SEC Filing | Investor Relations | WillScot Mobile Mini Holdings Corp.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

CURRENT REPORT

 

 

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): August 10, 2020

 

 

 

WILLSCOT MOBILE MINI HOLDINGS CORP.

(Exact name of registrant as specified in its charter)

 

Delaware 001-37552 82-3430194
(State or other jurisdiction of incorporation) (Commission File Number) (I.R.S. Employer Identification No.)

 

4646 E Van Buren St., Suite 400

Phoenix, AZ 85008

(Address, including zip code, of principal executive offices)

 

(480) 894-6311

(Registrant’s telephone number, including area code)

 

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨Pre commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

  

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.0001 per share WSC The Nasdaq Capital Market
Warrants to purchase common stock(1) WSCWW OTC Markets Group Inc.
Warrants to purchase common stock(2) WSCTW OTC Markets Group Inc.

  

(1) Issued in connection with the initial public offering of Double Eagle Acquisition Corp., the registrant’s legal predecessor company, in September 2015, which are exercisable for one-half of one share of the registrant’s common stock for an exercise price of $5.75.

(2) Issued in connection with the registrant’s acquisition of Modular Space Holdings, Inc. in August 2018, which are exercisable for one share of the registrant’s common stock at an exercise price of $15.50 per share.

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

 

Item 8.01Other Events.

 

As previously disclosed, on March 1, 2020, WillScot Corporation, a Delaware corporation (“WillScot”), Mobile Mini, Inc., a Delaware corporation (“Mobile Mini”), and Picasso Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of WillScot (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which, subject to the satisfaction of certain customary closing conditions, Merger Sub would be merged with and into Mobile Mini, with Mobile Mini surviving as a wholly-owned subsidiary of WillScot (the “Merger”). The closing of the Merger was completed on July 1, 2020, upon which Merger Sub merged with and into Mobile Mini and the separate corporate existence of Merger Sub ceased and Mobile Mini continued its existence as the surviving corporation in the Merger and a wholly-owned subsidiary of WillScot. Immediately following the Merger, on July 1, 2020, WillScot changed its name to WillScot Mobile Mini Holdings Corp. (the “Company”).

 

This Current Report on Form 8-K is being filed to provide certain historical financial statements of Mobile Mini and certain pro forma financial information giving effect to the Merger, as set forth under Item 9.01 below, which are incorporated herein by reference, so that such financial information is incorporated by reference into the Company’s resale registration statements on Form S-3 filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended.

 

Included in this filing are (1) the historical consolidated financial statements of Mobile Mini filed hereto as Exhibit 99.1, (2) Mobile Mini management’s discussion and analysis of its financial condition and results of operations, filed hereto as Exhibit 99.2 and (3) the pro forma financial information described in Item 9.01(b) below, giving effect to the Merger, filed hereto as Exhibit 99.3.

 

Item 9.01Financial Statements and Exhibits.

 

(a) Financial Statements of Businesses Acquired

 

The following unaudited (except as noted below) historical financial information of Mobile Mini is filed as Exhibit 99.1 hereto and is incorporated herein by reference.

 

·Unaudited Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 (audited);

 

·Unaudited Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2020 and June 30, 2019

 

·Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2020 and June 30, 2019

 

·Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and June 30, 2019

 

·Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and June 30, 2019

 

·Unaudited Notes to the Condensed Consolidated Financial Statements

 

(b) Pro Forma Financial Information

 

The following unaudited pro forma financial information, giving effect to the Merger, is filed as Exhibit 99.3 hereto and is incorporated herein by reference.

 

·Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2020;

 

·Unaudited Pro Forma Condensed Combined Statement of Operations for the twelve months ended December 31, 2019;

 

·Unaudited Pro Forma Condensed Combined Statement of Operations for the six months ended June 30, 2019;

 

·Unaudited Pro Forma Condensed Combined Statement of Operations for the six months ended June 30, 2020; and

 

·Notes to the Unaudited Pro Forma Condensed Combined Financial Information.

 

 

 

(d) Exhibits

 

Exhibit No.   Exhibit Description
     
99.1   Historical Unaudited Condensed Combined Financial Statements of Mobile Mini, as of June 30, 2020 and December 31, 2019, and for the three and six months ended June 30, 2020 and June 30, 2019.
     
99.2   Management’s Discussion and Analysis of Financial Condition and Results of Operations.
     
99.3   Unaudited Pro Forma Condensed Combined Financial Information.
     
104   Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

  

    WillScot Mobile Mini Holdings Corp.
     
Dated: August 10, 2020 By: /s/ Christopher J. Miner
     
    Name: Christopher J. Miner
     
    Title: Senior Vice President, General Counsel & Secretary

 

 

 

Exhibit 99.1 

 

Mobile Mini, Inc.

 

Financial Statements

 

June 30, 2020

 

 

 

 

MOBILE MINI, INC.

Financial Statements

June 30, 2020

 

    PAGE
     
Condensed Consolidated Balance Sheets June 30, 2020 (unaudited) and December 31, 2019   2
     
Condensed Consolidated Statements of Income (unaudited) for the Three and Six Months Ended June 30, 2020 and June 30, 2019   3
     
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months Ended June 30, 2020 and June 30, 2019   4
     
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and Six Months Ended June 30, 2020 and June 30, 2019   5
     
Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2020 and June 30, 2019   6
     
Notes to Condensed Consolidated Financial Statements (unaudited)   8

 

1

 

 

MOBILE MINI, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value data)

 

  

June 30,
2020

  

December 31,
2019

 
   (unaudited)   (audited) 
ASSETS          
Cash and cash equivalents  $17,170   $8,053 
Receivables, net of allowance for doubtful accounts of $6,549 and $4,622 at June 30, 2020 and December 31, 2019, respectively   92,465    104,390 
Inventories   9,034    9,517 
Rental fleet, net   958,155    966,223 
Property, plant and equipment, net   152,367    157,183 
Operating lease assets   91,807    93,116 
Other assets   16,979    13,806 
Intangibles, net   49,088    51,185 
Goodwill   710,013    713,404 
Total assets  $2,097,078   $2,116,877 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Liabilities:          
Accounts payable  $32,416   $31,554 
Accrued liabilities   62,874    77,069 
Operating lease liabilities   93,814    94,932 
Lines of credit   563,202    555,400 
Obligations under finance leases   76,697    74,399 
Senior notes, net of deferred financing costs of $2,554 and $2,873 at June 30, 2020 and December 31, 2019, respectively   247,446    247,127 
Deferred income taxes   203,596    195,034 
Total liabilities   1,280,045    1,275,515 
Commitments and contingencies          
Stockholders' equity:          
Preferred stock $.01 par value, 20,000 shares authorized, none issued        
Common stock $.01 par value, 95,000 shares authorized, 50,665 issued and 44,414 outstanding at June 30, 2020 and 50,381 issued and 44,152 outstanding at December 31, 2019   507    504 
Additional paid-in capital   644,915    638,083 
Retained earnings   430,665    445,285 
Accumulated other comprehensive loss   (80,737)   (65,093)
Treasury stock, at cost, 6,251 and 6,229 shares at June 30, 2020 and December 31, 2019, respectively   (178,317)   (177,417)
Total stockholders' equity   817,033    841,362 
Total liabilities and stockholders' equity  $2,097,078   $2,116,877 

 

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

 

2

 

 

MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2020   2019   2020   2019 
Revenues:                    
Rental  $124,461   $141,906   $265,117   $284,078 
Sales   7,551    8,135    15,867    15,358 
Other   79    140    147    406 
Total revenues   132,091    150,181    281,131    299,842 
Costs and expenses:                    
Rental, selling and general expenses   78,922    95,735    181,180    187,969 
Cost of sales   4,706    5,044    9,808    9,646 
Depreciation and amortization   17,563    18,135    35,055    35,470 
Total costs and expenses   101,191    118,914    226,043    233,085 
Income from operations   30,900    31,267    55,088    66,757 
Other income (expense):                    
Interest income   12        24     
Interest expense   (7,717)   (10,592)   (16,974)   (21,352)
Deferred financing costs write-off               (123)
Foreign currency exchange   (36)   (167)   (39)   (166)
Income before income tax provision   23,159    20,508    38,099    45,116 
Income tax provision   5,917    6,450    12,556    12,973 
Net income  $17,242   $14,058   $25,543   $32,143 
Earnings per share:                    
Basic  $0.39   $0.32   $0.58   $0.72 
Diluted   0.39    0.31    0.58    0.72 
Weighted average number of common and common share equivalents outstanding:                    
Basic   43,971    44,496    43,922    44,472 
Diluted   44,069    44,750    44,227    44,814 
Cash dividends declared per share  $0.61   $0.28   $0.91   $0.55 

 

3

 

 

MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2020   2019   2020   2019 
Net income  $17,242   $14,058   $25,543   $32,143 
Foreign currency translation adjustment   (1,259)   (5,236)   (15,644)   (131)
Comprehensive income  $15,983   $8,822   $9,899   $32,012 

 

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

 

4

 

  

MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

    For the Six Months Ended June 30, 2020  
                                    Accumulated                          
                    Additional             Other                     Total  
    Common Stock     Paid-In     Retained     Comprehensive     Treasury Stock     Stockholders'  
    Shares     Amount     Capital     Earnings     Loss     Shares     Amount     Equity  
Balance at January 1, 2020     44,152     $ 504     $ 638,083     $ 445,285     $ (65,093 )     6,229     $ (177,417 )   $ 841,362  
Net income                       8,301                         8,301  
Common stock dividends declared                       (13,442 )                       (13,442 )
Other comprehensive loss                             (14,385 )                 (14,385 )
Exercise of stock options     24             752                               752  
Purchase of treasury stock     (22 )                             22       (900 )     (900 )
Restricted stock grants, net     225       2       (2 )                              
Share-based compensation                 2,682                               2,682  
Balance at March 31, 2020     44,379       506       641,515       440,144       (79,478 )     6,251       (178,317 )     824,370  
Net income                       17,242                         17,242  
Common stock dividends declared                       (26,721 )                       (26,721 )
Other comprehensive loss                             (1,259 )                 (1,259 )
Exercise of stock options     22             682                               682  
Purchase of treasury stock                                                
Restricted stock grants, net     13       1       (1 )                              
Share-based compensation                 2,719                               2,719  
Balance at June 30, 2020     44,414     $ 507     $ 644,915     $ 430,665     $ (80,737 )     6,251     $ (178,317 )   $ 817,033  

 

    For the Six Months Ended June 30, 2019  
                                    Accumulated                          
                    Additional             Other                     Total  
    Common Stock     Paid-In     Retained     Comprehensive     Treasury Stock     Stockholders'  
    Shares     Amount     Capital     Earnings     Loss     Shares     Amount     Equity  
Balance at January 1, 2019     44,690     $ 500     $ 619,850     $ 410,641     $ (72,861 )     5,296     $ (147,861 )   $ 810,269  
Net income                       18,085                         18,085  
Common stock dividends declared                       (12,339 )                       (12,339 )
Other comprehensive income                             5,105                   5,105  
Exercise of stock options     66       1       1,689                               1,690  
Purchase of treasury stock     (29 )                             29       (1,057 )     (1,057 )
Restricted stock grants, net     248       2       (2 )                              
Share-based compensation                 3,404                               3,404  
Balance at March 31, 2019     44,975       503       624,941       416,387       (67,756 )     5,325       (148,918 )     825,157  
Net income                       14,058                         14,058  
Common stock dividends declared                       (12,372 )                       (12,372 )
Other comprehensive loss                             (5,236 )                 (5,236 )
Exercise of stock options     5             114                               114  
Purchase of treasury stock     (321 )                             321       (10,006 )     (10,006 )
Restricted stock grants, net     35                                            
Share-based compensation                 6,933                               6,933  
Balance at June 30, 2019     44,694     $ 503     $ 631,988     $ 418,073     $ (72,992 )     5,646     $ (158,924 )   $ 818,648  

 

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

 

5

 

 

MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

  

Six Months Ended

June 30,

 
   2020   2019 
Cash flows from operating activities:          
Net income  $25,543   $32,143 
Adjustments to reconcile net income to net cash provided by operating activities:          
Deferred financing costs write-off       123 
Provision for doubtful accounts   3,295    2,303 
Amortization of deferred financing costs   909    940 
Amortization of long-term liabilities       13 
Share-based compensation expense   5,401    10,337 
Depreciation and amortization   35,055    35,470 
Gain on sale of rental fleet   (3,042)   (3,041)
Loss on disposal of property, plant and equipment   186    102 
Deferred income taxes   9,705    10,086 
Foreign currency exchange   39    166 
Changes in certain assets and liabilities:          
Receivables   7,787    21,236 
Inventories   351    1,344 
Other assets   (1,223)   (806)
Accounts payable   2,784    3,033 
Accrued liabilities   (14,375)   (12,897)
Net cash provided by operating activities   72,415    100,552 
Cash flows from investing activities:          
Cash paid for business acquired, net of cash acquired   (4,808)    
Additions to rental fleet, excluding acquisitions   (18,786)   (46,397)
Proceeds from sale of rental fleet   7,385    7,054 
Additions to property, plant and equipment, excluding acquisitions   (7,538)   (6,435)
Proceeds from sale of property, plant and equipment   93    133 
Net cash used in investing activities   (23,654)   (45,645)
Cash flows from financing activities:          
Net borrowings (repayments) under lines of credit   7,802    (13,395)
Deferred financing costs       (3,332)
Principal payments on finance lease obligations   (6,618)   (5,141)
Issuance of common stock   1,433    1,804 
Dividend payments   (40,212)   (24,689)
Purchase of treasury stock   (900)   (11,063)
Net cash used in financing activities   (38,495)   (55,816)
Effect of exchange rate changes on cash   (1,149)   (9)
Net increase (decrease) in cash   9,117    (918)
Cash and cash equivalents at beginning of period   8,053    5,605 
Cash and cash equivalents at end of period  $17,170   $4,687 

 

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

  

6

 

 

MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

(In thousands)

(Unaudited)

 

  

Six Months Ended

June 30,

 
   2020   2019 
Supplemental disclosure of cash flow information:        
Cash paid for interest  $16,330   $20,195 
Cash paid for income and franchise taxes   4,604    3,762 
Equipment and other acquired through finance lease obligations   8,921    6,319 
Capital expenditures accrued or payable   3,789    6,528 

 

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

 

7

 

 

 

MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

 

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

 

At June 30, 2020, we had a fleet of storage solutions units operating throughout the United States (the “U.S.”), Canada and the United Kingdom (the “U.K.”), serving a diversified customer base, including construction companies, large and small retailers, medical centers, schools, utilities, distributors, the military, hotels, restaurants, entertainment complexes and households. These customers rent our products for a wide variety of applications, including the storage of construction materials and equipment, retail and manufacturing inventory, documents and records and other goods. We also had a fleet of tank and pump solutions products, concentrated in the U.S. Gulf Coast, including liquid and solid containment units, serving a specialty sector in the industry. Our tank and pump products are rented primarily to chemical, refinery, oil and natural gas drilling, mining and environmental service customers.

 

Basis of Presentation and Consolidation

 

The consolidated financial statements include the accounts of Mobile Mini and our wholly owned subsidiaries. We do not have any subsidiaries in which we do not own 100% of the outstanding stock. All significant intercompany balances and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management of Mobile Mini, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for all periods presented have been made. The results of operations for the three and six months ended June 30, 2020 and 2019, respectively, are not necessarily indicative of the results to be expected for the full year.

 

These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”) on February 3, 2020.

 

Use of Estimates

 

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

 

Recent Developments – Merger Agreement

 

In March 2020, Mobile Mini entered into a definitive merger agreement (the “Merger Agreement”) with WillScot Corporation (“WillScot”). The Merger Agreement provides for the merger of Mobile Mini with and into a newly formed subsidiary of WillScot, with Mobile Mini surviving as a wholly owned subsidiary of WillScot (the “Merger”). The board of directors of both Mobile Mini and WillScot approved the Merger and the Merger Agreement. In June 2020, the stockholders of both Mobile Mini and WillScot voted in favor of the adoption of the Merger Agreement and the Merger closed on July 1, 2020. At the effective time of the Merger, subject to the terms and conditions set forth in the Merger Agreement, each outstanding share of the common stock of Mobile Mini was converted into the right to receive 2.4050 shares of WillScot Class A common stock. Subsequent to the Merger, Mobile Mini is no longer a stand-alone public company and is not subject to SEC filing requirements. In the Condensed Consolidated Statement of Income for the six months ended June 30, 2020, $19.9 million of merger-related expenses are included in the financial statement caption rental, selling and general expenses.

 

Recent Developments – COVID-19

 

On January 30, 2020, the World Health Organization declared an outbreak of a highly contagious form of an upper respiratory infection caused by COVID-19, a novel coronavirus strain commonly referred to as “coronavirus”. Mobile Mini was deemed an essential infrastructure business. We have continued to supply our products and services in most of the areas in which we operate; however, federal and local guidelines and restrictions have significantly curtailed the level of economic activity in affected areas, which include the areas in which we conduct our business.

 

8

 

 

MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

(2) Impact of Recently Issued Accounting Standards

 

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

 

This guidance also requires entities to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. The entity is also required to present the capitalized implementation costs in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented. This standard was effective for annual and interim periods beginning after December 15, 2019. We adopted this standard on January 1, 2020. The adoption did not have a material effect on our consolidated financial statements.

 

Intangibles – Goodwill and Other. In January 2017, the FASB issued a standard requiring an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment is measured using the difference between the carrying amount and the fair value of the reporting unit. This standard was effective for annual and interim periods beginning after December 15, 2019. We adopted this standard on January 1, 2020. The adoption did not have a material effect on our consolidated financial statements.

 

Financial Instruments – Credit Losses. In June 2016, the FASB issued guidance amending the previous guidance on impairment of financial instruments. Among other things, the new guidance requires expectations of future credit losses to be based on relevant information from past events, including historical experience, current conditions and reasonable and supportable forecasts that affect collectability. This guidance does not apply to receivables arising from direct rental revenue related to our operating leases. The guidance was effective for fiscal years and interim periods beginning after December 15, 2019. We adopted this standard utilizing a modified-retrospective approach on January 1, 2020. The adoption did not have a material effect on our consolidated financial statements.

 

(3) Fair Value Measurements

 

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

 

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

 

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

 

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

 

At June 30, 2020 and December 31, 2019, we did not have any financial instruments required to be recorded at fair value on a recurring basis.

 

9

 

 

MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

The carrying amounts of cash, cash equivalents, receivables, accounts payable and accrued liabilities approximate fair values based on their short-term nature. Based on the borrowing rates currently available to us for bank loans with similar terms and average maturities, the fair value of our revolving credit facility debt and finance leases at June 30, 2020 and December 31, 2019 approximated their respective book values.

 

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

 

   June 30,
2020
   December 31,
2019
 
   (In thousands) 
Carrying value  $250,000   $250,000 
Fair value   257,350    260,938 

 

In conjunction with the Merger, our revolving credit facility was paid in full and terminated and the Senior Notes were redeemed in July 2020.

 

(4) Revenues

 

Revenue Recognition

 

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

 

Rental revenue includes revenues associated with rental contracts with customers and may have multiple performance obligations including the direct rental of fleet to our customers, fleet delivery and pickup. Also included in rental revenues are ancillary fees including late charges and charges for damages. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using the contractually stated price as our best estimate of the standalone selling price of each distinct promise in the contract. Our prices are determined using methods and assumptions developed consistently across similar customers and markets. We perform an ongoing collectability assessment of our accounts receivables and establish specific reserves when appropriate. Activity related to specific reserves is recorded as a reduction to revenue.

 

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

 

We may use third parties to satisfy our performance obligations, including both the provision of rental units and other services. To determine whether we are the principal or agent in the arrangement, we review each third-party relationship on a contract by contract basis. We are an agent when our role is to arrange for another entity to provide the rental units and other services to the customer. In these instances, we do not control the rental unit or service before it is provided. We are the principal when we control the rental unit or service prior to transferring control to the customer. Mobile Mini may be a principal in the fulfillment of some rental units and services and an agent for other rental units and services within the same contract. We recognize revenue on a gross basis when we are the principal in the arrangement and on a net basis when we are the agent.

 

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

 

10

 

 

MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

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

 

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

 

Contract Costs and Liabilities

 

When customers are billed in advance, we defer recognition of revenue and reflect unearned rental revenue at the end of the period. As of June 30, 2020 and December 31, 2019, we had approximately $38.7 million and $41.2 million, respectively, of unearned rental revenue included in accrued liabilities in the Condensed Consolidated Balance Sheets for June 30, 2020 and December 31, 2019. We expect to perform the remaining performance obligations and recognize the unearned rental revenue within the next twelve months.

 

Disaggregated Rental Revenue

 

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

 

   For the Three Months Ended June 30, 2020 
   Storage Solutions         
   North
America
   United
Kingdom
   Total   Tank &
Pump
Solutions
   Consolidated 
   (In thousands) 
Direct rental revenue  $66,968   $12,349   $79,317   $15,015   $94,332 
Delivery, pickup and similar revenue   16,428    2,698    19,126    6,525    25,651 
Ancillary rental revenue   2,929    905    3,834    644    4,478 
Total rental revenues  $86,325   $15,952   $102,277   $22,184   $124,461 

 

   For the Three Months Ended June 30, 2019 
   Storage Solutions         
   North
America
   United
Kingdom
   Total   Tank &
Pump
Solutions
   Consolidated 
   (In thousands) 
Direct rental revenue  $68,026   $13,292   $81,318   $21,273   $102,591 
Delivery, pickup and similar revenue   20,361    4,372    24,733    9,480    34,213 
Ancillary rental revenue   3,069    1,265    4,334    768    5,102 
Total rental revenues  $91,456   $18,929   $110,385   $31,521   $141,906 

 

   For the Six Months Ended June 30, 2020 
   Storage Solutions         
   North
America
   United
Kingdom
   Total   Tank &
Pump
Solutions
   Consolidated 
   (In thousands) 
Direct rental revenue  $138,356   $25,168   $163,524   $32,653   $196,177 
Delivery, pickup and similar revenue   38,252    7,079    45,331    14,246    59,577 
Ancillary rental revenue   6,186    1,980    8,166    1,197    9,363 
Total rental revenues  $182,794   $34,227   $217,021   $48,096   $265,117 

 

11

 

 

MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

   For the Six Months Ended June 30, 2019 
   Storage Solutions         
   North
America
   United
Kingdom
   Total   Tank &
Pump
Solutions
   Consolidated 
   (In thousands) 
Direct rental revenue  $136,501   $26,572   $163,073   $41,382   $204,455 
Delivery, pickup and similar revenue   42,150    9,048    51,198    18,074    69,272 
Ancillary rental revenue   6,321    2,518    8,839    1,512    10,351 
Total rental revenues  $184,972   $38,138   $223,110   $60,968   $284,078 

 

(5) Earnings Per Share

 

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

 

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

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2020   2019   2020   2019 
   (In thousands, except per share data) 
Numerator:                    
Net income  $17,242   $14,058   $25,543   $32,143 
Denominator:                    
Weighted average shares outstanding - basic   43,971    44,496    43,922    44,472 
Dilutive effect of share-based awards   98    254    305    342 
Weighted average shares outstanding - diluted   44,069    44,750    44,227    44,814 
Earnings per share:                    
Basic  $0.39   $0.32   $0.58   $0.72 
Diluted   0.39    0.31    0.58    0.72 

 

The following table represents the effect of stock options and restricted share awards that were issued or outstanding but excluded in calculating diluted EPS because their effect would have been anti-dilutive for the period indicated, or the underlying performance criteria had not yet been met:

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2020   2019   2020   2019 
   (In thousands) 
Stock options   1,827    1,540    849    1,523 
Restricted share awards   224    111    134    1 
Total   2,051    1,651    983    1,524 

 

12

 

 

MOBILE MINI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

(6) Acquisition

 

During the six months ended June 30, 2020, we completed one acquisition of a portable storage business which further strengthened our business in Dallas, Texas. The accompanying condensed consolidated financial statements include the operations of the acquired business from the date of acquisition. The aggregate purchase price for the assets acquired were preliminarily allocated based on their estimated fair values at the date of the acquisition. We have not disclosed the pro-forma impact of the acquisition on operations as it was immaterial to our financial position or results of operations in aggregate.

 

The components of the purchase price and net assets acquired during the six months ended June 30, 2020 are as follows (in thousands):

 

Net Assets Acquired     
Rental fleet  $3,265 
Intangible assets:     
Customer relationships   950 
Non-compete agreements   50 
Goodwill   570 
Other assets   66 
Liabilities   (93)
Total purchase price  $4,808 

 

(7) Inventories

Inventories at June 30, 2020 and December 31, 2019 consisted of the following:

 

  

June 30,

2020

  

December 31,

2019

 
   (In thousands) 
Raw materials and supplies  $7,433   $6,957 
Finished units   1,601    2,560 
Inventories  $9,034   $9,517 

 

(8) Rental Fleet

 

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

 

We periodically review depreciable lives and residual values against various factors, including the results of our lenders’ independent appraisal of our rental fleet, practices of our competitors in comparable industries and profit margins achieved on sales of depreciated units. Appraisals on our rental fleet are required by our lenders on a regular basis. The appraisal typically reports no difference in the value of the unit due to the age or length of time it has been in our fleet. Based in part upon our lender’s third-party appraiser who evaluated our fleet as of August 31, 2019, management estimates that the net orderly liquidation appraisal value as of June 30, 2020 was approximately $1.0 billion.  

 

Depreciation expense related to our rental fleet for the six months ended June 30, 2020 and 2019 was $15.4 million and $15.9 million, respectively. At June 30, 2020, all rental fleet units were pledged as collateral under our Second Amended and Restated ABL Credit Agreement dated as of March 22, 2019 (the “Credit Agreement”) with Deutsche Bank AG New York Branch (“Deutsche Bank”), as administrative agent, and the other lenders party thereto.

 

13

 

 

MOBILE MINI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

Rental fleet consisted of the following at June 30, 2020 and December 31, 2019:

 

  

Residual Value

as Percentage of

Original Cost (1)

  

Estimated

Useful Life

in Years

  

June 30,

2020

  

December 31,

2019

 
           (In thousands) 
Storage Solutions:                    
Steel storage containers   55%   30   $623,474   $627,230 
Steel ground level offices   55    30    370,926    366,630 
Other             6,137    6,565 
Total             1,000,537    1,000,425 
Accumulated depreciation             (172,348)   (166,565)
Total Storage Solutions fleet, net            $828,189   $833,860 
Tank & Pump Solutions:                    
Steel tanks        25   $81,395   $82,015 
Roll-off boxes        15 - 20    34,975    35,398 
Stainless steel tank trailers        25    31,166    29,716 
Vacuum boxes        20    17,193    16,775 
Dewatering boxes        20    10,353    9,486 
Pumps and filtration equipment        7    14,775    14,343 
Other             9,855    9,776 
Total             199,712    197,509 
Accumulated depreciation             (69,746)   (65,146)
Total Tank & Pump Solutions fleet, net            $129,966   $132,363 
Total rental fleet, net            $958,155   $966,223 

 

 

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

 

(9) Property, Plant and Equipment

 

Property, plant and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is recorded using the straight-line method over the assets’ estimated useful lives. Our depreciation expense related to property, plant and equipment for the six months ended June 30, 2020 and 2019 was $16.6 million and $16.3 million, respectively. Normal repairs and maintenance to property, plant and equipment are expensed as incurred. When property or equipment is retired or sold, the net book value of the asset, reduced by any proceeds, is charged to gain or loss on the disposal of property, plant and equipment and is included in rental, selling and general expenses in the Condensed Consolidated Statements of Income.

 

Property, plant and equipment at June 30, 2020 and December 31, 2019 consisted of the following:

 

   

Residual Value

as Percentage of

Original Cost

 

Estimated

Useful Life

in Years

 

June 30,

2020

   

December 31,

2019

 
            (In thousands)  
Land           $ 1,624     $ 1,653  
Vehicles and machinery      0 - 55%   5 - 30     179,507       174,191  
Buildings and improvements (1)   0 - 25   3 - 30     32,861       33,137  
Computer equipment and software   0   3 - 10     81,108       76,587  
Furniture and office equipment   0   3 - 10     4,971       5,354  
Property, plant and equipment             300,071       290,922  
Accumulated depreciation             (147,704 )     (133,739 )
Property, plant and equipment, net           $ 152,367     $ 157,183  

 

 

 

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

 

14

 

 

MOBILE MINI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

  

(10) Goodwill and Intangibles

 

For acquired businesses, we record assets acquired and liabilities assumed at their estimated fair values on the respective acquisition dates. Based on these values, the excess purchase prices over the fair value of the net assets acquired is recorded as goodwill. Of the $710.0 million total goodwill at June 30, 2020, $475.0 million related to the North America Storage Solutions segment, $53.8 million related to the U.K. Storage Solutions segment and $181.2 million related to the Tank & Pump Solutions segment.

 

The following table shows the activity and balances related to goodwill from January 1, 2020 to June 30, 2020 (in thousands): 

 

Balance at January 1, 2020  $713,404 
Acquisition   570 
Foreign currency   (3,961)
Balance at June 30, 2020  $710,013 

 

Intangible assets are amortized over the estimated useful life of the asset utilizing a method which reflects the estimated pattern in which the economic benefits will be consumed. Customer relationships are amortized based on the estimated attrition rates of the underlying customer base. Other intangibles are amortized using the straight-line method. When the intangible reaches the end of its life and no longer has value to the Company, the gross carrying amount and the related accumulated amortization are removed from our balance sheet.

 

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

 

       June 30, 2020   December 31, 2019 
  

Estimated

Useful Life

in Years

  

Gross

Carrying

Amount

  

Accumulated

Amortization

  

Net

Carrying

Amount

  

Gross

Carrying

Amount

  

Accumulated

Amortization

  

Net

Carrying

Amount

 
       (In thousands) 
Customer relationships   15 - 20   $95,239   $(47,227)  $48,012   $94,808   $(44,846)  $49,962 
Trade names/trademarks   5 - 7    2,300    (1,429)   871    5,200    (4,164)   1,036 
Non-compete agreements   5    337    (155)   182    1,810    (1,648)   162 
Other   20    59    (36)   23    60    (35)   25 
Total       $97,935   $(48,847)  $49,088   $101,878   $(50,693)  $51,185 

 

Amortization expense for amortizable intangibles was approximately $3.1 million and $3.2 million for the six-month periods ended June 30, 2020 and 2019, respectively. Based on the carrying value at June 30, 2020, future amortization of intangible assets is expected to be as follows for the years ended December 31 (in thousands): 

 

2020 (remaining)  $3,120 
2021   5,626 
2022   5,163 
2023   4,491 
2024   4,105 
Thereafter   26,583 
Total  $49,088 

 

(11) Debt

 

Lines of Credit

 

On March 22, 2019, Mobile Mini and certain of its subsidiaries entered into the Second Amended and Restated ABL Credit Agreement dated as of March 22, 2019 (the “Credit Agreement”) with Deutsche Bank AG New York Branch (“Deutsche Bank”), as administrative agent, and the other lenders party thereto. In conjunction with the Merger, the Credit Agreement was repaid in full and terminated in July 2020.

 

15

 

 

MOBILE MINI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

The Credit Agreement provided for a $1 billion first lien senior secured revolving credit facility, which was for borrowing in U.S. Dollars (the “U.S. Subfacility”), in British Pounds and Euros (the “U.K. Subfacility”), and in Canadian Dollars (the “Canadian Subfacility”). The U.S. Subfacility was subject to, among other things, the terms of a borrowing base calculated as a discount to the value of certain pledged U.S. collateral; the U.K. Subfacility was subject to a similar borrowing base that included certain pledged U.K. collateral; and the Canadian Subfacility was subject to a similar borrowing base that included certain pledged Canadian collateral. Under the terms of the Credit Agreement, certain real property required an appraisal before the value could be considered in the borrowing base of the respective subfacilities. All three borrowing bases were subject to certain reserves and caps customary for financings of this type. The Credit Agreement had an accordion feature that permitted, under certain conditions, an increase of up to $500 million of additional commitments. If at any time the aggregate amounts outstanding under the subfacilities exceeded the respective borrowing base then in effect, a prepayment of an amount sufficient to eliminate such excess was required to be made. Mobile Mini had the right to prepay loans under the Credit Agreement in whole or in part at any time. All amounts borrowed under the Credit Agreement were required to be repaid on or before March 22, 2024. The Credit Agreement also provided for the issuance of irrevocable standby letters of credit by U.S. lenders in amounts totaling up to $50 million, by U.K.-based lenders in amounts totaling up to $20 million and by Canadian-based lenders in amounts totaling up to $20 million.

 

Loans made under the (i) U.S. Subfacility bore interest at a rate equal to, at Mobile Mini’s option, either (a) the London interbank offered rate (“LIBOR”) plus an applicable margin (“LIBOR Loans”) or (b) the prime rate plus an applicable margin (“Base Rate Loans”); (ii) U.K. Subfacility denominated in British Pounds bore interest at LIBOR plus an applicable margin and loans denominated in Euros bore interest at the Euro interbank offered rate plus an applicable margin; and (iii) Canadian Subfacility bore interest at a rate equal to, at Mobile Mini’s option, either (a) the Canadian prime rate plus an applicable margin or (b) the Canadian Dollar bankers’ acceptance rate plus an applicable margin. As of June 30, 2020, the applicable margins were 1.50% for LIBOR Loans and 0.50% for Base Rate Loans. Mobile Mini was also required to pay an unused line fee in respect of the unutilized commitments under the Credit Agreement at a fee rate of 0.225% per annum, as well as customary letter of credit fees.

 

Ongoing extensions of credit under the Credit Agreement were subject to customary conditions, including sufficient availability under the respective borrowing base. The Credit Agreement also contained various financial and nonfinancial covenants which required Mobile Mini to, among other things, comply with a minimum fixed charge coverage ratio of 1.00 to 1.00 as of the last day of each quarter, upon specified excess availability under the Credit Agreement falling below the greater of (y) $90 million and (z) 10% of the lesser of the then total revolving loan commitment and aggregate borrowing base. As of June 30, 2020, we were in compliance with the minimum borrowing availability threshold set forth in the Credit Agreement and therefore, were not subject to any financial maintenance covenants.

 

The U.S. Subfacility was guaranteed by Mobile Mini and certain of its domestic subsidiaries. The U.K. Subfacility and the Canadian Subfacility were guaranteed by Mobile Mini and certain of its domestic and foreign subsidiaries. The U.S. Subfacility was secured by a first priority lien on substantially all assets of Mobile Mini and the guarantors of such subfacility. The U.K. and Canadian Subfacilities were secured by a first priority lien on substantially all of the assets of the borrowers and the guarantors of such subfacilities.

 

The Credit Agreement also included other covenants, representations, warranties, indemnities, and events of default that are customary for facilities of this type, including events of default relating to a change of control of Mobile Mini.

 

Senior Notes

 

We had outstanding $250.0 million aggregate principal amount of 2024 Notes issued at their face value on May 9, 2016. In July 2020, the notes were redeemed in conjunction with the Merger. The 2024 Notes bore interest at a rate of 5.875% per year and would have matured on July 1, 2024. Interest on the 2024 Notes was payable semiannually in arrears on January 1 and July 1. The 2024 Notes were senior unsecured obligations of the Company and were unconditionally guaranteed on a senior unsecured basis by certain of our existing and future domestic subsidiaries.

 

Obligations Under Finance Leases

 

At June 30, 2020 and December 31, 2019, obligations under finance leases for certain real property and transportation related equipment were $76.7 million and $74.4 million, respectively. See additional information in Note 12.

 

16

 

 

 

 

MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

Future Debt Obligations

 

The scheduled maturity for debt obligations for balances outstanding at June 30, 2020 are as follows:

 

   Lines of
Credit
   Senior
Notes
   Finance Lease
Obligations
   Total 
   (In thousands) 
2020 (remaining)  $   $   $8,111   $8,111 
2021           14,743    14,743 
2022           13,745    13,745 
2023           12,365    12,365 
2024   563,202    250,000    8,797    821,999 
Thereafter           18,936    18,936 
Total  $563,202   $250,000   $76,697   $889,899 

 

In conjunction with the Merger, the Credit Agreement was paid in full and terminated and the Senior Notes were redeemed in July 2020.

 

(12) Leases

 

Real Estate

 

We lease our corporate and administrative offices in Phoenix, Arizona and our U.K. headquarters in Stockton-on-Tees. We also lease field locations throughout the U.S. and the U.K., as well as two in Canada. Many real estate leases include one or more options to renew. The exercise of lease renewal options is generally at our discretion and we assess the initial lease term based on the term that we are reasonably certain to occupy the leased property. None of our real estate leases contain residual value guarantees or purchase options. The majority of our real estate leases are operating leases.

 

Equipment Leases

 

Mobile Mini also engages in leases related to ancillary equipment to support our field operations; such as, forklifts, trucks, service vehicles and automobiles. These leases often include an option to purchase the equipment at the end of the lease and are generally finance leases. In addition, we have leases for certain office equipment.

 

Lease Assets and Liabilities

 

For leases with an initial term greater than twelve months, we recognize a lease asset and liability at commencement date. Lease assets are initially measured at cost, which includes the initial amount of the lease liability, plus any initial direct costs incurred, less lease incentives received. In our Condensed Consolidated Balance Sheets, finance lease assets are included in property, plant and equipment. For operating leases, the liability is initially and subsequently measured as the present value of the unpaid lease payments. For finance lease liabilities, the lease liability is also initially measured as the present value of the unpaid lease payments and is subsequently measured at amortized cost using the effective interest method. We are required to use estimates and judgments in the determination of our lease liabilities.

 

(13) Income Taxes

 

We are subject to taxation in the U.S. federal jurisdiction, as well as various U.S. state and foreign jurisdictions. We have identified our U.S. federal tax return as our “major” tax jurisdiction. As of June 30, 2020, we are no longer subject to examination by U.S. federal tax authorities for years prior to 2016, to examination for any U.S. state taxing authority prior to 2014, or to examination for any foreign jurisdictions prior to 2015. All subsequent periods remain open to examination.

 

Our effective income tax rate increased to 33.0% for the six months ended June 30, 2020, compared to 28.8% for the prior-year period. The increase in the effective tax rate was primarily due to non-deductible costs incurred associated with the Merger partially offset by a favorable settlement of uncertain tax positions. The prior-year tax rate was affected by the tax impact of non-deductible stock compensation recorded.

 

Uncertain tax positions are recognized and measured using a two-step approach. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation process, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

 

17

 

 

MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows:

 

   2020 
   (In thousands) 
Beginning balance  $515 
Reductions due to settled positions related to prior years   (493)
Ending balance  $22 

 

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

 

(14) Share-Based Compensation

 

We have historically awarded stock options and restricted stock awards for employees and non-employee directors as a means of attracting and retaining quality personnel and to align employee performance with stockholder value. Share-based compensation plans are approved by our stockholders and administered by the stock compensation committee of the Company’s Board of Directors (the “Board”). Prior to the Merger, the plan allowed for a variety of equity programs designed to provide flexibility in implementing equity and cash awards, including incentive stock options, nonqualified stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance stock, performance units and other stock-based awards. Participants may be granted any one of the equity awards or any combination. We did not award stock options with an exercise price below the market price of the underlying securities on the date of grant. As of June 30, 2020, 0.8 million shares were available for future grants, assuming performance-based awards vest at their target amount. Generally, stock options had contractual terms of ten years.

 

All unvested share-based awards outstanding on June 30, were vested upon execution of the merger in July 2020 and exchanged for WillScot shares adjusted to reflect the exchange ratio of 2.4050. Outstanding options for Company shares were exchanged for WillScot options in July 2020 with the amount of options and exercise price adjusted to reflect the exchange ratio.

 

Service-based awards. We granted share-based compensation awards that vested over time subject to the employee rendering service over the vesting period. The majority of the service–based awards vested in equal annual installments over a period of three to four years. The expense for service-based awards was expensed ratably over the full service period of the grant.

 

Performance-based awards. All performance-based awards granted from 2017 through 2020 vested contingently over a three-year period assuming a target number of options or restricted share awards. However, the terms of these awards provided that the number of options or restricted share awards that ultimately vested could vary between 50% and 200% of the target amount or could be zero. The targets were set at the time of grant. For awards granted from 2017 through 2020, performance conditions were related to the Company’s return on capital employed.

 

Expense related to performance-based awards that have multiple vesting dates was recognized using the accelerated attribution approach, whereby each vesting tranche was treated as a separate award for purposes of determining the implicit service period. The accelerated attribution approach generally resulted in a higher expense during the earlier years of vesting. Expense related to performance-based awards was recognized based upon anticipated attainment. All share-based compensation was included in rental, selling and general expenses for the six months ended June 30, 2020 and 2019.

 

During the three months ended June 30, 2019, Mobile Mini amended the terms of certain share-based compensation agreements with our then Chief Executive Officer in conjunction with his planned retirement as an employee of the Company and assumption of the position of Chairman of the Board for Mobile Mini as of October 1, 2019. The amended agreements provided that his service period under such agreements be extended to include his status as a Director. In connection with these modifications, we recorded additional share-based compensation during the quarter of $3.6 million.

 

As of June 30, 2020, the Company did not have any unvested stock options. As of June 30, 2020, the unrecognized compensation cost related to restricted stock awards assuming achievement at target was approximately $9.8 million, which would have been expected to be recognized over a weighted-average period of approximately 1.6 years.

 

18

 

 

MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

Stock Options. No new stock option grants were made in the six months ended June 30, 2020 and there are no unvested stock options as of June 30, 2020.

 

The following table summarizes stock option activity for the six months ended June 30, 2020:

 

   Total Options   Weighted
Average
Exercise
Price
 
   (In thousands)     
Options outstanding, beginning of period   3,010   $32.53 
Additional options awarded based upon achievement of specified performance criteria   106    32.43 
Canceled/Expired   (11)   43.10 
Exercised   (46)   31.01 
Options outstanding, end of period   3,059    32.51 

 

Due to actual performance exceeding targets, shares granted in 2017 that contingently vested based upon 2019 performance criteria vested above target at 200% resulting in additional awards.

 

A summary of stock options outstanding as of June 30, 2020 is as follows:

 

   Number of
Shares
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Terms
   Aggregate
Intrinsic
Value
 
   (In thousands)       (In years)   (In thousands) 
Outstanding and Exercisable   3,059   $32.51    3.83   $2,089 

 

The aggregate intrinsic value of options exercised during the six months ended June 30, 2020 was approximately $0.4 million.

 

Restricted Stock Awards. The fair value of restricted stock awards was estimated as the closing price of our common stock on the date of grant. A summary of restricted stock award activity for the six months ended June 30, 2020 is as follows:

 

   Number of Shares     
   Performance-
Based
Awards
   Service-Based
Awards
   Total Awards   Weighted
Average
Grant Date
Fair Value
 
   (In thousands)     
Restricted stock awards at beginning of period   172    259    431   $36.06 
Awarded   91    125    216    37.89 
Additional shares awarded based upon achievement of specified performance criteria   52        52    40.53 
Released   (119)   (133)   (252)   34.99 
Forfeited   (7)   (23)   (30)   35.65 
Restricted stock awards at end of period   189    228    417    37.92 
Unvested target stock awards that vest based upon 2020 performance conditions   94                
Unvested target stock awards that vest based upon 2021 performance conditions   66                
Unvested target stock awards that vest based upon 2022 performance conditions   29                

 

 

Due to actual performance exceeding targets, shares granted in 2019 and 2018 that contingently vested based upon 2019 performance criteria vested above target at 163% and 200%, respectively, resulting in additional share awards.

 

19

 

 

MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

The restricted stock awards that vested during the six months ended June 30, 2020 had an aggregate grant date fair value of $8.8 million and an aggregate vesting date fair value of $9.9 million.

 

(15) Commitments and Contingencies

 

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

 

(16) Stockholders’ Equity

 

Dividends

 

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

 

Declaration Date   Payment Date  

Record Date
(close of business)

 

Dividend Amount Per Share
of Common Stock

 
January 27, 2020   March 11, 2020   February 26, 2020   $ 0.303  
April 29, 2020   May 27, 2020   May 13, 2020   $ 0.303  
June 10, 2020   June 30, 2020   June 20, 2020   $ 0.303  

 

Treasury Stock

 

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

 

During the six months ended June 30, 2020, we did not purchase shares of our common stock under the authorized share repurchase. Approximately $42.4 million is available for repurchase as of June 30, 2020. We withheld approximately 22,000 shares of stock from employees, for an approximate value of $0.9 million, upon vesting of share awards to satisfy tax withholding obligations during the six months ended June 30, 2020.

 

(17) Segment Reporting

 

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

 

We operate in the U.S., the U.K. and Canada. All of our locations operate in their local currency. Although we are exposed to foreign exchange rate fluctuation in foreign markets where we rent and sell our products, we do not believe such exposure will have a significant impact on our results of operations. Revenues recognized by our U.S. locations were $114.1 million and $128.4 million for the three months ended June 30, 2020 and 2019, respectively, and were $242.1 million and $256.4 million for the six months ended June 30, 2020 and 2019, respectively.

 

20

 

 

MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

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

 

   For the Three Months Ended June 30, 2020 
   Storage Solutions         
   North
America
   United
Kingdom
   Total   Tank &
Pump
Solutions
   Consolidated 
   (In thousands) 
Revenues:                         
Rental  $86,325   $15,952   $102,277   $22,184   $124,461 
Sales   4,838    1,202    6,040    1,511    7,551 
Other   53        53    26    79 
Total revenues   91,216    17,154    108,370    23,721    132,091 
Costs and expenses:                         
Rental, selling and general expenses   53,785    9,484    63,269    15,653    78,922 
Cost of sales   2,958    892    3,850    856    4,706 
Depreciation and amortization   9,521    1,677    11,198    6,365    17,563 
Total costs and expenses   66,264    12,053    78,317    22,874    101,191 
Income from operations  $24,952   $5,101   $30,053   $847   $30,900 
Interest expense, net of interest income  $4,927   $102   $5,029   $2,676   $7,705 
Income tax provision (benefit)   5,435    877    6,312    (395)   5,917 
Capital expenditures for additions to rental fleet, excluding acquisitions   7,272    522    7,794    941    8,735 

 

   For the Three Months Ended June 30, 2019 
   Storage Solutions         
   North
America
   United
Kingdom
   Total   Tank &
Pump
Solutions
   Consolidated 
   (In thousands) 
Revenues:                         
Rental  $91,456   $18,929   $110,385   $31,521   $141,906 
Sales   4,781    1,990    6,771    1,364    8,135 
Other   62    1    63    77    140 
Total revenues   96,299    20,920    117,219    32,962    150,181 
Costs and expenses:                         
Rental, selling and general expenses   61,937    13,120    75,057    20,678    95,735 
Cost of sales   2,778    1,492    4,270    774    5,044 
Depreciation and amortization   9,122    1,816    10,938    7,197    18,135 
Total costs and expenses   73,837    16,428    90,265    28,649    118,914 
Income from operations  $22,462   $4,492   $26,954   $4,313   $31,267 
Interest expense, net of interest income  $7,782   $127   $7,909   $2,683   $10,592 
Income tax provision   5,128    828    5,956    494    6,450 
Capital expenditures for additions to rental fleet, excluding acquisitions   16,166    1,190    17,356    6,025    23,381 

 

21

 

 

MOBILE MINI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

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

 

   For the Six Months Ended June 30, 2020
   Storage Solutions           
   North
America
   United
Kingdom
   Total   Tank &
Pump
Solutions
   Consolidated 
    (In thousands) 
Revenues:                         
Rental  $182,794   $34,227   $217,021   $48,096   $265,117 
Sales   10,122    3,124    13,246    2,621    15,867 
Other   92        92    55    147 
Total revenues   193,008    37,351    230,359    50,772    281,131 
Costs and expenses:                         
Rental, selling and general expenses   125,073    21,879    146,952    34,228    181,180 
Cost of sales   6,019    2,369    8,388    1,420    9,808 
Depreciation and amortization   18,826    3,447    22,273    12,782    35,055 
Total costs and expenses   149,918    27,695    177,613    48,430    226,043 
Income from operations  $43,090   $9,656   $52,746   $2,342   $55,088 
Interest expense, net of interest income  $11,389   $209   $11,598   $5,352   $16,950 
Income tax provision (benefit)   11,686    1,652    13,338    (782)   12,556 
Capital expenditures for additions to rental fleet, excluding acquisitions   12,472    859    13,331    5,455    18,786 

 

 

  For the Six Months Ended June 30, 2019  
  Storage Solutions              
  North
America
     United
Kingdom
       Total    Tank &
Pump
Solutions
 Consolidated 
   (In thousands)
Revenues:                               
Rental $184,972     $38,138       $223,110    $ 60,968  $ 284,078
Sales  8,807      3,741        12,548      2,810    15,358
Other  287      1        288      118    406
Total revenues  194,066      41,880        235,946      63,896    299,842
Costs and expenses:                              
Rental, selling and general expenses  120,893      26,790        147,683      40,286    187,969
Cost of sales  5,191      2,895        8,086      1,560    9,646
Depreciation and amortization  18,111      3,550        21,661      13,809    35,470
Total costs and expenses  144,195      33,235        177,430      55,655    233,085
Income from operations $49,871     $8,645       $58,516    $ 8,241  $ 66,757
Interest expense, net of interest income $15,712     $262       $15,974    $ 5,378  $ 21,352
Income tax provision  10,523      1,592        12,115      858    12,973
Capital expenditures for additions to rental fleet, excluding acquisitions  28,007      2,111        30,118      16,279    46,397

 

 

22

 

 

MOBILE MINI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

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

 

  Storage Solutions         
 

North America United
Kingdom
 

Total

 Tank &
Pump
Solutions
 Consolidated 
     (In thousands)  
As of June 30, 2020:                         
Goodwill   $474,980    $53,817    $528,797    $181,216    $710,013 
Intangibles, net   2,951    196    3,147    45,941    49,088 
Rental fleet, net   694,750    133,439    828,189    129,966    958,155 
As of December 31, 2019:                         
Goodwill   $474,622    $57,566    $532,188    $181,216    $713,404 
Intangibles, net   2,518    256    2,774    48,411    51,185 
Rental fleet, net   689,424    144,436    833,860    132,363    966,223 

 

Included in the table above are assets in the U.S. of $1.5 billion as of both June 30, 2020 and December 31, 2019.

 

(18) Subsequent Events

 

Execution of Merger Agreement

 

On July 1, 2020, Mobile Mini and WillScot Corporation (“WillScot”) executed the Merger Agreement entered into in March 2020. The Merger Agreement provides for the merger of Mobile Mini with and into a newly formed subsidiary of WillScot, with Mobile Mini surviving as a wholly owned subsidiary of WillScot (the “Merger”). At the effective time of the Merger, subject to the terms and conditions set forth in the Merger Agreement, each outstanding share of the common stock of Mobile Mini was converted into the right to receive 2.4050 shares of WillScot Class A common stock.

 

Among other things, in July 2020 in conjunction with the Merger:

 

·Our Credit Agreement was repaid in full and discontinued

 

·Our Senior Notes were redeemed

 

·All unvested share-based awards were vested, with performance-based awards vesting at the target amount

 

23

 

 

 

Exhibit 99.2

 

Mobile Mini, Inc.

 

Management’s Discussion and Analysis

 

June 30, 2020

 

   

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and the accompanying notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC. This discussion contains forward-looking statements. Forward-looking statements are based on current expectations and assumptions that involve risks and uncertainties. Our actual results may differ materially from those anticipated in our forward-looking statements. The tables and information in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section were derived from exact numbers and may have immaterial rounding differences.

 

Overview

 

Executive Summary

 

We believe we are the world’s leading provider of portable storage solutions, maintaining a strong leadership position in virtually all markets served. Our mission is to be the leader in portable storage solutions to customers throughout North America and the U.K. and tank and pump solutions in the U.S. We are committed to providing our customers with superior service and access to a high-quality and diverse fleet. In managing our business, we focus on renting rather than selling our units, with rental revenues representing approximately 94% of our total revenues for the six months ended June 30, 2020. We believe this strategy is highly attractive and provides predictable, recurring revenue. Additionally, our assets have long useful lives and relatively low maintenance costs. We also sell new and used units and provide delivery, and other ancillary products and value-added services.

 

We operate our portable storage business in North America as “Mobile Mini Storage Solutions” and our tank and pump business as “Mobile Mini Tank + Pump Solutions”. As of June 30, 2020, our network of locations included 117 Storage Solutions locations, 20 Tank & Pump Solutions locations and 18 combined locations. Our Storage Solutions fleet consisted of approximately 200,000 units and our Tank & Pump Solutions fleet consisted of approximately 12,500 units. During the first six months of 2020, we completed the acquisition of a portable storage business which further strengthened our business in Dallas, Texas.

 

Merger. In March 2020, Mobile Mini entered into a definitive merger agreement (the “Merger Agreement”) with WillScot Corporation (“WillScot”). The Merger Agreement provides for the merger of Mobile Mini with and into a newly formed subsidiary of WillScot, with Mobile Mini surviving as a wholly owned subsidiary of WillScot (the “Merger”). The board of directors of both Mobile Mini and WillScot approved the Merger and the Merger Agreement. In June 2020 the stockholders of both Mobile Mini and WillScot voted in favor of the adoption of the Merger Agreement and the Merger was executed on July 1, 2020. At the effective time of the Merger, subject to the terms and conditions set forth in the Merger Agreement, each outstanding share of the common stock of Mobile Mini was converted into the right to receive 2.4050 shares of WillScot Class A common stock.

 

Business Environment and Outlook, including COVID-19 Considerations. On January 30, 2020 the World Health Organization declared an outbreak of a highly contagious form of an upper respiratory infection caused by COVID-19, a novel coronavirus strain commonly referred to as “coronavirus”. In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread, including in the markets in which we operate. The COVID-19 outbreak has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses; "shelter in place" and other governmental regulations; and reduced consumer spending due to both job losses and other effects attributable to COVID-19. Mobile Mini was been deemed an essential infrastructure business. We have continued to supply our products and services. Our business is subject to the general health of the economy and federal and local guidelines and restrictions have significantly curtailed the level of economic activity in affected areas, which include the areas in which we conduct our business. While our business was minimally impacted in the first quarter 2020, the curtailment did affect our second quarter as discussed below and further under the Results of Operations Section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

As an essential business during this pandemic our operations have not been significantly disrupted by the effects of the pandemic and we expect to be able to continue to meet demand. We have implemented work from home policies for many of our employees and introduced practices for our drivers and yard workers to protect their safety and health. We have an adequate near-term supply of parts and supplies to maintain our fleet and do not anticipate any material supply gaps. Further, we anticipate that our significant business partners will continue to provide the services and materials, including software-related services, necessary to manage and operate our business.

 

Our pipeline of new orders has decreased since the outbreak of COVID-19. While our level of deactivations has also decreased compared to the prior year, we anticipate the decreased demand for new rentals will result in continued lower year-over-year rental revenues across the Company for the near-term, most notably in delivery, pickup and similar revenue, which comprised 23% of our rental revenues for the twelve months ended June 30, 2020.

 

 1 

 

 

Our customer end markets are experiencing varying degrees of impact related to COVID-19. Entering 2020, non-residential construction projects for local and national account customers were healthy. Units on rent for projects that were in progress prior to the pandemic, largely remain on rent. However, some projects that were scheduled for commencement for the remainder of 2020 have been delayed and some may be cancelled. Similarly, within our retail end market, projects in progress have continued, however, certain national customers have temporarily postponed remodels. The duration of postponements is uncertain.

 

In the Tank & Pump Solutions business, industrial softening in the second half of 2019 was exacerbated in the first half of 2020 by an oversupply of oil leading to lower oil prices and reduced average refinery capacity utilization. Further, the effects of COVID-19 have resulted in decreased demand for oil resulting in decreased demand for our products from certain of our customers in this business segment. When supply and demand dynamics normalize, we are well positioned to respond to increased demand.

 

As of June 30, 2020, units on rent were down compared to June 30, 2019 by 4.8% for North America Storage Solutions and 3.4% for U.K. Storage Solutions. In Tank & Pump Solutions owned equipment on rent, using original cost, was down 18.2% as of June 30, 2020, compared to June 30, 2019. We do expect stabilization of units on rent in the near term.

 

To mitigate the effect of decreased year-over-year near-term revenues on our profitability, we have reduced variable costs and overhead where appropriate, including minimizing use of third-party vendors and reducing our workforce. Depending on future levels of demand, management will further enact contingency plans to minimize the impact of reduced revenue on adjusted EBITDA. Consistent with our demand-driven business model we have curtailed capital expenditures and expect to continue to generate healthy levels of free cash flow.

 

Mobile Mini’s leverage ratio at June 30, 2020 was near our lowest leverage ratio since September 30, 2014 and as of June 30, 2020 we believe we had ample liquidity to meet foreseeable needs. Access to our line of credit through June 30, 2020 was not affected by recent events and we had $433 million of available borrowings with no significant debt maturities until 2024. We had also elected to suspend both small acquisitions and share repurchases in the near-term.

 

Approximately 69% of our consolidated rental revenue during the twelve-month period ended June 30, 2020 was derived from our North America Storage Solutions business, 13% was derived from our U.K. Storage Solutions business and 18% was derived from the Tank & Pump Solutions business. Based on rental revenue for the twelve months ended June 30, 2020, the construction industry represents approximately 36% of our consolidated rental revenue, industrial and commercial customers comprise approximately 26% of our rental revenue and generally operate in industries such as: large processing plants for organic and inorganic chemicals, refineries, distributors and trucking and utility companies. Retail and consumer service customers comprise approximately 23% of our rental revenue and include department, drug, grocery and strip mall stores as well as hotels, restaurants, service stations and dry cleaners. Upstream oil and gas customers comprise less than 2% of our rental revenue and include companies performing such activities as exploratory well drilling, operation of producing wells and bringing crude oil and/or raw natural gas to the surface using alternative methods.

 

On January 31, 2020 the U.K. ceased to be a member of the European Union (the “E.U.”) (commonly known as “Brexit”), on terms set out in a withdrawal agreement concluded and ratified by the E.U. and U.K. (“Withdrawal Agreement”). The Withdrawal Agreement provides for a transition period until December 31, 2020 (“Transition Period”), during which time the U.K. will continue to be treated as a member of the E.U., in effect, for legal and regulatory purposes. The U.K. and E.U. continue to negotiate the terms of a future trading relationship to come into effect at the end of the Transition Period. The terms of any future trade deal between the U.K. and the E.U. remain highly uncertain and the chances of the U.K. and E.U. failing to reach agreement before the end of the Transition Period cannot be ruled out. In tandem with its negotiations with the E.U., the U.K. is commencing future trade deal negotiations with other key countries, including the U.S. As the future trade deal terms and their impact become clear, we may adjust our U.K. strategy and operations accordingly.

 

 2 

 

 

Accounting and Operating Overview

 

Our principal operating revenues and expenses are:

 

Revenues:

 

·Rental revenues include all rent and ancillary revenues we receive for our rental fleet.
   
·Sales revenues consist primarily of sales of new and used fleet and, to a lesser extent, parts and supplies sold to customers.

 

Costs and expenses:

 

·Rental, selling and general expenses include, among other expenses, payroll and payroll-related costs (including share-based compensation and commissions for our sales team), fleet transportation and fuel costs, repair and maintenance costs for our rental fleet and transportation equipment, real estate lease expense, insurance costs, and general corporate expenses.
   
·Cost of sales is the net book value of the units that were sold during the reported period and includes both our cost to buy, transport, remanufacture and modify used containers and our cost to manufacture Storage Solutions units and other structures.
   
·Depreciation and amortization includes depreciation on our rental fleet, our property, plant and equipment, and amortization of definite-lived intangible assets.

 

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

 

The table below outlines the composition of our Storage Solutions rental fleet at June 30, 2020: 

 

   Rental Fleet  

Number of

Units

  

Percentage of

Gross Fleet

in Dollars

   Percentage of Units 
   (In thousands)                
Steel storage containers  $623,474    170,195    62%   85%
Steel ground level offices   370,926    29,205    37    15 
Other   6,137    627    1     
Storage Solutions rental fleet   1,000,537    200,027    100%   100%
Accumulated depreciation   (172,348)               
Storage Solutions rental fleet, net  $828,189                

 

 3 

 

 

The table below outlines the composition of our Tank & Pump Solutions rental fleet at June 30, 2020:

 

   Rental Fleet  

Number of

Units

  

Percentage of

Gross Fleet

in Dollars

  

Percentage of

Units

 
   (In thousands)                
Steel tanks  $81,395    3,158    41%   25%
Roll-off boxes   34,975    5,514    18    44 
Stainless steel tank trailers   31,166    645    15    5 
Vacuum boxes   17,193    1,538    9    12 
Dewatering boxes   10,353    922    5    8 
Pumps and filtration equipment   14,775    717    7    6 
Other   9,855    n/a    5      
Tank & Pump Solutions rental fleet   199,712    12,494    100%   100%
Accumulated depreciation   (69,746)               
Tank & Pump Solutions rental fleet, net  $129,966                

 

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

 

 4 

 

 

Non-GAAP Data and Reconciliations

 

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

 

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

 

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

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2020   2019   2020   2019 
   (In thousands, except percentages) 
Net income  $17,242   $14,058   $25,543   $32,143 
Interest expense   7,717    10,592    16,974    21,352 
Income tax provision   5,917    6,450    12,556    12,973 
Depreciation and amortization   17,563    18,135    35,055    35,470 
Deferred financing costs write-off               123 
EBITDA   48,439    49,235    90,128    102,061 
Share-based compensation expense (1)   3,155    3,340    5,837    6,744 
Chief Executive Officer transition (2)       3,593        3,593 
Merger and acquisition related expenses (3)   4,385    739    19,890    739 
Other (4)   303        303     
Adjusted EBITDA  $56,282   $56,907   $116,158   $113,137 
EBITDA margin   36.7%   32.8%   32.1%   34.0%
Adjusted EBITDA margin   42.6    37.9    41.3    37.7 

 

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

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2020   2019   2020   2019 
   (In thousands) 
Net cash provided by operating activities  $39,192   $61,769   $72,415   $100,552 
Interest paid   3,722    5,919    16,330    20,195 
Income and franchise taxes paid   2,691    1,742    4,604    3,762 
Share-based compensation expense (1)(2)(4)   (2,719)   (6,933)   (5,401)   (10,337)
Gain on sale of rental fleet   1,598    1,616    3,042    3,041 
Loss on disposal of property, plant and equipment   (160)   (84)   (186)   (102)
Change in certain assets and liabilities, net of effect of businesses acquired:                    
Receivables   (6,762)   (6,147)   (11,082)   (23,539)
Inventories   (505)   (1,268)   (351)   (1,344)
Other assets   2,604    (588)   1,223    806 
Accounts payable and accrued liabilities   8,778    (6,791)   9,534    9,027 
EBITDA  $48,439   $49,235   $90,128   $102,061 

 

 

(1)Share-based compensation represents non-cash compensation expense associated with the granting of equity instruments. See additional information in Note 14 “Share-Based Compensation” to the accompanying condensed consolidated financial statements.

 

 5 

 

 

(2)Non-cash expense related to the amendment of certain share-based compensation agreements with our Chief Executive Officer who retired as an employee of the Company and assumed the position of Chairman of the Board for Mobile Mini. For more information see Note 14 “Share-Based Compensation”.

 

(3)For the three and six months ended June 30, 2020, this amount represents incremental costs related to our merger with WillScot. See additional information in Note 1 “Mobile Mini, Inc. - Organization and Description of Business” to the accompanying condensed consolidated financial statements. For the three and six months ended June 30, 2019, this amount represents costs associated with potential acquisitions.

 

(4)Other expenses in the three and six months ended June 30, 2020 relate primarily to a realignment of personnel and business structure, including cash severance partially offset by the reversal of expense for non-vested share-based compensation.

 

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

 

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

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2020   2019   2020   2019 
   (In thousands)   (In thousands) 
Net cash provided by operating activities  $39,192   $61,769   $72,415   $100,552 
Additions to rental fleet, excluding acquisitions   (8,735)   (23,381)   (18,786)   (46,397)
Proceeds from sale of rental fleet   3,911    3,716    7,385    7,054 
Additions to property, plant and equipment, excluding acquisitions   (3,364)   (3,516)   (7,538)   (6,435)
Proceeds from sale of property, plant and equipment   78    84    93    133 
Net capital expenditures, excluding acquisitions   (8,110)   (23,097)   (18,846)   (45,645)
Free cash flow  $31,082   $38,672   $53,569   $54,907 

 

 6 

 

 

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

 

  

Three Months Ended

June 30, 2020

 
   Calculated in Constant Currency   As Reported   Difference 
   (In thousands) 
Rental revenues  $125,032   $124,461   $571 
Rental, selling and general expenses   79,257    78,922    335 
Adjusted EBITDA   56,530    56,282    248 

 

   Six Months Ended June 30, 2020     
   Calculated in Constant Currency   As Reported   Difference 
   (In thousands) 
Rental revenues  $265,979   $265,117   $862 
Rental, selling and general expenses   181,697    181,180    517 
Adjusted EBITDA   116,523    116,158    365 

 

 7 

 

 

RESULTS OF OPERATIONS

 

Three Months Ended June 30, 2020, Compared to Three Months Ended June 30, 2019

 

   

Three Months Ended
June 30,

   

Percentage of Revenue
Three Months Ended
June 30,

    Increase (Decrease)  
    2020     2019     2020   2019     2020 versus 2019  
    (In thousands, except percentages)  
Revenues:                                              
Rental   $ 124,461     $ 141,906       94.2 %   94.5 %   $ (17,445 )     (12.3 )%
Sales     7,551       8,135       5.7     5.4       (584 )     (7.2 )
Other     79       140       0.1     0.1       (61 )     (43.6 )
Total revenues     132,091       150,181       100.0     100.0       (18,090 )     (12.0 )
Costs and expenses:                                              

Rental, selling and general expenses

    78,922       95,735       59.7     63.7       (16,813 )     (17.6 )
Cost of sales     4,706       5,044       3.6     3.4       (338 )     (6.7 )
Depreciation and amortization     17,563       18,135       13.3     12.1       (572 )     (3.2 )
Total costs and expenses     101,191       118,914       76.6     79.2       (17,723 )     (14.9 )
Income from operations     30,900       31,267       23.4     20.8       (367 )     (1.2 )
Other income (expense):                                              
Interest income     12                       12     n/a  
Interest expense     (7,717 )     (10,592 )     (5.8 )   (7.1 )      2,875       (27.1 )
Foreign currency exchange     (36 )     (167 )         (0.1 )     131     n/a  

Income before income tax provision

    23,159       20,508       17.5     13.7       2,651          
Income tax provision     5,917       6,450       4.5     4.3       (533 )        
Net income   $ 17,242     $ 14,058       13.1 %   9.4 %   $ 3,184          

 

   

Three Months Ended
June 30,

   

Percentage of Revenue
Three Months Ended
June 30,

    Increase (Decrease)  
    2020     2019     2020     2019     2020 versus 2019  
    (In thousands, except percentages)  
EBITDA   $ 48,439     $ 49,235       36.7 %     32.8 %   $ (796 )     (1.6 )%
Adjusted EBITDA     56,282       56,907       42.6       37.9       (625 )     (1.1 )
Free Cash Flow     31,082       38,672       23.5       25.8       (7,590 )     (19.6 )

 

8

 

 

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

 

   2020   2019  

Increase (Decrease)

2020 versus 2019

 
   (In thousands, except percentages) 
Rental Revenues:                    
North America Storage Solutions  $86,325   $91,456   $(5,131)   (5.6)%
U.K. Storage Solutions   15,952    18,929    (2,977)   (15.7)
Total Storage Solutions   102,277    110,385    (8,108)   (7.3)
Tank & Pump Solutions   22,184    31,521    (9,337)   (29.6)
Total Rental Revenues  $124,461   $141,906   $(17,445)   (12.3)

U.K. Storage Solutions in

Constant Currency

  $16,523   $18,929   $(2,406)   (12.7)

Total Storage Solutions in

Constant Currency

   102,848    110,385    (7,537)   (6.8)
                     
Sales Revenues:                    
North America Storage Solutions  $4,838   $4,781   $57    1.2 
U.K. Storage Solutions   1,202    1,990    (788)   (39.6)
Total Storage Solutions   6,040    6,771    (731)   (10.8)
Tank & Pump Solutions   1,511    1,364    147    10.8 
Total Sales Revenues  $7,551   $8,135   $(584)   (7.2)
                     
Total Revenues:                    
North America Storage Solutions  $91,216   $96,299   $(5,083)   (5.3)
U.K. Storage Solutions   17,154    20,920    (3,766)   (18.0)
Total Storage Solutions   108,370    117,219    (8,849)   (7.5)
Tank & Pump Solutions   23,721    32,962    (9,241)   (28.0)
Total Revenues  $132,091   $150,181   $(18,090)   (12.0)

 

Of the $132.1 million of total revenues for the three months ended June 30, 2020, $108.4 million, or 82.0%, related to the Storage Solutions business and $23.7 million, or 18.0%, related to the Tank & Pump Solutions business. Of the $150.2 million of total revenues for the three-month period ended June 30, 2019, $117.2 million, or 78.1%, related to the Storage Solutions business and $33.0 million, or 21.9%, related to the Tank & Pump Solutions business.

 

Rental Revenues. Storage Solutions rental revenues decreased 7.3%, during the three-month period ended June 30, 2020, as compared to the prior-year period. In North America Storage Solutions rental revenues decreased 5.6%. An increase in year-over-year rental rates of 3.2% and growth in our managed services business were more than offset by a decrease in delivery, pickup and similar revenues and a 3.4% decrease in average units on rent. Related to managed service arrangements, we recognized $2.9 million and $1.7 million of rental revenue during the second quarters of 2020 and 2019, respectively. We do not include managed services rentals in our units on rent. The COVID-19 outbreak has had a notable impact on general economic conditions in North America and has resulted in a decline in new units placed on rent as well as a decrease in returned units. The lower activity has led to a year-over-year decrease in our delivery, pickup and similar revenues of approximately 19% during the current quarter.

 

In the U.K. stringent curtailment of economic activity in response to COVID-19 drove a 12.7% year-over-year decrease in constant currency rental revenue, during the three-month period ended June 30, 2020. The decrease in year-over-year activity resulted in a 4.0% decrease in average units on rent and an approximate 36% decrease in delivery, pickup and similar revenues year-over-year for the quarter ended June 30, 2020 in local currency. Rates remained healthy with a 1.7% increase in the current quarter when compared to the prior-year quarter.

 

Excluding revenues and units related to managed service rental arrangements, Storage Solutions yield for the three months ended June 30, 2020 (calculated as rental revenues divided by average units on rent and adjusted to a 28-day period) decreased 5.3%, as compared to the prior-year period. The decrease was primarily driven by reduced delivery, pickup and similar revenues, partially offset by increased rates.

 

9

 

 

Rental revenues within the Tank & Pump Solutions business decreased $9.3 million, or 29.6%, for the three-month period ended June 30, 2020, as compared to the prior-year period. Industrial softening in the second half of 2019 was exacerbated in 2020 by an oversupply of oil leading to lower oil prices. Further, in the second quarter of 2020 the effects of COVID-19 have resulted in decreased demand for oil. The current business environment has resulted in reduced demand for our products as well as a decrease in average rental rates. Downstream business, which represented approximately 73% of our Tank & Pump Solutions business, decreased 27.7% in the current quarter as compared to the prior-year quarter. Also contributing to the year-over-year decrease is prior-year rental revenue related to certain large-scale maintenance projects that did not repeat this year. Revenue related to our upstream market was down primarily due to the excess oil supply and lower commodity pricing in North America which resulted in reduced upstream activity as a whole.

 

Sales Revenues. We focus on rental revenues. In general, sales of units from our fleet occur due to a particular customer need, or due to having fleet in excess of demand at a particular location. Storage Solutions sales revenue of $6.0 million for the quarter ended June 30, 2020 decreased $0.7 million, or 10.8%, compared to the prior-year period. Tank & Pump Solutions sales revenue of $1.5 million for the quarter ended June 30, 2020 increased slightly from the prior-year period.

 

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

 

   2020   2019  

Increase (Decrease)

2020 versus 2019

 
   (In thousands, except percentages) 
Rental, Selling and General Expenses:                    
North America Storage Solutions  $53,785   $61,937   $(8,152)   (13.2)%
U.K. Storage Solutions   9,484    13,120    (3,636)   (27.7)
Total Storage Solutions   63,269    75,057    (11,788)   (15.7)
Tank & Pump Solutions   15,653    20,678    (5,025)   (24.3)
Total Rental, Selling and General Expenses  $78,922   $95,735   $(16,813)   (17.6)

U.K. Storage Solutions in Constant Currency

  $9,819   $13,120   $(3,301)   (25.2)

Total Storage Solutions in Constant Currency

   63,604    75,057    (11,453)   (15.3)
                     
Cost of Sales:                    
North America Storage Solutions  $2,958   $2,778   $180    6.5 
U.K. Storage Solutions   892    1,492    (600)   (40.2)
Total Storage Solutions   3,850    4,270    (420)   (9.8)
Tank & Pump Solutions   856    774    82    10.6 
Total Cost of Sales  $4,706   $5,044   $(338)   (6.7)
                     

 

Rental, Selling and General Expenses. Rental, selling and general expenses for the three months ended June 30, 2020 of $78.9 million decreased $16.8 million, or 17.6%, as compared to the prior-year period. As a percentage of total revenues, rental, selling and general expenses were 59.7% for the three months ended June 30, 2020, which was a decrease from 63.7% in the prior-year period.

 

Rental, selling and general expenses for the three months ended June 30, 2020 and 2019 included expenses related to certain transactions that management believes are not indicative of our business. In 2020, these expenses included merger-related expenses of $4.4 million as well as $0.3 million of expenses related to a realignment of personnel and business structure. In 2019, these expenses included $3.6 million related to the amendment of certain stock award agreements in conjunction with the transition of our then Chief Executive Officer (“CEO”) to Chairman of the Board of Directors and $0.7 million of expense related to incremental costs associated with potential acquisitions.

 

Excluding expenses related to the transactions described above, rental, selling and general expenses decreased $17.2 million, or 18.8% and as a percentage of revenues decreased to 56.2% from 60.9%. Throughout the Company, proactive cost management in response to reduced business activity in the current business environment, drove reductions in rental, selling and general expenses including decreases in payroll, employee travel and fleet transportation costs. In addition, lower business activity resulted in reduced other variable expenses such as repairs and maintenance expense.

 

10

 

 

Adjusted to exclude the $4.7 million and $4.3 million of costs related to transactions not indicative of our business, Storage Solutions, rental, selling and general expenses decreased $12.1 million for the quarter ended June 30, 2020 compared to the prior-year quarter, of which $8.5 million of the decrease related to North America and $3.6 million related to U.K. In North America Storage Solutions, adjusted rental, selling and general expenses decreased 14.8% for the quarter ended June 30, 2020, compared to the prior-year quarter. U.K. Storage Solutions rental, selling and general expenses for the three months ended June 30, 2020 decreased 25.2% year-over year in constant currency.

 

Rental, selling and general expenses for the Tank & Pump Solutions business decreased $5.0 million, or 24.3%, in the current-year quarter, as compared to the prior-year quarter.

 

Cost of Sales. Cost of sales is the cost related to our sales revenue only. Within the Storage Solutions business, cost of sales was $3.9 million and $4.3 million for the three months ended June 30, 2020 and 2019, respectively. Storage Solutions sales revenue, less cost of sales (sales profit), was $2.2 million and $2.5 million for the three-months ended June 30, 2020 and 2019, respectively. Sales profit expressed as a percentage of sales revenue (sales profit margin) was 36.3% in the quarter ended June 30, 2020 and 36.9% in the prior-year quarter.

 

Within the Tank & Pump Solutions business, cost of sales was $0.9 million in the quarter ended June 30, 2020 and $0.8 million for the quarter ended June 30, 2019. Tank & Pump Solutions sales profit was $0.7 million and $0.6 million for the three-month periods ended June 30, 2020 and 2019, respectively.

 

Depreciation and Amortization Expense. Total depreciation and amortization expense was $17.6 million for the three months ended June 30, 2020, compared to $18.1 million in the prior-year period.

 

Interest Expense. Interest expense decreased $2.9 million for the three months ended June 30, 2020 to $7.7 million compared to $10.6 million in the prior-year period. The decrease is due to a lower effective interest rate on our lines of credit combined with an overall decrease in debt outstanding. Our average debt outstanding in the quarter ended June 30, 2020 was $883.4 million, compared to $891.7 million in the prior-year quarter. The weighted average interest rate on our debt was 3.3% and 4.6% for the three-month periods ended June 30, 2020 and 2019, respectively, excluding the amortization of deferred financing costs. Taking into account the amortization of deferred financing costs, the weighted average interest rate was 3.5% and 4.8% for the three-month periods ended June 30, 2020 and 2019, respectively.

 

Provision for Income Taxes. For the quarters ended June 30, 2020 and 2019 our provision for income taxes was $5.9 million and $6.5 million, respectively. Our effective income tax rate decreased to 25.5% for the quarter ended June 30, 2020, compared to 31.5% for the prior-year quarter. The current quarter effective tax rate reflects non-deductible costs related to the Merger, offset by the favorable settlement of uncertain tax positions. In the prior-year quarter the tax rate was impacted by non-deductible stock compensation.

 

Net Income. As a result of the income statement activity discussed above, we had net income of $17.2 million for the three months ended June 30, 2020, compared to net income of $14.1 million for the three months ended June 30, 2019. Decreased revenues in the current-year quarter were offset by cost reductions.

 

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Adjusted EBITDA. The following table depicts adjusted EBITDA by type of business for the three-month periods ended June 30:

 

      2020       2019       Increase (Decrease)
2020 versus 2019
 
 
      (In thousands, except percentages)  
Adjusted EBITDA                                  
North America Storage Solutions   $ 42,170     $ 38,872     $ 3,298       8.5 %  
U.K. Storage Solutions     6,853       6,397       456       7.1    
Total Storage Solutions     49,023       45,269       3,754       8.3    
Tank & Pump Solutions     7,259       11,638       (4,379 )     (37.6 )  
Total Adjusted EBITDA   $ 56,282     $ 56,907     $ (625 )     (1.1 )  

 

For the three-month period ended June 30, 2020, we realized adjusted EBITDA of $56.3 million, a decrease of $0.6 million compared to the prior-year period. Decreased consolidated year-over-year revenue during the period was largely offset by cost reductions throughout the Company. Our adjusted EBITDA margins were 42.6% and 37.9% for the quarters ended June 30, 2020 and 2019, respectively.

 

During the quarter ended June 30, 2020 as compared to the prior-year quarter, adjusted EBITDA related to the North America Storage Solutions business increased $3.3 million and adjusted EBITDA related to our U.K. Storage Solutions business increased $0.5 million. Increased adjusted EBITDA in the Storage Solutions business was offset by a $4.4 million decrease in adjusted EBITDA related to the Tank & Pump Solutions business. Adjusted EBITDA margins for the quarter ended June 30, 2020 were 46.2% for the North America Storage Solutions business, 39.9% for U.K. Storage Solutions business and 30.6% for the Tank & Pump Solutions business.

 

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Six Months Ended June 30, 2020, Compared to Six Months Ended June 30, 2019

 

    Six Months Ended June 30,     Percentage of Revenue Six Months Ended June 30,     Increase (Decrease)  
    2020     2019     2020     2019     2020 versus 2019  
    (In thousands, except percentages)  
Revenues:                                                
Rental   $ 265,117     $ 284,078       94.3 %      94.7 %    $ (18,961 )     (6.7 )%
Sales     15,867       15,358       5.6       5.1       509       3.3  
Other     147       406       0.1       0.1       (259 )     (63.8 )
Total revenues     281,131       299,842       100.0       100.0       (18,711 )     (6.2 )
 Costs and expenses:                                                
Rental, selling and general expenses     181,180       187,969       64.4       62.7       (6,789 )     (3.6 )
Cost of sales     9,808       9,646       3.5       3.2       162       1.7  
Depreciation and amortization     35,055       35,470       12.5       11.8       (415 )     (1.2 )
Total costs and expenses     226,043       233,085       80.4       77.7       (7,042 )     (3.0 )
Income from operations     55,088       66,757       19.6       22.3       (11,669 )     (17.5 )
Other income (expense):                                                
Interest income     24                         24     n/a  
Interest expense     (16,974 )     (21,352 )     (6.0 )     (7.1 )     4,378       (20.5 )
Deferred financing costs write-off           (123 )                 123     n/a  
Foreign currency exchange     (39 )     (166 )           (0.1 )     127     n/a  
Income before income tax provision     38,099       45,116       13.6       15.0       (7,017 )        
Income tax provision     12,556       12,973       4.5       4.3       (417 )        
Net income   $ 25,543     $ 32,143       9.1     10.7   $ (6,600 )        

 

    Six Months Ended June 30,     Percentage of Revenue Six Months Ended June 30,     Increase (Decrease)  
    2020     2019     2020     2019     2020 versus 2019  
    (In thousands, except percentages)  
EBITDA   $ 90,128     $ 102,061       32.1 %      34.0 %   $ (11,933 )     (11.7 %)
Adjusted EBITDA     116,158       113,137       41.3       37.7       3,021       2.7  
Free Cash Flow     53,569       54,907       19.1       18.3       (1,338 )     (2.4 )

 

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

 

   2020   2019  

Increase (Decrease)

2020 versus 2019

 
   (In thousands, except percentages) 
Rental Revenues:                    
North America Storage Solutions  $182,794   $184,972   $(2,178)   (1.2)%
U.K. Storage Solutions   34,227    38,138    (3,911)   (10.3)
Total Storage Solutions   217,021    223,110    (6,089)   (2.7)
Tank & Pump Solutions   48,096    60,968    (12,872)   (21.1)
Total Rental Revenues  $265,117   $284,078   $(18,961)   (6.7)

U.K. Storage Solutions in

Constant Currency

  $35,089   $38,138   $(3,049)   (8.0)

Total Storage Solutions in

Constant Currency

   217,883    223,110    (5,227)   (2.3)
                     
Sales Revenues:                    
North America Storage Solutions  $10,122   $8,807   $1,315    14.9 
U.K. Storage Solutions   3,124    3,741    (617)   (16.5)
Total Storage Solutions   13,246    12,548    698    5.6 
Tank & Pump Solutions   2,621    2,810    (189)   (6.7)
Total Sales Revenues  $15,867   $15,358   $509    3.3 
                     
Total Revenues:                    
North America Storage Solutions  $193,008   $194,066   $(1,058)   (0.5)
U.K. Storage Solutions   37,351    41,880    (4,529)   (10.8)
Total Storage Solutions   230,359    235,946    (5,587)   (2.4)
Tank & Pump Solutions   50,772    63,896    (13,124)   (20.5)
Total Revenues  $281,131   $299,842   $(18,711)   (6.2)

 

Of the $281.1 million of total revenues for the six months ended June 30, 2020, $230.4 million, or 81.9%, related to the Storage Solutions business and $50.8 million, or 18.1%, related to the Tank & Pump Solutions business. Of the $299.8 million of total revenues for the six-month period ended June 30, 2019, $235.9 million, or 78.7%, related to the Storage Solutions business and $63.9 million, or 21.3%, related to the Tank & Pump Solutions business.

 

Rental Revenues. Storage Solutions rental revenues decreased 2.7% during the six-month period ended June 30, 2020, as compared to the prior-year period. In North America Storage Solutions, decreased business activity in the second quarter of 2020 more than offset first quarter 2020 year-over-year growth in rental revenues of 3.2%, resulting in a year-over-year decrease of 1.2% for the six-month period. Year-over-year rental rates for the six-month period increased 3.5%. Increased rates combined with growth in our managed services business was more than offset by a decrease in delivery, pickup and similar revenues and a 2.8% decrease in average units on rent. Related to managed service arrangements, we recognized $6.5 million and $4.1 million of rental revenue during the six months ended June 30, 2020 and 2019, respectively. The impact of COVID-19 on general economic conditions in North America in the second quarter of 2020 resulted in a decline in new units placed on rent as well as a decrease in returned units. Lower delivery and pickup activity led to a decrease of approximately 9.3% in delivery, pickup and similar revenues during the current six-month period compared to the prior-year period.

 

In the U.K., stringent curtailment of economic activity in response to COVID-19 during the second quarter of 2020 combined with decreased year-over-year rental revenue in the first quarter of 2020 resulted in an 8.0% year-over-year constant currency rental revenue decrease for the six-month period ended June 30, 2020. Average units on rent decreased 3.8% and delivery, pickup and similar revenues decreased approximately 20% year-over-year in local currency for the six-month period. Rates increased approximately 1.8% for the six months ended June 30, 2020 when compared to the same period in the prior year.

 

Excluding revenues and units related to managed service rental arrangements, Storage Solutions yield for the six months ended June 30, 2020 decreased 1.5%, or 1.1% in constant currency, as compared to the prior-year period. The decrease was driven primarily by reduced delivery, pickup and similar revenues partially offset by increased rental rates.

 

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Rental revenues within the Tank & Pump Solutions business decreased $12.9 million, or 21.1%, for the six-month period ended June 30, 2020, as compared to the prior-year period. Industrial softening in the second half of 2019 was exacerbated in the first half of 2020 by an oversupply of oil leading to lower oil prices. Further, in the second quarter of 2020 the effects of COVID-19 have resulted in decreased demand for oil. The current business environment has resulted in reduced demand for our products as well as a decrease in average rental rates. Downstream business, which represented approximately 73% of our Tank & Pump Solutions business, decreased approximately 19.6% in the six months ended June 30, 2020 as compared to the first six months of the prior year. Also contributing to the year-over-year decrease in rental revenue is certain large-scale maintenance projects in the prior-year period that did not repeat this year. Revenue related to our upstream market was down primarily due to the excess oil supply and lower commodity pricing in North America which resulted in reduced upstream activity as a whole.

 

Sales Revenues. We focus on rental revenues. In general, sales of units from our fleet occur due to a particular customer need, or due to having fleet in excess of demand at a particular location. Storage Solutions sales revenue of $13.2 million for the six months ended June 30, 2020 increased $0.7 million, or 5.6%, compared to the prior-year period. Tank & Pump Solutions sales revenue of $2.6 million for the six months ended June 30, 2020 decreased slightly from the prior-year period.

 

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

 

   2020   2019  

Increase (Decrease)

2020 versus 2019

 
   (In thousands, except percentages) 
Rental, Selling and General Expenses:                    
North America Storage Solutions  $125,073   $120,893   $4,180    3.5%
U.K. Storage Solutions   21,879    26,790    (4,911)   (18.3)
Total Storage Solutions   146,952    147,683    (731)   (0.5)
Tank & Pump Solutions   34,228    40,286    (6,058)   (15.0)
Total Rental, Selling and General Expenses  $181,180   $187,969   $(6,789)   (3.6)

U.K. Storage Solutions in Constant Currency

  $22,396   $26,790   $(4,394)   (16.4)

Total Storage Solutions in Constant Currency

   147,469    147,683    (214)   (0.1)
                     
Cost of Sales:                    
North America Storage Solutions  $6,019   $5,191