 2026. The full net proceeds from the Series E Senior Notes were used to pay down the Company’s credit facility. At ~~September 30, 2022,~~March 31, 2023, the principal balance outstanding under the Series E Senior Notes was $60.0 million.

Among other restrictions, the Note Purchase Agreement, which has superseded in its entirety the Prior NPA, under which the ~~Series C Senior Notes,~~ Series D Senior Notes and Series E Senior Notes were sold, contains financial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to such terms in the Note Purchase Agreement):

At ~~September 30, 2022,~~March 31, 2023, the Company was in compliance with each of the aforementioned covenants. There are no anticipated trends that the Company is aware of that would indicate non-compliance with these covenants, although significant deterioration in our financial performance could impact the Company’s ability to comply with these covenants.

Although no assurance can be given, the Company believes it will continue to be able to negotiate general bank lines of credit and issue senior notes adequate to meet capital requirements not otherwise met by operational cash flows and proceeds from sales of rental equipment. Furthermore, the Company believes it has the financial resources to weather any short-term impacts of COVID-19. However, the Company has limited insight into the extent to which its business may be impacted by COVID-19, and there are many uncertainties, including how long and how severely the Company will be impacted. An extended and severe impact may materially and adversely affect the Company’s future operations, financial position and liquidity.

The Company has in the past made purchases of shares of its common stock from time to time in over-the-counter market (NASDAQ) transactions, through privately negotiated, large block transactions and through a share repurchase plan, in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. In August 2015, the Company’s Board of Directors authorized the Company to repurchase up to 2,000,000 shares of the Company's outstanding common stock (the “Repurchase Plan”). The amount and time of the specific repurchases are subject to prevailing market conditions, applicable legal requirements and other factors, including management’s discretion. All shares repurchased by the Company are canceled and returned to the status of authorized but unissued shares of common stock. There can be no assurance that any authorized shares will be repurchased and the Repurchase Plan may be modified, extended or terminated by the Company’s Board of Directors at any time. There were no shares repurchased in the ~~nine~~ three

months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. As of ~~September 30, 2022,~~March 31, 2023, 1,309,805 shares remained authorized for repurchase under the Repurchase Plan.

We believe that our contractual obligations and commitments have not changed materially from those included in our ~~2021~~2022 Annual Report.

There were no material changes in our judgments and assumptions associated with the development of our critical accounting estimates during the period ended ~~September 30, 2022.~~March 31, 2023. Refer to our ~~2021~~2022 Annual Report for a discussion of our critical accounting policies and estimates.

There have been no material changes in the Company’s market risk exposures from those reported in our ~~2021~~2022 Annual Report.

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), the Company’s principal executive officer and principal financial officer, respectively, performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of ~~September 30, 2022.~~March 31, 2023. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of ~~September 30, 2022.~~March 31, 2023. There were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company is subject to various legal proceedings and claims arising in the ordinary course of business. The Company’s management does not expect that the outcome in the current proceedings, individually or collectively, will have a material adverse effect on the Company’s financial condition, operating results or cash flows.

You should carefully consider the following discussion of various risks and uncertainties. We believe these risk factors are the most relevant to our business and could cause our results to differ materially from the forward-looking statements made by us. Our business, financial condition, and results of operations could be seriously harmed if any of these risks or uncertainties actually occur or materialize. In that event, the market price for our common stock could decline, and you may lose all or part of your investment. The risk factors below are intended to supersede in their entirety the risk factors contained in “Item 1. A Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Our future operating results may fluctuate, fail to match past performance or fail to meet expectations, which may result in a decrease in our stock price.

Our operating results may fluctuate in the future, may fail to match our past performance or fail to meet the expectations of analysts and investors. Our results and related ratios, such as gross margin, operating income percentage and effective tax rate may fluctuate as a result of a number of factors, some of which are beyond our control including but not limited to:

As a result of these factors, our historical financial results are not necessarily indicative of our future results or stock price.

Our stock price has fluctuated and may continue to fluctuate in the future, which may result in a decline in the value of your investment in our common stock.

The market price of our common stock fluctuates on the NASDAQ Global Select Market and is likely to be affected by a number of factors including but not limited to:

In addition, in recent years the U.S. stock market has experienced significant price and volume fluctuations. These fluctuations are often unrelated to the operating performance of particular companies. Additionally, the most recent global credit crisis adversely affected the prices of most publicly traded stocks as many stockholders became more willing to divest their stock holdings at lower values to increase their cash flow and reduce exposure to such fluctuations. These broad market fluctuations and any other negative economic trends may cause declines in the market price of our common stock and may be based upon factors that have little or nothing to do with our Company or its performance, and these fluctuations and trends could materially reduce our stock price.

The impact of COVID-19 on our operations, and the operations of our customers, suppliers and logistics providers, may harm our business.

We continue to monitor the ongoing impact of COVID-19 outbreak around the globe. This includes evaluating the impact on our customers, suppliers, and logistics providers as well as evaluating governmental actions being taken to curtail the spread of the virus. Significant uncertainty continues to exist concerning the magnitude of the impact and duration of the COVID-19 pandemic and related variants. While the Company’s operating segments and branch locations currently continue to operate, the Company’s results of operations may be negatively impacted by project delays, supply chain delays or disruptions; elevated costs for materials and labor; early returns of equipment currently on rent with customers; overall decreased customer demand for new rental orders, rental related services and sales of new and used rental equipment; and payment delay, or non-payment, by customers who are significantly impacted by COVID-19.

Our ability to retain our executive management and to recruit, retain and motivate key qualified employees is critical to the success of our business.

If we cannot successfully recruit and retain qualified personnel, our operating results and stock price may suffer. We believe that our success is directly linked to the competent people in our organization, including our executive officers, senior managers and other key personnel, and in particular, Joe Hanna, our Chief Executive Officer. Personnel turnover can be costly and could materially and adversely impact our operating results and can potentially jeopardize the success of our current strategic initiatives. We need to attract and retain highly qualified personnel to replace personnel when turnover occurs, as well as add to our staff levels as growth occurs. Our business and stock price likely will suffer if we are unable to fill, or experience delays in filling open positions, or fail to retain key personnel.

Failure by third parties to manufacture and deliver our products to our specifications or on a timely basis may harm our reputation and financial condition.

We depend on third parties to manufacture our products even though we are able to purchase products from a variety of third-party suppliers. In the future, we may be limited as to the number of third-party suppliers for some of our products. Although in general we make advance purchases of some products to help ensure an adequate supply, currently we do not have any long-term purchase contracts with any third-party supplier. We may experience supply problems as a result of financial or operating difficulties or failure of our suppliers, or shortages and discontinuations resulting from product obsolescence or other shortages or allocations by our suppliers. Unfavorable economic conditions may also adversely affect our suppliers or the terms on which we purchase products. In the future, we may not be able to negotiate arrangements with third parties to secure products that we require in sufficient quantities or on reasonable terms. If we cannot negotiate arrangements with third parties to produce our products or if the third parties fail to produce our products to our specifications or in a timely manner, our reputation and financial condition could be harmed.

We are subject to information technology system failures, network disruptions and breaches in data security which could subject us to liability, reputational damage or interrupt the operation of our business.

We rely upon our information technology systems and infrastructure for our business. We sustained an immaterial cybersecurity attack in 2021 involving ransomware that impacted certain of our systems but was unsuccessful in its ability to disrupt our network. Our investigation revealed that an unauthorized third party copied some personal information relating to certain current and former employees, directors, contractor workers and their dependents and certain other persons. Upon detection, we promptly undertook steps to address the incident, restored network systems and resumed normal operations. The attack did not result in any material disruption to our operations or ability to service our customers and did not affect our financial performance.

In the future, we could experience additional breaches of our security measures resulting in the theft of confidential information or reputational damage from industrial espionage attacks, malware or other cyber-attacks, which may compromise our system infrastructure or lead to data leakage, either internally or at our third-party providers. Similarly, additional data privacy breaches by those who access our systems may pose a risk that sensitive data, including intellectual property, trade secrets or personal information belonging to us, our employees, customers or other business partners, may be exposed to unauthorized persons or to the public.

The immaterial breach of our information technology system and any future breaches could subject us to reputational damage. Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. There can be no assurance that our efforts to protect our data and information technology systems will prevent future breaches in our systems (or that of our third-party providers) that could adversely affect our business and result in financial and reputational harm to us, theft of trade secrets and other proprietary information, legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties.

Disruptions in our information technology systems or failure to protect these systems against security breaches could adversely affect our business and results of operations. Additionally, if these systems fail, become unavailable for any period of time or are not upgraded, this could limit our ability to effectively monitor and control our operations and adversely affect our operations.

Our information technology systems facilitate our ability to transact business, monitor and control our operations and adjust to changing market conditions. We sustained an immaterial cybersecurity attack in 2021 involving ransomware that impacted certain of our systems, but was unsuccessful in its ability to disrupt our network. Upon detection, we promptly undertook steps to address the incident, restored network systems and resumed normal operations. Any future cybersecurity attack causing disruption in our information technology systems or the failure of these systems to operate as expected could, depending on the magnitude of the problem, adversely affect our operating results by limiting our capacity to effectively transact business, monitor and control our operations and adjust to changing market conditions in a timely manner.

In addition, because of recent advances in technology and well-known efforts on the part of computer hackers and cyber-terrorists to breach data security of companies, we face risks associated with failure to adequately protect critical corporate, customer and employee data, which could adversely impact our customer relationships, our reputation, and even violate privacy laws. As part of our business, we develop, receive and retain confidential data about our company and our customers.

Further, the delay or failure to implement information system upgrades and new systems effectively could disrupt our business, distract management’s focus and attention from our business operations and growth initiatives, and increase our implementation and operating costs, any of which could negatively impact our operations and operating results.

We have engaged in acquisitions and may engage in future acquisitions that could negatively impact our results of operations, financial condition and business.

In the ~~second~~first quarter ~~2021, we~~of 2023, the Company acquired Vesta Modular, a portfolio company of Kinderhook Industries, that is a leading provider of temporary and permanent modular space solutions, and the assets of ~~Design Space Modular Buildings PNW, LP (“Design Space”),~~Brekke Storage, that is a regional provider of ~~modular buildings and~~ portable storage ~~containers for rental and sale to customers~~solutions in the West and Pacific Northwest states in the U.S. and GRS Holding LLC, DBA Kitchens to Go (“Kitchens To Go”), a provider of interim and permanent modular solutions for foodservice providers that require flexible facilities to continue or expand operations.Colorado market. We anticipate that we will continue to consider acquisitions in the future that meet our strategic growth plans. We are unable to predict whether or when any prospective acquisition will be completed. Acquisitions involve numerous risks, including the following:

Acquisitions are inherently risky, and no assurance can be given that our recent and future acquisitions will be successful or will not adversely affect our business, operating results, or financial condition. The success of our acquisition strategy depends upon our ability to successfully complete acquisitions and integrate any businesses that we acquire into our existing business. The difficulties of integration could be increased by the necessity of coordinating geographically dispersed organizations; maintaining acceptable standards, controls, procedures and policies; integrating personnel with disparate business backgrounds; combining different corporate cultures; and the impairment of relationships with employees and customers as a result of any integration of new management and other personnel. In addition, if we consummate one or more significant future acquisitions in which the consideration consists of stock or other securities, our existing shareholders’ ownership could be diluted significantly. If we were to proceed with one or more significant future acquisitions in which the consideration included cash, we could be required to use, to the extent available, a substantial portion of our Credit Facility. If we increase the amount borrowed against our available credit line, we would increase the risk of breaching the covenants under our credit facilities with our lenders. In addition, it would limit our ability to make other investments, or we may be required to seek additional debt or equity financing. Any of these items could adversely affect our results of operations.

We continually assess the strategic fit of our existing businesses and may divest or otherwise dispose of businesses that are deemed not to fit with our strategic plan or are not achieving the desired return on investment, and we cannot be certain that our business, operating results and financial condition will not be materially and adversely affected.

A successful divestiture depends on various factors, including reaching an agreement with potential buyers on terms we deem attractive, as well as our ability to effectively transfer liabilities, contracts, facilities, and employees to any purchaser, identify and separate the assets to be divested from the assets that we wish to retain, reduce fixed costs previously associated with the divested assets or business, and collect the proceeds from any divestitures. These efforts require varying levels of management resources, which may divert our attention from other business operations. If we do not realize the expected benefits of any divestiture transaction, our consolidated financial position, results of operations and cash flows could be negatively impacted. In addition, divestitures of businesses involve a number of risks, including significant costs and expenses, the loss of customer relationships and a decrease in revenues and

earnings associated with the divested business. Furthermore, divestitures potentially involve significant post-closing separation activities, which could involve the expenditure of material financial resources and significant employee resources. Any divestiture may result in a dilutive impact to our future earnings if we are unable to offset the dilutive impact from the loss of revenue associated with the divestiture, as well as significant write-offs, including those related to goodwill and other intangible assets, which could have a material adverse effect on our results of operations and financial condition.

If we determine that our goodwill and intangible assets have become impaired, we may incur impairment charges, which would negatively impact our operating results.

At ~~September 30, 2022,~~March 31, 2023, we had ~~$174.9~~$391.9 million of goodwill and intangible assets, net, on our consolidated balance sheets. Goodwill represents the excess of cost over the fair value of net assets acquired in business combinations. Under accounting principles generally accepted in the United States of America, we assess potential impairment of our goodwill and intangible assets at least annually, as well as on an interim basis to the extent that factors or indicators become apparent that could reduce the fair value of any of our businesses below book value. Impairment may result from significant changes in the manner of use of the acquired asset, negative industry or economic trends and significant underperformance relative to historic or projected operating results.

Our rental equipment is subject to residual value risk upon disposition and may not sell at the prices or in the quantities we expect.

The market value of any given piece of rental equipment could be less than its depreciated value at the time it is sold. The market value of used rental equipment depends on several factors, including:

We include in income from operations the difference between the sales price and the depreciated value of an item of equipment sold. Changes in our assumptions regarding depreciation could change our depreciation expense, as well as the gain or loss realized upon disposal of equipment. Sales of our used rental equipment at prices that fall significantly below our projections or in lesser quantities than we anticipate will have a negative impact on our results of operations and cash flows.

If we do not effectively manage our credit risk, collect on our accounts receivable or recover our rental equipment from our customers’ sites, it could have a material adverse effect on our operating results.

We generally rent and sell to customers on 30 day payment terms, individually perform credit evaluation procedures on our customers for each transaction and require security deposits or other forms of security from our customers when a significant credit risk is identified. Historically, accounts receivable write-offs and write-offs related to equipment not returned by customers have not been significant and have averaged less than 1% of total revenues over the last five years. If economic conditions deteriorate, we may see an increase in bad debt relative to historical levels, which may materially and adversely affect our operations. Business segments that experience significant market disruptions or declines may experience increased customer credit risk and higher bad debt expense. Failure to manage our credit risk and receive timely payments on our customer accounts receivable may result in write-offs and/or loss of equipment, particularly electronic test equipment. If we are not able to effectively manage credit risk issues, or if a large number of our customers should have financial difficulties at the same time, our receivables and equipment losses could increase above historical levels. If this should occur, our results of operations may be materially and adversely affected.

Effective management of our rental assets is vital to our business. If we are not successful in these efforts, it could have a material adverse impact on our results of operations.

Our modular, electronics and liquid and solid containment rental products have long useful lives and managing those assets is a critical element to each of our rental businesses. Generally, we design units and find manufacturers to build them to our specifications for our modular and liquid and solid containment tanks and boxes. Modular asset management requires designing and building the product for a long life that anticipates the needs of our customers, including anticipating potential changes in legislation, regulations, building codes and local permitting in the various markets in which the Company operates. Electronic test equipment asset management requires understanding, selecting and investing in equipment technologies that support market demand, including anticipating

technological advances and changes in manufacturers’ selling prices. Liquid and solid containment asset management requires designing and building the product for a long life, using quality components and repairing and maintaining the products to prevent leaks. For each of our modular, electronic test equipment and liquid and solid containment assets, we must successfully maintain and repair this equipment cost-effectively to maximize the useful life of the products and the level of proceeds from the sale of such products. To the extent that we are unable to do so, our result of operations could be materially adversely affected.

The nature of our businesses, including the ownership of industrial property, exposes us to the risk of litigation and liability under environmental, health and safety and products liability laws. Violations of environmental or health and safety related laws or associated liability could have a material adverse effect on our business, financial condition and results of operations.

We are subject to national, state, provincial and local environmental laws and regulations concerning, among other things, solid and liquid waste and hazardous substances handling, storage and disposal and employee health and safety. These laws and regulations are complex and frequently change. We could incur unexpected costs, penalties and other civil and criminal liability if we fail to comply with applicable environmental or health and safety laws. We also could incur costs or liabilities related to waste disposal or remediating soil or groundwater contamination at our properties, at our customers’ properties or at third party landfill and disposal sites. These liabilities can be imposed on the parties generating, transporting or disposing of such substances or on the owner or operator of any

affected property, often without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous substances.

Several aspects of our businesses involve risks of environmental and health and safety liability. For example, our operations involve the use of petroleum products, solvents and other hazardous substances in the construction and maintaining of modular buildings and for fueling and maintaining our delivery trucks and vehicles. We also own, transport and rent tanks and boxes in which waste materials are placed by our customers. The historical operations at some of our previously or currently owned or leased and newly acquired or leased properties may have resulted in undiscovered soil or groundwater contamination or historical non-compliance by third parties for which we could be held liable. Future events, such as changes in existing laws or policies or their enforcement, or the discovery of currently unknown contamination or non-compliance, may also give rise to liabilities or other claims based on these operations that may be material. In addition, compliance with future environmental or health and safety laws and regulations may require significant capital or operational expenditures or changes to our operations.

Accordingly, in addition to potential penalties for non-compliance, we may become liable, either contractually or by operation of law, for investigation, remediation and monitoring costs even if the contaminated property is not presently owned or operated by us, or if the contamination was caused by third parties during or prior to our ownership or operation of the property. In addition, certain parties may be held liable for more than their “fair” share of environmental investigation and cleanup costs. Contamination and exposure to hazardous substances or other contaminants such as mold can also result in claims for remediation or damages, including personal injury, property damage, and natural resources damage claims. Although expenses related to environmental compliance, health and safety issues, and related matters have not been material to date, we cannot assure that we will not have to make significant expenditures in the future in order to comply with applicable laws and regulations. Violations of environmental or health and safety related laws or associated liability could have a material adverse effect on our business, financial condition and results of operations.

In general, litigation in the industries in which we operate, including class actions that seek substantial damages, arises with increasing frequency. Enforcement of environmental and health and safety requirements is also frequent. Such proceedings are invariably expensive, regardless of the merit of the plaintiffs’ or prosecutors’ claims. We may be named as a defendant in the future, and there can be no assurance, irrespective of the merit of such future actions, that we will not be required to make substantial settlement payments in the future. Further, a significant portion of our business is conducted in California which is one of the most highly regulated and litigious states in the country. Therefore, our potential exposure to losses and expenses due to new laws, regulations or litigation may be greater than companies with a less significant California presence.

The nature of our business also subjects us to property damage and product liability claims, especially in connection with our modular buildings and tank and box rental businesses. Although we maintain liability coverage that we believe is commercially reasonable, an unusually large property damage or product liability claim or a series of claims could exceed our insurance coverage or result in damage to our reputation.

Our routine business activities expose us to risk of litigation from employees, vendors and other third parties, which could have a material adverse effect on our results of operations.

We may be subject to claims arising from disputes with employees, vendors and other third parties in the normal course of our business; these risks may be difficult to assess or quantify and their existence and magnitude may remain unknown for substantial periods of time. If the plaintiffs in any suits against us were to successfully prosecute their claims, or if we were to settle any such suits by making significant payments to the plaintiffs, our operating results and financial condition would be harmed. Even if the outcome of a claim proves favorable to us, litigation can be time consuming and costly and may divert management resources. In addition, our

organizational documents require us to indemnify our senior executives to the maximum extent permitted by California law. We maintain directors’ and officers’ liability insurance that we believe is commercially reasonable in connection with such obligations, but if our senior executives were named in any lawsuit, our indemnification obligations could magnify the costs of these suits and/or exceed the coverage of such policies.

If we suffer loss to our facilities, equipment or distribution system due to catastrophe, our insurance policies could be inadequate or depleted, our operations could be seriously harmed, which could negatively affect our operating results.

Our facilities, rental equipment and distribution systems may be subject to catastrophic loss due to fire, flood, hurricane, earthquake, terrorism or other natural or man-made disasters. In particular, our headquarters, three operating facilities, and certain of our rental equipment are located in areas of California, with above average seismic activity and could be subject to catastrophic loss caused by an earthquake. Our rental equipment and facilities in Texas, Louisiana, Florida, North Carolina and Georgia are located in areas subject to hurricanes and other tropical storms. In addition to customers’ insurance on rented equipment, we carry property insurance on our rental equipment in inventory and operating facilities as well as business interruption insurance. We believe our insurance policies have adequate limits and deductibles to mitigate the potential loss exposure of our business. We do not maintain financial reserves for policy deductibles and our insurance policies contain exclusions that are customary for our industry, including

exclusions for earthquakes, flood and terrorism. If any of our facilities or a significant amount of our rental equipment were to experience a catastrophic loss, it could disrupt our operations, delay orders, shipments and revenue recognition and result in expenses to repair or replace the damaged rental equipment and facility not covered by insurance, which could have a material adverse effect on our results of operations.

Our debt instruments contain covenants that restrict or prohibit our ability to enter into a variety of transactions and may limit our ability to finance future operations or capital needs. If we have an event of default under these instruments, our indebtedness could be accelerated, and we may not be able to refinance such indebtedness or make the required accelerated payments.

The agreements governing our Series C, D and E Senior Notes (as defined and more fully described under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”) and our Credit Facility contain various covenants that limit our discretion in operating our business. In particular, we are limited in our ability to merge, consolidate, reorganize or transfer substantially all of our assets, make investments, pay dividends or distributions, redeem or repurchase stock, change the nature of our business, enter into transactions with affiliates, incur indebtedness and create liens on our assets to secure debt. In addition, we are required to meet certain financial covenants under these instruments. These restrictions could limit our ability to obtain future financing, make strategic acquisitions or needed capital expenditures, withstand economic downturns in our business or the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise.

A failure to comply with the restrictions contained in these agreements could lead to an event of default, which could result in an acceleration of our indebtedness. In the event of an acceleration, we may not have or be able to obtain sufficient funds to refinance our indebtedness or make any required accelerated payments. If we default on our indebtedness, our business financial condition and results of operations could be materially and adversely affected.

The majority of our indebtedness is subject to variable interest rates, which makes us vulnerable to increases in interest rates, which could negatively affect our net income.

Our indebtedness exposes us to interest rate increases because the majority of our indebtedness is subject to variable rates. At present, we do not have any derivative financial instruments such as interest rate swaps or hedges to mitigate interest rate variability. The interest rates under our credit facilities are reset at varying periods. These interest rate adjustments could cause periodic fluctuations in our operating results and cash flows. Our annual debt service obligations increase by approximately ~~$2.6~~$5.6 million per year for each 1% increase in the average interest rate we pay based on the ~~$259.5~~$558.8 million balance of variable rate debt outstanding at ~~September 30, 2022.~~March 31, 2023. If interest rates rise in the future, and, particularly if they rise significantly, interest expense will increase and our net income will be negatively affected.

Our effective tax rate may change and become less predictable as our business expands, or as a result of federal and state tax law changes, making our future earnings less predictable.

We continue to consider expansion opportunities domestically and internationally for our rental businesses. Since the Company’s effective tax rate depends on business levels, personnel and assets located in various jurisdictions, further expansion into new markets or acquisitions may change the effective tax rate in the future and may make it, and consequently our earnings, less predictable going forward. Further, the enactment of future tax law changes by federal and state taxing authorities may impact the Company’s current

period tax provision and its deferred tax liabilities. In addition, the amount and timing of stock-based compensation may also impact the Company’s current tax provision.

Changes in financial accounting standards may cause lower than expected operating results and affect our reported results of operations.

Changes in accounting standards and their application may have a significant effect on our reported results on a going-forward basis and may also affect the recording and disclosure of previously reported transactions. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred in the past and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business.

46Adverse economic conditions in the United States and globally, including the potential onset of recession, could have a negative effect on our business, results of operations, financial condition and liquidity.

Adverse macroeconomic conditions in the United States and globally, including inflation, slower than expected growth or recession, changes to fiscal and monetary policy, tightening of the credit markets, higher interest rates and currency fluctuations, could negatively impact our business, financial condition, results of operations and liquidity. These factors could negatively affect demand for our business.

Adverse economic conditions in the United States and globally have from time to time caused or exacerbated significant slowdowns in our industry and in the markets in which we operate, which have adversely affected our business and results of operations. Macroeconomic weakness and uncertainty also make it more difficult for us to accurately forecast revenue, gross margin and expenses, and may make it more difficult to refinance debt.

Furthermore, sustained uncertainty about, or worsening of, current global economic conditions, including further escalation of tensions between Russia and Western countries, as well as further escalation of trade tensions between the U.S. and China, could result in a global economic slowdown and long-term changes to global trade. Any or all of these factors could negatively affect our revenue and could materially adversely affect our business, results of operations, financial condition and growth.

Environmental, social and governance (ESG) matters may impact our business and reputation.

Governmental authorities, non-governmental organizations, customers, investors, external stakeholders and employees are increasingly sensitive to ESG concerns. This focus on ESG concerns may lead to new requirements that could result in increased costs for our business. Our ability to compete could also be affected by changing customer preferences and requirements, such as growing demand for more environmentally friendly products, supplier practices, or by failure to meet such customer expectations or demand. We risk negative shareholder reaction, including from proxy advisory services, as well as damage to our reputation, if we do not act responsibly, or if we are perceived to not be acting responsibly in key ESG areas. If we do not meet the ESG expectations of our investors, customers and other stakeholders, we could experience reduced demand for our products, loss of customers, and other negative impacts on our business and results of operations.

Significant reductions of, or delays in, funding to public schools have caused the demand and pricing for our modular classroom units to decline, which has in the past caused, and may cause in the future, a reduction in our revenues and profitability.

Rentals and sales of modular buildings to public school districts for use as classrooms, restroom buildings, and administrative offices for K-12 represent a significant portion of Mobile Modular’s rental and sales revenues. Funding for public school facilities is derived from a variety of sources including the passage of both statewide and local facility bond measures, developer fees and various taxes levied to support school operating budgets. Many of these funding sources are subject to financial and political considerations, which vary from district to district and are not tied to demand. Historically, we have benefited from the passage of statewide and local facility bond measures and believe these are essential to our business.

The state of California is our largest market for classroom rentals. The strength of this market depends heavily on public funding from voter passage of both state and local facility bond measures, and the ability of the state to sell such bonds in the public market. A lack of passage of state and local facility bond measures, or the inability to sell bonds in the public markets in the future could reduce our revenues and operating income, and consequently have a material adverse effect on the Company’s financial condition. Furthermore, even if voters have approved facility bond measures and the state has raised bond funds, there is no guarantee that individual school projects will be funded in a timely manner.

As a consequence of the most recent economic recession, many states and local governments experienced large budget deficits resulting in severe budgetary constraints among public school districts. To the extent public school districts’ funding is reduced for the

rental and purchase of modular buildings, our business could be harmed and our results of operations negatively impacted. We believe that interruptions or delays in the passage of facility bond measures or completion of state budgets, an insufficient amount of state funding, a significant reduction of funding to public schools, or changes negatively impacting enrollment may reduce the rental and sale demand for our educational products. Any reductions in funding available to the school districts from the states in which we do business may cause school districts to experience budget shortfalls and to reduce their demand for our products despite growing student populations, class size reduction initiatives and modernization and reconstruction project needs, which could reduce our revenues and operating income and consequently have a material adverse effect on the Company’s financial condition.

Public policies that create demand for our products and services may change, resulting in decreased demand for or the pricing of our products and services, which could negatively affect our revenues and operating income.

Various states that we operate enacted laws and constitutional amendments to provide funding for school districts to limit the number of students that may be grouped in a single classroom. School districts with class sizes in excess of state limits have been and continue to be a significant source of our demand for modular classrooms. In California, efforts to address aging infrastructure and deferred maintenance have resulted in modernization and reconstruction projects by public school districts including seismic retrofitting, asbestos abatement and various building repairs and upgrades, which has been another source of demand for our modular classrooms. The most recent economic recession caused state and local budget shortfalls, which reduced school districts’ funding and their ability to comply with state class size reduction requirements. If educational priorities and policies shift away from class-size reduction or modernization and reconstruction projects, demand and pricing for our products and services may decline, not grow as quickly as, or not reach the levels that we anticipate. Significant equipment returns may result in lower utilization until equipment can be redeployed or sold, which may cause rental rates to decline and negatively affect our revenues and operating income.

Failure to comply with applicable regulations could harm our business and financial condition, resulting in lower operating results and cash flows.

Similar to conventionally constructed buildings, the modular building industry, including the manufacturers and lessors of portable classrooms, are subject to regulations by multiple governmental agencies at the federal, state and local level relating to environmental, zoning, health, safety, energy efficiency, labor and transportation matters, among other matters. Failure to comply with these laws or regulations could impact our business or harm our reputation and result in higher capital or operating expenditures or the imposition of penalties or restrictions on our operations.

As with conventional construction, typically new codes and regulations are not retroactively applied. Nonetheless, new governmental regulations in these or other areas may increase our acquisition cost of new rental equipment, limit the use of or make obsolete some of our existing equipment, or increase our costs of rental operations.

Building codes are generally reviewed every three years. All aspects of a given code are subject to change including, but not limited to, such items as structural specifications for earthquake safety, energy efficiency and environmental standards, fire and life safety, transportation, lighting and noise limits.

Compliance with building codes and regulations entails a certain amount of risk as state and local government authorities do not necessarily interpret building codes and regulations in a consistent manner, particularly where applicable regulations may be unclear

and subject to interpretation. These regulations often provide broad discretion to governmental authorities that oversee these matters, which can result in unanticipated delays or increases in the cost of compliance in particular markets. The construction and modular industries have developed many “best practices” which are constantly evolving. Some of our peers and competitors may adopt practices that are more or less stringent than the Company’s. When, and if, regulatory standards are clarified, the effect of the clarification may be to impose rules on our business and practices retroactively, at which time, we may not be in compliance with such regulations and we may be required to incur costly remediation. If we are unable to pass these increased costs on to our customers, our profitability, operating cash flows and financial condition could be negatively impacted.

Expansions of our modular operations into new markets may negatively affect our operating results.

In the past we have expanded our modular operations into new geographies and states. There are risks inherent in the undertaking of such expansion, including the risk of revenue from the business in any new markets not meeting our expectations, higher than expected costs in entering these new markets, risk associated with compliance with applicable state and local laws and regulations, response by competitors and unanticipated consequences of expansion. In addition, expansion into new markets may be affected by local economic and market conditions. Expansion of our operations into new markets will require a significant amount of attention from our management, a commitment of financial resources and will require us to add qualified management in these markets, which may negatively impact our operating results.

We are subject to laws and regulations governing government contracts. These laws and regulations expose us to business volatility and risks, including government budgeting cycles and appropriations, potential early termination of contracts, procurement regulations, governmental policy shifts, audits, investigations, sanctions and penalties. Furthermore, these laws and regulations make these government contracts more favorable to government entities than other third parties and any changes in these laws and regulations, or our failure to comply with these laws and regulations could harm our business.

McGrath derives a portion of its revenues from contracts with U.S. federal government entities, government prime contractors, state entities and local entities, including school districts. Contracts with government entities are subject to budgetary constraints, and our continued performance under our contracts with these agencies and their prime contractors, or award of additional contracts from these agencies or their prime contractors, could be jeopardized by spending reductions or budget cutbacks at these agencies. Such contracts are also subject to unique laws and regulations, and the adoption of new laws or regulations relating to government contracting or changes to existing laws or regulations. New laws, regulations or procurement requirements, or changes to current ones, can significantly increase our costs and risks and reduce our profitability. In addition, any failure on the part of the company to comply with applicable government contract laws and regulations might result in administrative penalties or even in the termination or suspension of these contracts and as a result, the loss of the related revenues, which would harm our business.

Furthermore, the laws governing government contracts differ from the laws governing private contracts. For example, many government contracts contain pricing terms and conditions that are not applicable to private contracts such as clauses that allow government entities not to perform on contractual obligations in the case of a lack of fiscal funding. Also, in the educational markets we serve, we are able to utilize “piggyback” contracts in marketing our products and services and ultimately to book business. The term “piggyback” contract refers to contracts for portable classrooms or other products entered into by public school districts following a formal bid process that allows for the use of the same contract terms and conditions with the successful vendor by other public school districts. As a result, “piggyback” contracts allow us to more readily book orders from our government customers, primarily public school districts, and to reduce the administrative expense associated with booking these orders. The governmental statutes and regulations that allow for use of “piggyback” contracts are subject to change or elimination in their entirety. A change in the manner of use or the elimination of “piggyback” contracts would likely negatively impact our ability to book new business from these government customers and could cause our administrative expenses related to processing these orders to increase significantly. In addition, any failure to comply with these laws and regulations might result in administrative penalties or even in the suspension of these contracts and as a result, the loss of the related revenues which would harm our business and results from operations.

Seasonality of our educational business may have adverse consequences for our business.

A significant portion of the modular sale and rental revenues is derived from the educational market. Typically, during each calendar year, our highest numbers of classrooms are shipped for rental and sale orders during the second and third quarters for delivery and installation prior to the start of the upcoming school year. The majority of classrooms shipped in the second and third quarters have rental start dates during the third quarter, thereby making the fourth quarter the first full quarter of rental revenues recognized for these transactions. Although this is the historical seasonality of our business, it is subject to change or may not meet our expectations, which may have adverse consequences for our business.

We face strong competition in our modular building markets and we may not be able to effectively compete.

The modular building leasing industry is highly competitive in our states of operation and we expect it to remain so. The competitive market in which we operate may prevent us from raising rental fees or sales prices to pass any increased costs on to our customers. We compete on the basis of a number of factors, including equipment availability, quality, price, service, reliability, appearance, functionality and delivery terms. We may experience pricing pressures in our areas of operation in the future as some of our competitors seek to obtain market share by reducing prices.

Some of our competitors in the modular building leasing industry, notably WillScot ~~Corporation,~~Mobile Mini Holdings Corp, have a greater range of products and services, greater financial and marketing resources, larger customer bases, and greater name recognition than we have. ~~WillScot Corporation completed the acquisition of Modspace in August, 2018 and Mobile Mini in July, 2020.~~ These combined competitors may be better able to respond to changes in the relocatable modular building market, to finance acquisitions, to fund internal growth and to compete for market share, any of which could harm our business.

We may not be able to quickly redeploy modular units returning from leases, which could negatively affect our financial performance and our ability to expand, or utilize, our rental fleet.

As of ~~September 30, 2022, 63%~~March 31, 2023, 60% of our modular portfolio had equipment on rent for periods exceeding the original committed term. Generally, when a customer continues to rent the modular units beyond the contractual term, the equipment rents on a month-to-month basis. If a significant number of our rented modular units were returned during a short period of time, particularly those units that are rented on a month-to-month basis, a large supply of units would need to be remarketed. Our failure to effectively remarket a large influx of units returning from leases could negatively affect our financial performance and our ability to continue expanding our rental fleet.

In addition, if returned units stay off rent for an extended period of time, we may incur additional costs to securely store and maintain them.

Significant increases in raw material and labor costs could increase our acquisition cost of new modular rental units and repair and maintenance costs of our fleet, which would increase our operating costs and harm our profitability.

We incur labor costs and purchase raw materials, including lumber, siding and roofing and other products to perform periodic repairs, modifications and refurbishments to maintain physical conditions of our modular units. The volume, timing and mix of maintenance and repair work on our rental equipment may vary quarter-to-quarter and year-to-year. Generally, increases in labor and raw material costs will also increase the acquisition cost of new modular units and increase the repair and maintenance costs of our fleet. We also maintain a fleet of service trucks and use subcontractor companies for the delivery, set-up, return delivery and dismantle of modulars for our customers. We rely on our subcontractor service companies to meet customer demands for timely shipment and return, and the loss or inadequate number of subcontractor service companies may cause prices to increase, while negatively impacting our reputation and operating performance. During periods of rising prices for labor, raw materials or fuel, and in particular, when the prices increase rapidly or to levels significantly higher than normal, we may incur significant increases in our acquisition costs for new modular units and incur higher operating costs that we may not be able to recoup from our customers, which would reduce our profitability.

Failure by third parties to manufacture our products timely or properly may harm our reputation and financial condition.

We are dependent on third parties to manufacture our products even though we are able to purchase products from a variety of third-party suppliers. Mobile Modular purchases new modulars from various manufacturers who build to Mobile Modular’s design specifications. With the exception of Enviroplex, none of the principal suppliers are affiliated with the Company. During ~~2021,~~2022, Mobile Modular purchased ~~41%~~30% of its modular product from one manufacturer. The Company believes that the loss of any of its primary manufacturers of modulars could have an adverse effect on its operations since Mobile Modular could experience higher prices and longer delivery lead times for modular product until other manufacturers were able to increase their production capacity.

Failure to properly design, manufacture, repair and maintain the modular product may result in impairment charges, potential litigation and reduction of our operating results and cash flows.

We estimate the useful life of the modular product to be 18 years with a residual value of 50%. However, proper design, manufacture, repairs and maintenance of the modular product during our ownership is required for the product to reach the estimated useful life of 18 years with a residual value of 50%. If we do not appropriately manage the design, manufacture, repair and maintenance of our modular product, or otherwise delay or defer such repair or maintenance, we may be required to incur impairment charges for equipment that is beyond economic repair costs or incur significant capital expenditures to acquire new modular product to serve demand. In addition, such failures may result in personal injury or property damage claims, including claims based on presence of mold, and termination of leases or contracts by customers. Costs of contract performance, potential litigation, and profits lost from termination could accordingly reduce our future operating results and cash flows.

Our warranty costs may increase and warranty claims could damage our reputation and negatively impact our revenues and operating income.

Sales of new relocatable modular buildings not manufactured by us are typically covered by warranties provided by the manufacturer of the products sold. We provide ninety-day warranties on certain modular sales of used rental units and one-year warranties on equipment manufactured by our Enviroplex subsidiary. Historically, our warranty costs have not been significant, and we monitor the quality of our products closely. If a defect were to arise in the installation of our equipment at the customer’s facilities or in the equipment acquired from our suppliers or by our Enviroplex subsidiary, we may experience increased warranty claims. Such claims could disrupt our sales operations, damage our reputation and require costly repairs or other remedies, negatively impacting revenues and operating income.

Market risk and cyclical downturns in the industries using test equipment may result in periods of low demand for our product resulting in excess inventory, impairment charges and reduction of our operating results and cash flows.

TRS-RenTelco’s revenues are derived from the rental and sale of general purpose and communications test equipment to a broad range of companies, from Fortune 500 to middle and smaller market companies, in the aerospace, defense, communications, manufacturing and semiconductor industries. Electronic test equipment rental and sales revenues are primarily affected by the business activity within these industries related to research and development, manufacturing, and communication infrastructure installation and maintenance. Historically, these industries have been cyclical and have experienced periodic downturns, which can have a material

adverse impact on the industry’s demand for equipment, including our rental electronic test equipment. In addition, the severity and length of any downturn in an industry may also affect overall access to capital, which could adversely affect our customers and result in excess inventory and impairment charges. During periods of reduced and declining demand for test equipment, we are exposed to additional receivable risk from non-payment and may need to rapidly align our cost structure with prevailing market conditions, which may negatively impact our operating results and cash flows.

Seasonality of our electronic test equipment business may impact quarterly results.

Generally, rental activity declines in the fourth quarter month of December and the first quarter months of January and February. These months may have lower rental activity due to holiday closures, particularly by larger companies, inclement weather and its impact on various field related communications equipment rentals, and companies’ operational recovery from holiday closures which may impact the start-up of new projects coming online in the first quarter. These seasonal factors historically have impacted quarterly results in each year’s first and fourth quarter, but we are unable to predict how such factors may impact future periods.

Our rental test equipment may become obsolete or may no longer be supported by a manufacturer, which could result in an impairment charge.

Electronic test equipment is characterized by changing technology and evolving industry standards that may render our existing equipment obsolete through new product introductions, or enhancements, before the end of its anticipated useful life, causing us to incur impairment charges. We must anticipate and keep pace with the introduction of new hardware, software and networking technologies and acquire equipment that will be marketable to our current and prospective customers.

Additionally, some manufacturers of our equipment may be acquired or cease to exist, resulting in a future lack of support for equipment purchased from those manufacturers. This could result in the remaining useful life becoming shorter, causing us to incur an impairment charge. We monitor our manufacturers’ capacity to support their products and the introduction of new technologies, and we acquire equipment that will be marketable to our current and prospective customers. However, any prolonged economic downturn could result in unexpected bankruptcies or reduced support from our manufacturers. Failure to properly select, manage and respond to the technological needs of our customers and changes to our products through their technology life cycle may cause certain electronic test equipment to become obsolete, resulting in impairment charges, which may negatively impact operating results and cash flows.

If we do not effectively compete in the rental equipment market, our operating results will be materially and adversely affected.

The electronic test equipment rental business is characterized by intense competition from several competitors, including Electro Rent Corporation, Continental Resources and TestEquity, some of which may have access to greater financial and other resources than we do. Although no single competitor holds a dominant market share, we face competition from these established entities and new entrants in the market. We believe that we anticipate and keep pace with the introduction of new products and acquire equipment that will be marketable to our current and prospective customers. We compete on the basis of a number of factors, including product availability, price, service and reliability. Some of our competitors may offer similar equipment for lease, rental or sale at lower prices and may offer more extensive servicing, or financing options. Failure to adequately forecast the adoption of, and demand for, new or

existing products may cause us not to meet our customers’ equipment requirements and may materially and adversely affect our operating results.

If we are not able to obtain equipment at favorable rates, there could be a material adverse effect on our operating results and reputation.

The majority of our rental equipment portfolio is comprised of general purpose test and measurement instruments purchased from leading manufacturers such as Keysight Technologies, Rhode & Schwarz and Tektronix, a division of Fortive Corporation. We depend on purchasing equipment from these manufacturers and suppliers for use as our rental equipment. If, in the future, we are not able to purchase necessary equipment from one or more of these suppliers on favorable terms, we may not be able to meet our customers’ demands in a timely manner or for a rental rate that generates a profit. If this should occur, we may not be able to secure necessary equipment from an alternative source on acceptable terms and our business and reputation may be materially and adversely affected.

If we are not able to anticipate and mitigate the risks associated with operating internationally, there could be a material adverse effect on our operating results.

Currently, total foreign country customers and operations account for less than 10% of the Company’s revenues. In recent years some of our customers have expanded their international operations faster than domestic operations, and this trend may continue. Over

time, the amount of our international business may increase if we focus on international market opportunities. Operating in foreign countries subjects the Company to additional risks, any of which may adversely impact our future operating results, including:

Unfavorable currency exchange rates may negatively impact our financial results in U.S. dollar terms.

We receive revenues in Canadian dollars from our business activities in Canada. Conducting business in currencies other than U.S. dollars subjects us to fluctuations in currency exchange rates. If the currency exchange rates change unfavorably, the value of net receivables we receive in foreign currencies and later convert to U.S. dollars after the unfavorable change would be diminished. This could have a negative impact on our reported operating results. We currently do not engage in hedging strategies to mitigate this risk.

~~SPECIFIC RISKS RELATED TO OUR LIQUID AND SOLID CONTAINMENT TANKS AND BOXES BUSINESS SEGMENT:~~

We may be brought into tort or environmental litigation or held responsible for cleanup of spills if the customer fails to perform, or an accident occurs in the use of our rental products, which could materially adversely affect our business, future operating results or financial position.

Our rental tanks and boxes are used by our customers to store non-hazardous and certain hazardous liquids and solids on the customer’s site. Our customers are generally responsible for proper operation of our tank and box rental equipment while on rent and returning a cleaned and undamaged container upon completion of use, but exceptions may be granted and we cannot always assure that these responsibilities are fully met in all cases. Although we require the customer to carry commercial general liability insurance in a minimum amount of $5,000,000, such policies often contain pollution exclusions and other exceptions. Furthermore, we cannot be certain our liability insurance will always be sufficient. In addition, if an accident were to occur involving our rental equipment or a

~~spill of substances were to occur when the tank or box was in transport or on rent with our customer, a claim could be made against us as owner of the rental equipment.~~

In the event of a spill or accident, we may be brought into a lawsuit or enforcement action by either our customer or a third party on numerous potential grounds, including an allegation that an inherent flaw in a tank or box contributed to an accident or that the tank had suffered some undiscovered harm from a previous customer’s prior use. In the event of a spill caused by our customers, we may be held responsible for cleanup under environmental laws and regulations concerning obligations of suppliers of rental products to effect remediation. In addition, applicable environmental laws and regulations may impose liability on us for the conduct of third parties, or for actions that complied with applicable regulations when taken, regardless of negligence or fault. Substantial damage awards have also been made in certain jurisdictions against lessors of industrial equipment based upon claims of personal injury, property damage, and resource damage caused by the use of various products. While we take what we believe are reasonable precautions that our rental equipment is in good and safe condition prior to rental and carry insurance to protect against certain risks of loss or accidents, such liability could adversely impact our profitability.

The liquid and solid containment rental industry is highly competitive, and competitive pressures could lead to a decrease in our market share or in rental rates and our ability to rent, or sell, equipment at favorable prices, which could adversely affect our operating results.

The liquid and solid containment rental industry is highly competitive. We compete against national, regional and local companies, including United Rentals, Rain For Rent and Kinderhook Industries (which recently acquired WillScot Corporation's Tank and Pump business), all of which may be larger than we are, may offer a wider range of products and services and may have greater financial and marketing resources than we have. Some of our competitors also have longer operating histories, lower cost basis of rental equipment and lower cost structures than we have. In addition, certain of our competitors are more geographically diverse than we are and have greater name recognition among customers than we do. As a result, our competitors that have these advantages may be better able to attract customers and provide their products and services at lower rental rates. Some competitors offer different approaches to liquid storage, such as large-volume modular tanks that may have better economics and compete with conventional frac tanks in certain oil and gas field applications. We may in the future encounter increased competition in the markets that we serve from existing competitors or from new market entrants. Industry consolidation may create additional competition for customers and provide the combined entity access to greater financial resources than we have.

We believe that equipment quality, service levels, rental rates and fleet size are key competitive factors in the liquid and solid containment rental industry. From time to time, we or our competitors may attempt to compete aggressively by lowering rental rates or prices. Competitive pressures could adversely affect our revenues and operating results by decreasing our market share or depressing rental rates. To the extent we lower rental rates or increase our fleet in order to retain or increase market share, our operating margins would be adversely impacted. In addition, we may not be able to match a larger competitor’s price reductions or fleet investment because of its greater financial resources, all of which could adversely impact our operating results through a combination of a decrease in our market share, revenues and operating income.

Market risk, commodity price volatility, regulatory changes or interruptions and cyclical downturns in the industries using tanks and boxes may result in periods of low demand for our products resulting in excess inventory, impairment charges and reduction of our operating results and cash flows.

Adler Tanks’ revenues are derived from the rental of tanks and boxes to companies involved in oil and gas exploration, extraction and refinement, environmental remediation and wastewater/groundwater treatment, infrastructure and building construction and various industrial services, among others. We expect tank and box rental revenues will primarily be affected by the business activity within these industries. Historically, these industries have been cyclical and have experienced periodic downturns, which have a material adverse impact on the industry’s demand for equipment, including the tanks and boxes rented by us. Lower oil or gas prices may have an adverse effect on our liquid and solid containment tanks and boxes business. Any steep decline in both domestic and international oil and gas prices driven by materially higher supply levels and weak demand could have a significant negative impact on the industry’s demand for equipment, especially if such market conditions continue for an extended period of time. If the price reduction causes customers to limit or stop exploration, extraction or refinement activities, resulting in lower demand and pricing for renting Adler Tank’s products, our financial results could be adversely impacted. Also, a weak U.S. economy may negatively impact infrastructure construction and industrial activity. Any of these factors may result in excess inventory or impairment charges and reduce our operating results and cash flows.

~~Changes in regulatory, or governmental, oversight of hydraulic fracturing could materially adversely affect the demand for our rental products and reduce our operating results and cash flows.~~

We believe that demand related to hydraulic fracturing has impacted the total rental revenues and market size in recent years. Oil and gas exploration and extraction (including use of tanks for hydraulic fracturing to obtain shale oil and shale gas) are subject to

numerous local, state and federal regulations. In the nine months ended September 30, 2022, oil and gas exploration and production accounted for approximately 6% of Adler Tanks’ rental revenues, and approximately 1% of the Company’s total revenues. The hydraulic fracturing method of extraction has come under scrutiny in several states and by the Federal government due to the potential adverse effects that hydraulic fracturing, and the liquids and chemicals used, may have on water quality and public health. In addition, the disposal of wastewater from the hydraulic fracturing process into injection wells may increase the rate of seismic activity near drill sites and could result in regulatory changes, delays or interruption of future activity. Changes in these regulations could limit, interrupt, or stop exploration and extraction activities, which would negatively impact the demand for our rental products. Finally, it is possible that changes in the technology utilized in hydraulic fracturing could make it less dependent on liquids and therefore lower the related requirements for the use of our rental products, which would reduce our operating results and cash flows.

~~Seasonality of the liquid and solid containment rental industry may impact quarterly results.~~

Rental activity may decline in the fourth quarter month of December and the first quarter months of January and February. These months may have lower rental activity in parts of the country where inclement weather may delay, or suspend, a company’s project. The impact of these delays may be to decrease the number of tanks, or boxes, on rent until companies are able to resume their projects when weather improves. These seasonal factors historically have impacted quarterly results in each year’s first and fourth quarter, but we are unable to predict how such factors may impact future periods.

~~Significant increases in raw material, fuel and labor costs could increase our acquisition and operating costs of rental equipment, which would increase operating costs and decrease profitability.~~

Increases in raw material costs such as steel and labor to manufacture liquid and solid containment tanks and boxes would increase the cost of acquiring new equipment. These price increases could materially and adversely impact our financial condition and results of operations if we are not able to recoup these increases through higher rental revenues. In addition, a significant amount of revenues are generated from the transport of rental equipment to and from customers. We own delivery trucks, employ drivers and utilize subcontractors to provide these services. The price of fuel can be unpredictable and beyond our control. During periods of rising fuel and labor costs, and in particular when prices increase rapidly, we may not be able recoup these costs from our customers, which would reduce our profitability.

We derive a meaningful amount of our revenue in our liquid and solid containment tank and boxes business from a limited number of customers, the loss of one or more of which could have an adverse effect on our business.

Periodically, a meaningful portion of our revenue in our liquid and solid containment tank and boxes business may be generated from a few major customers. Although we have some long-term relationships with our major customers, we cannot be assured that our customers will continue to use our products or services or that they will continue to do so at historical levels. The loss of any meaningful customer, the failure to collect a material receivable from a meaningful customer, any material reduction in orders by a meaningful customer or the cancellation of a meaningful customer order could significantly reduce our revenues and consequently harm our financial condition and our ability to fund our operations.

~~We may not be able to quickly redeploy equipment returning from leases at equivalent prices.~~

Many of our rental transactions are short-term in nature with pricing established on a daily basis. The length of time that a customer needs equipment can often be difficult to determine and can be impacted by a number of factors such as weather, customer funding and project delays. In addition, our equipment is primarily used in the oil and gas, industrial plant services, environmental remediation and infrastructure and building construction industries. Changes in the economic conditions facing any of those industries could result in a significant number of units returning off rent, both for us and our competitors.

If the supply of rental equipment available on the market significantly increases due to units coming off rent, demand for and pricing of our rental products could be adversely impacted. We may experience delays in remarketing our off-rent units to new customers and incur cost to move the units to other regions where demand is stronger. Actions in these circumstances by our competitors may also depress the market price for rental units. These delays and price pressures would adversely affect equipment utilization levels and total revenues, which would reduce our profitability.

Adverse economic conditions in the United States and globally, including the potential onset of recession, could have a negative effect on our business, results of operations, financial condition and liquidity.

~~negatively impact our business, financial condition, results of operations and liquidity. These factors could negatively affect demand for our business.~~

~~Environmental, social and governance (ESG) matters may impact our business and reputation.~~

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.


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	MGRC	NASDAQ Global Select Market


(dollar amounts in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,						Twelve Months Ended September 30,
	2022			2021			2022			2021			2022			2021
Adjusted EBITDA 1	$	74,720		$	65,963		$	197,730		$	173,612		$	270,690		$	238,953
Interest paid		(3,161	)		(2,490	)		(8,982	)		(6,477	)		(12,831	)		(8,698	)
Income taxes paid, net of refunds received		(7,807	)		(1,084	)		(24,885	)		(8,074	)		(25,898	)		(18,273	)
Gain on sale of used rental equipment		(10,612	)		(5,918	)		(26,705	)		(17,788	)		(34,358	)		(23,007	)
Foreign currency exchange loss (gain)		236			128			404			185			429			(82	)
Amortization of debt issuance costs		4			5			13			11			17			14
Change in certain assets and liabilities:
Accounts receivable, net		(22,630	)		(27,922	)		(30,460	)		(33,278	)		(21,128	)		(27,161	)
Prepaid expenses and other assets		(6,458	)		(2,024	)		(17,313	)		(11,409	)		(12,720	)		(6,288	)
Accounts payable and other liabilities		12,399			(1,023	)		10,097			19,377			6,201			22,248
Deferred income		14,564			12,670			33,399			20,128			22,353			7,548
Net cash provided by operating activities	$	51,255		$	38,305		$	133,298		$	136,287		$	192,755		$	185,254


(dollar amounts in thousands)	Three Months Ended March 31,						Twelve Months Ended March 31,
	2023			2022			2023			2022
Adjusted EBITDA 1	$	65,432		$	56,719		$	297,579		$	256,210
Interest paid		(7,817	)		(2,137	)		(20,455	)		(10,838	)
Income taxes paid, net of refunds received		(413	)		(420	)		(27,355	)		(9,135	)
Gain on sale of used rental equipment		(3,089	)		(5,364	)		(35,704	)		(26,011	)
Foreign currency exchange (gain) loss		(226	)		(13	)		165			142
Amortization of debt issuance costs		2			4			14			16
Change in certain assets and liabilities:
Accounts receivable, net		16,953			7,935			(21,506	)		(17,119	)
Prepaid expenses and other assets		(7,345	)		4,213			(28,042	)		(2,509	)
Accounts payable and other liabilities		(31,004	)		(14,417	)		(7,992	)		9,404
Deferred income		3,218			5,223			21,696			9,718
Net cash provided by operating activities	$	35,711		$	51,743		$	178,400		$	209,878



~~4.1~~	Amended and Restated Credit Agreement, dated as of July 15, 2022, among the Company, Bank of America, N.A. as Administrative Agent, Swing Line Lender and L/C Issuer, and the other lenders party thereto (filed as Exhibit 10.1 to Registrant’s Current Report on 8-K filed on July 19, 2022, and incorporated herein by reference).

~~4.2~~	Amended and Restated Guaranty, dated as of July 15, 2022, among certain domestic subsidiaries of the Company in favor of Bank of America, N.A., in its capacity as the Administrative Agent (filed as Exhibit 10.2 to Registrant’s Current Report on 8-K filed on July 19, 2022, and incorporated herein by reference).

~~4.3~~	~~Amended and Restated Credit Facility Letter Agreement, dated as of August 19, 2022, between the Company and MUFG Union Bank, N.A.~~

~~4.4~~	~~Amended and Restated Credit Line Note, dated as of August 19, 2022, in favor of MUFG Union Bank, N.A.~~

15.1	Awareness Letter From Grant Thornton LLP.

31.1	Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer pursuant to Title 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Chief Financial Officer pursuant to Title 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101	The following materials from McGrath RentCorp’s Quarterly report on Form 10-Q for the quarter ended ~~September 30, 2022,~~March 31, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Statement of Income, (ii) the Condensed Consolidated Balance Sheet, (iii) the Condensed Consolidated Statement of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.

104	Cover Page Interactive Data File (embedded within the Inline XBRL document).


Date: ~~October 27, 2022~~May 4, 2023	McGrath RentCorp

	By:	/s/ Keith E. Pratt
		Keith E. Pratt
		Executive Vice President and Chief Financial Officer

	By:	/s/ David M. Whitney
		David M. Whitney
		Vice President, Controller and Principal Accounting Officer


(dollar amounts in thousands)
Rental equipment	$	116,272
Intangible assets:
Goodwill		101,874
Customer relationships		37,900
Non-compete		2,500
Customer backlog		1,600
Accounts receivable		12,025
Property, plant and equipment		4,139
Prepaid expenses and other assets		5,366
Accounts payable and accrued liabilities		(11,613	)
Deferred income		(2,784	)
Total purchase price	$	267,279


(dollar amounts in thousands)
Rental equipment	$	12,853
Intangible assets:
Goodwill		2,322
Customer relationships		1,700
Trade name		1,200
Non-compete		600
Customer backlog		300
Accounts receivable		212
Property, plant and equipment		365
Prepaid expenses and other assets		1,199
Accounts payable and accrued liabilities		(1,659	)
Deferred income		(747	)
Total purchase price	$	18,345

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company