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EX-31.1 - EX-31.1 - MOBILE MINI INCmini-ex311_30.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2018

or

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

For the transition period from                      to                     

Commission File Number: 1-12804

 

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

86-0748362

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

4646 E. Van Buren Street, Suite 400

Phoenix, Arizona

 

85008

(Address of principal executive offices)

 

(Zip Code)

(480) 894-6311

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

At April 13, 2018, there were outstanding 44,618,287 shares of the registrant’s common stock, par value $.01.

 

 

 


MOBILE MINI, INC.

INDEX TO FORM 10-Q FILING

FOR THE QUARTER ENDED MARCH 31, 2018

 

 

 

 

 

PAGE

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1. Financial Statements

 

3

 

 

 

 

 

 

 

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

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 2018 and March 31, 2017

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Three Months Ended March 31, 2018 and March 31, 2017

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2018 and March 31, 2017

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

 

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

 

28

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

39

 

 

 

 

 

Item 4. Controls and Procedures

 

40

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1A. Risk Factors

 

41

 

 

 

 

 

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

 

41

 

 

 

 

 

Item 6. Exhibits

 

42

 

 

 

 

2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MOBILE MINI, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value data)

 

 

 

March 31,

2018

 

 

December 31,

2017

 

 

 

(unaudited)

 

 

(audited)

 

ASSETS

 

Cash and cash equivalents

 

$

7,763

 

 

$

13,451

 

Receivables, net of allowance for doubtful accounts of $6,344 and $6,250

   at March 31, 2018 and December 31, 2017, respectively

 

 

105,828

 

 

 

111,562

 

Inventories

 

 

16,811

 

 

 

15,671

 

Rental fleet, net

 

 

999,215

 

 

 

989,154

 

Property, plant and equipment, net

 

 

158,278

 

 

 

157,304

 

Other assets

 

 

13,370

 

 

 

15,334

 

Intangibles, net

 

 

60,442

 

 

 

62,024

 

Goodwill

 

 

711,063

 

 

 

708,907

 

Total assets

 

$

2,072,770

 

 

$

2,073,407

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

29,187

 

 

$

26,955

 

Accrued liabilities

 

 

66,337

 

 

 

78,084

 

Lines of credit

 

 

621,843

 

 

 

634,285

 

Obligations under capital leases

 

 

53,697

 

 

 

52,791

 

Senior notes, net of deferred financing costs of $3,990 and $4,150

   at March 31, 2018 and December 31, 2017, respectively

 

 

246,010

 

 

 

245,850

 

Deferred income taxes

 

 

178,361

 

 

 

173,754

 

Total liabilities

 

 

1,195,435

 

 

 

1,211,719

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Common stock $.01 par value, 95,000 shares authorized, 49,908 issued and 44,616

   outstanding at March 31, 2018 and 49,658 issued and 44,380 outstanding at

   December 31, 2017

 

 

499

 

 

 

497

 

Additional paid-in capital

 

 

609,120

 

 

 

605,369

 

Retained earnings

 

 

467,123

 

 

 

463,322

 

Accumulated other comprehensive loss

 

 

(51,708

)

 

 

(60,334

)

Treasury stock, at cost, 5,292 and 5,278 shares at March 31, 2018 and

   December 31, 2017, respectively

 

 

(147,699

)

 

 

(147,166

)

Total stockholders' equity

 

 

877,335

 

 

 

861,688

 

Total liabilities and stockholders' equity

 

$

2,072,770

 

 

$

2,073,407

 

 

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

3


MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

Rental

 

$

132,338

 

 

$

114,742

 

Sales

 

 

8,103

 

 

 

7,978

 

Other

 

 

213

 

 

 

807

 

Total revenues

 

 

140,654

 

 

 

123,527

 

Costs and expenses:

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

 

88,998

 

 

 

78,359

 

Cost of sales

 

 

5,391

 

 

 

5,112

 

Restructuring expenses

 

 

111

 

 

 

899

 

Depreciation and amortization

 

 

16,823

 

 

 

15,264

 

Total costs and expenses

 

 

111,323

 

 

 

99,634

 

Income from operations

 

 

29,331

 

 

 

23,893

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

6

 

 

 

 

Interest expense

 

 

(9,599

)

 

 

(8,402

)

Foreign currency exchange

 

 

66

 

 

 

(9

)

Income before income tax provision

 

 

19,804

 

 

 

15,482

 

Income tax provision

 

 

4,949

 

 

 

5,330

 

Net income

 

$

14,855

 

 

$

10,152

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.34

 

 

$

0.23

 

Diluted

 

 

0.33

 

 

 

0.23

 

Weighted average number of common and common share

   equivalents outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

44,214

 

 

 

44,109

 

Diluted

 

 

44,842

 

 

 

44,341

 

Cash dividends declared per share

 

$

0.25

 

 

$

0.23

 

 

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

4


MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Net income

 

$

14,855

 

 

$

10,152

 

Foreign currency translation adjustment

 

 

8,626

 

 

 

2,503

 

Comprehensive income

 

$

23,481

 

 

$

12,655

 

 

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

5


MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

14,855

 

 

$

10,152

 

Adjustments to reconcile net income to net cash provided

   by operating activities:

 

 

 

 

 

 

 

 

Provision for doubtful accounts

 

 

961

 

 

 

1,164

 

Amortization of deferred financing costs

 

 

515

 

 

 

515

 

Amortization of long-term liabilities

 

 

36

 

 

 

32

 

Share-based compensation expense

 

 

2,229

 

 

 

1,311

 

Depreciation and amortization

 

 

16,823

 

 

 

15,264

 

Gain on sale of rental fleet

 

 

(1,533

)

 

 

(1,703

)

Loss on disposal of property, plant and equipment

 

 

334

 

 

 

18

 

Deferred income taxes

 

 

4,397

 

 

 

4,943

 

Foreign currency exchange

 

 

(66

)

 

 

9

 

Changes in certain assets and liabilities, net of effect of businesses acquired:

 

 

 

 

 

 

 

 

Receivables

 

 

5,486

 

 

 

8,384

 

Inventories

 

 

(1,067

)

 

 

(1,020

)

Other assets

 

 

2,547

 

 

 

(1,115

)

Accounts payable

 

 

2,678

 

 

 

583

 

Accrued liabilities

 

 

(13,264

)

 

 

(5,814

)

Net cash provided by operating activities

 

 

34,931

 

 

 

32,723

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to rental fleet, excluding acquisitions

 

 

(15,389

)

 

 

(10,006

)

Proceeds from sale of rental fleet

 

 

3,844

 

 

 

4,622

 

Additions to property, plant and equipment, excluding acquisitions

 

 

(4,752

)

 

 

(3,748

)

Proceeds from sale of property, plant and equipment

 

 

179

 

 

 

68

 

Net cash used in investing activities

 

 

(16,118

)

 

 

(9,064

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net repayments under lines of credit

 

 

(12,443

)

 

 

(2,334

)

Deferred financing costs

 

 

 

 

 

(13

)

Principal payments on capital lease obligations

 

 

(1,990

)

 

 

(1,760

)

Issuance of common stock

 

 

1,525

 

 

 

1,640

 

Dividend payments

 

 

(11,054

)

 

 

(10,145

)

Purchase of treasury stock

 

 

(533

)

 

 

(7,639

)

Net cash used in financing activities

 

 

(24,495

)

 

 

(20,251

)

Effect of exchange rate changes on cash

 

 

(6

)

 

 

64

 

Net (decrease) increase in cash

 

 

(5,688

)

 

 

3,472

 

Cash and cash equivalents at beginning of period

 

 

13,451

 

 

 

4,137

 

Cash and cash equivalents at end of period

 

$

7,763

 

 

$

7,609

 

 

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

6


MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

12,348

 

 

$

13,671

 

Cash paid for income and franchise taxes

 

 

120

 

 

 

 

Equipment and other acquired through capital lease obligations

 

 

2,897

 

 

 

1,879

 

Capital expenditures accrued or payable

 

 

6,613

 

 

 

5,541

 

 

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 March 31, 2018, we had a fleet of storage solutions units operating throughout the United States (the “U.S.”), Canada and the United Kingdom (the “U.K.”), serving a diversified customer base, including construction companies, large and small retailers, medical centers, schools, utilities, distributors, the military, hotels, restaurants, entertainment complexes and households. These customers rent our products for a wide variety of applications, including the storage of construction materials and equipment, retail and manufacturing inventory, documents and records and other goods. We also have a fleet of tank and pump solutions products, concentrated in the U.S. Gulf Coast, including liquid and solid containment units, serving a specialty sector in the industry.  Our tank and pump products are rented primarily to chemical, refinery, oil and natural gas drilling, mining and environmental service customers.

Basis of Presentation and Consolidation

The consolidated financial statements include the accounts of Mobile Mini and our wholly owned subsidiaries. We do not have any subsidiaries in which we do not own 100% of the outstanding stock. All significant intercompany balances and transactions have been eliminated.  The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) applicable to interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management of Mobile Mini, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for all periods presented have been made. The results of operations for the three months ended March 31, 2018 and 2017, respectively are not necessarily indicative of the results to be expected for the full year.  During the current quarter, we changed the classification of certain ancillary revenues that were previously reported in rental and other revenues to sales revenues, and the corresponding expenses are now being classified in cost of sales on the accompanying condensed consolidated statement of income for the three months ended March 31, 2018.  As the amounts are immaterial, reclassifications were not made in the corresponding period of the prior year.

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

Use of Estimates

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

 

 

(2) Impact of Recently Issued Accounting Standards

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

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

Intangibles – Goodwill and Other.  In January 2017, the FASB issued a standard requiring an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment.  Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit.  This standard is effective for annual and interim periods beginning after December 15, 2019.  Entities may early adopt the guidance for goodwill impairment tests with measurement dates

8


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

after January 1, 2017.  We have not determined an adoption date and do not expect the adoption of this standard to have a material effect on our consolidated financial statements.

Leases.  In February 2016, the FASB issued a standard on lease accounting requiring a lessee to recognize assets and liabilities on the balance sheet for leases with lease terms greater than 12 months. This standard is effective for annual and interim periods beginning after December 15, 2018.  Early adoption is permitted and the standard requires the use of a modified retrospective transition method. We expect to adopt this standard on January 1, 2019.  While we are continuing to evaluate all potential impacts of the standard, we do not believe the accounting for our contractual rental revenue will be materially affected by the adoption of this standard.  We anticipate the lessee accounting for operating leases under the standard will have a material effect on our statement of financial position.

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

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

 

 

(3) Fair Value Measurements

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

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

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

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

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

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

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

 

 

 

March 31,

2018

 

 

December 31,

2017

 

 

 

(In thousands)

 

Carrying value

 

$

250,000

 

 

$

250,000

 

Fair value

 

 

259,170

 

 

 

262,500

 

 

 

9


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

(4) Revenue from Contracts with Customers

Revenue Recognition

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

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

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

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

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

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

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

Contract Costs and Liabilities

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

When customers are billed in advance, we defer recognition of revenue and reflect unearned rental revenue at the end of the period.  As of March 31, 2018 and December 31, 2017, we had approximately $35.0 million and $38.3 million, respectively of unearned rental revenue included in accrued liabilities in the condensed consolidated balance sheets for March 31, 2018 and December 31, 2017.  We expect to perform the remaining performance obligations and recognize the unearned rental revenue within the next twelve months.  Accordingly, we have applied the practical expedient available, under which we do not disclose the amount of consideration allocable to different performance obligations.

10


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

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 March 31, 2018

 

 

 

Storage Solutions

 

 

 

 

 

 

 

 

 

 

 

North

America

 

 

United

Kingdom

 

 

Total

 

 

Tank &

Pump

Solutions

 

 

Consolidated

 

 

 

(In thousands)

 

Direct rental revenue

 

$

63,903

 

 

$

14,266

 

 

$

78,169

 

 

$

18,482

 

 

$

96,651

 

Delivery, pickup and similar revenue

 

 

19,747

 

 

 

4,873

 

 

 

24,620

 

 

 

6,343

 

 

 

30,963

 

Ancillary rental revenue

 

 

2,948

 

 

 

1,127

 

 

 

4,075

 

 

 

649

 

 

 

4,724

 

Total rental revenues

 

$

86,598

 

 

$

20,266

 

 

$

106,864

 

 

$

25,474

 

 

$

132,338

 

 

 

 

For the Three Months Ended March 31, 2017

 

 

 

Storage Solutions

 

 

 

 

 

 

 

 

 

 

 

North

America

 

 

United

Kingdom

 

 

Total

 

 

Tank &

Pump

Solutions

 

 

Consolidated

 

 

 

(In thousands)

 

Direct rental revenue

 

$

56,620

 

 

$

12,516

 

 

$

69,136

 

 

$

15,210

 

 

$

84,346

 

Delivery, pickup and similar revenue

 

 

16,183

 

 

 

4,633

 

 

 

20,816

 

 

 

5,266

 

 

 

26,082

 

Ancillary rental revenue

 

 

2,763

 

 

 

1,091

 

 

 

3,854

 

 

 

460

 

 

 

4,314

 

Total rental revenues

 

$

75,566

 

 

$

18,240

 

 

$

93,806

 

 

$

20,936

 

 

$

114,742

 

 

(5) Earnings Per Share

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

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

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

 

(In thousands, except per share data)

 

Numerator:

 

 

 

 

 

 

 

 

Net income

 

$

14,855

 

 

$

10,152

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

 

44,214

 

 

 

44,109

 

Dilutive effect of share-based awards

 

 

628

 

 

 

232

 

Weighted average shares outstanding - diluted

 

 

44,842

 

 

 

44,341

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.34

 

 

$

0.23

 

Diluted

 

 

0.33

 

 

 

0.23

 

 

 

11


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

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

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

 

(In thousands)

 

Stock options

 

 

986

 

 

 

2,221

 

Restricted share awards

 

 

 

 

 

74

 

Total

 

 

986

 

 

 

2,295

 

 

 

 

(6) Inventories

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

 

 

 

March 31,

2018

 

 

December 31,

2017

 

 

 

(In thousands)

 

Raw materials and supplies

 

$

11,836

 

 

$

11,732

 

Work-in-process

 

 

 

 

 

50

 

Finished units

 

 

4,975

 

 

 

3,889

 

Inventories

 

$

16,811

 

 

$

15,671

 

 

 

(7) Rental Fleet

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

We periodically review depreciable lives and residual values against various factors, including the results of our lenders’ independent appraisal of our rental fleet, practices of our competitors in comparable industries and profit margins achieved on sales of depreciated units.

Appraisals on our rental fleet are required by our lenders on a regular basis. The appraisal typically reports no difference in the value of the unit due to the age or length of time it has been in our fleet. Based in part upon our lender’s third-party appraiser who evaluated our fleet as of September 30, 2017, management estimates that the net orderly liquidation appraisal value as of March 31, 2018 was approximately $1.1 billion.  Our net book value for this fleet as of March 31, 2018 was $999.2 million.

Depreciation expense related to our rental fleet for the three months ended March 31, 2018 and 2017 was $8.1 million and $7.5 million, respectively. At March 31, 2018, all rental fleet units were pledged as collateral under our Amended and Restated ABL Credit Agreement, dated December 14, 2015, with Deutsche Bank AG New York Branch, as administrative agent, and the other lenders party thereto (the “Credit Agreement”).

12


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

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

 

 

 

Residual Value

as Percentage of

Original Cost (1)

 

 

Estimated

Useful Life

in Years

 

March 31,

2018

 

 

December 31,

2017

 

 

 

 

 

 

 

 

 

(In thousands)

 

Storage Solutions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel storage containers

 

 

55%

 

 

30

 

$

657,651

 

 

$

655,553

 

Steel ground level offices

 

55

 

 

30

 

 

386,315

 

 

 

374,836

 

Other

 

 

 

 

 

 

 

 

8,617

 

 

 

8,290

 

Total

 

 

 

 

 

 

 

 

1,052,583

 

 

 

1,038,679

 

Accumulated depreciation

 

 

 

 

 

 

 

 

(172,865

)

 

 

(168,112

)

Total Storage Solutions fleet, net

 

 

 

 

 

 

 

$

879,718

 

 

$

870,567

 

Tank & Pump Solutions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel tanks

 

 

 

 

 

25

 

$

65,464

 

 

$

64,254

 

Roll-off boxes

 

 

 

 

 

15 - 20

 

 

30,885

 

 

 

29,897

 

Stainless steel tank trailers

 

 

 

 

 

25

 

 

28,730

 

 

 

28,871

 

Vacuum boxes

 

 

 

 

 

20

 

 

13,244

 

 

 

12,700

 

De-watering boxes

 

 

 

 

 

20

 

 

6,923

 

 

 

6,361

 

Pumps and filtration equipment

 

 

 

 

 

7

 

 

12,885

 

 

 

12,680

 

Other

 

 

 

 

 

 

 

 

7,069

 

 

 

7,088

 

Total

 

 

 

 

 

 

 

 

165,200

 

 

 

161,851

 

Accumulated depreciation

 

 

 

 

 

 

 

 

(45,703

)

 

 

(43,264

)

Total Tank & Pump Solutions fleet, net

 

 

 

 

 

 

 

$

119,497

 

 

$

118,587

 

Total rental fleet, net

 

 

 

 

 

 

 

$

999,215

 

 

$

989,154

 

 

(1)

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

 

 

(8) Property, Plant and Equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is recorded using the straight-line method over the assets’ estimated useful lives. Our depreciation expense related to property, plant and equipment for the three months ended March 31, 2018 and 2017 was $7.2 million and $6.1 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 March 31, 2018 and December 31, 2017 consisted of the following:

 

 

 

Residual Value

as Percentage of

Original Cost

 

 

Estimated

Useful Life

in Years

 

March 31,

2018

 

 

December 31,

2017

 

 

 

 

 

 

 

 

 

(In thousands)

 

Land

 

 

 

 

 

 

 

$

2,988

 

 

$

2,970

 

Vehicles and machinery

 

   0 - 55%

 

 

5 - 30

 

 

156,567

 

 

 

151,937

 

Buildings and improvements (1)

 

0 - 25

 

 

3 - 30

 

 

25,918

 

 

 

25,079

 

Furniture, office and computer equipment

 

 

 

 

3 - 10

 

 

74,477

 

 

 

73,416

 

Property, plant and equipment

 

 

 

 

 

 

 

 

259,950

 

 

 

253,402

 

Accumulated depreciation

 

 

 

 

 

 

 

 

(101,672

)

 

 

(96,098

)

Property, plant and equipment, net

 

 

 

 

 

 

 

$

158,278

 

 

$

157,304

 

 

(1)

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

13


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

As of March 31, 2018 and December 31, 2017, we had $39.2 million and $39.5 million, respectively, of capitalized software, net of accumulated depreciation, included in property, plant and equipment.

 

 

(9) Goodwill and Intangibles

For acquired businesses, we record assets acquired and liabilities assumed at their estimated fair values on the respective acquisition dates. Based on these values, the excess purchase prices over the fair value of the net assets acquired is recorded as goodwill. Of the $711.1 million total goodwill at March 31, 2018, $468.7 million related to the North America Storage Solutions segment, $61.2 million related to the U.K. Storage Solutions segment and $181.2 million related to the Tank & Pump Solutions segment.

The following table shows the activity and balances related to goodwill from January 1, 2018 to March 31, 2018 (in thousands): 

 

Balance at January 1, 2018

 

$

708,907

 

Foreign currency

 

 

2,156

 

Balance at March 31, 2018

 

$

711,063

 

 

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

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

 

 

 

 

 

March 31, 2018

 

 

December 31, 2017

 

 

 

Estimated

Useful Life

in Years

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

 

 

 

(In thousands)

 

Customer relationships

 

15 - 20

 

$

93,547

 

 

$

(36,259

)

 

$

57,288

 

 

$

93,235

 

 

$

(34,660

)

 

$

58,575

 

Trade names/trademarks

 

  5 - 10

 

 

5,983

 

 

 

(3,473

)

 

 

2,510

 

 

 

5,954

 

 

 

(3,312

)

 

 

2,642

 

Non-compete agreements

 

5

 

 

1,890

 

 

 

(1,276

)

 

 

614

 

 

 

1,890

 

 

 

(1,114

)

 

 

776

 

Other

 

20

 

 

60

 

 

 

(30

)

 

 

30

 

 

 

60

 

 

 

(29

)

 

 

31

 

Total

 

 

 

$

101,480

 

 

$

(41,038

)

 

$

60,442

 

 

$

101,139

 

 

$

(39,115

)

 

$

62,024

 

 

Amortization expense for amortizable intangibles was approximately $1.6 million for both the three-month periods ended March 31, 2018 and 2017.  Based on the carrying value at March 31, 2018, future amortization of intangible assets is expected to be as follows for the years ended December 31 (in thousands): 

 

2018 (remaining)

 

$

4,851

 

2019

 

 

6,314

 

2020

 

 

5,150

 

2021

 

 

4,911

 

2022

 

 

4,609

 

Thereafter

 

 

34,607

 

Total

 

$

60,442

 

 

 

14


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

(10) Debt

Lines of Credit

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

Amounts borrowed under the Credit Agreement and repaid or prepaid during the term may be reborrowed. Outstanding amounts under the Credit Agreement bear interest at our option at either: (i) the London interbank offered rate (“LIBOR”) plus an applicable margin (“LIBOR Loans”), or (ii) the prime rate plus an applicable margin (“Base Rate Loans”). The applicable margin for each type of loan is based on an availability-based pricing grid and ranges from 1.25% to 1.75% for LIBOR Loans and 0.25% to 0.75% for Base Rate Loans at each measurement date. As of March 31, 2018, the applicable margins are 1.50% for LIBOR Loans and 0.50% for Base Rate Loans.

Availability of borrowings under the Credit Agreement is subject to a borrowing base calculation based upon a valuation of the Company’s eligible accounts receivable, eligible container fleet (including containers held for sale, work-in-process and raw materials) and machinery and equipment, each multiplied by an applicable advance rate or limit. The rental fleet is appraised at least once annually by a third-party appraisal firm and up to 90% of the net orderly liquidation value, as defined in the Credit Agreement, is included in the borrowing base to determine the amount the Company may borrow under the Credit Agreement. At March 31, 2018, we had $621.8 million of borrowings outstanding and $373.8 million of additional borrowing availability under the Credit Agreement.

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

The Credit Agreement also contains customary negative covenants, including covenants that restrict or limit the Company’s ability to, among other things: (i) allow certain liens to attach to the Company’s or its subsidiaries’ assets, (ii) repurchase or pay dividends or make certain other restricted payments on capital stock and certain other securities, or prepay certain indebtedness, (iii) incur additional indebtedness or engage in certain other types of financing transactions, and (iv) make acquisitions or other investments.  In addition, we must comply with a minimum fixed charge coverage ratio of 1.00 to 1.00 as of the last day of each quarter, upon the minimum availability amount under the Credit Agreement falling below the greater of (y) $90 million and (z) 10% of the lesser of the then total revolving loan commitment and aggregate borrowing base.  As of March 31, 2018, we were in compliance with the minimum borrowing availability threshold set forth in the Credit Agreement and, therefore, are not subject to any financial maintenance covenants.

Senior Notes

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

Obligations Under Capital Leases

At March 31, 2018 and December 31, 2017, obligations under capital leases for certain real property, transportation, technology and office related equipment were $53.7 million and $52.8 million, respectively. Certain of the lease agreements provide us with a purchase option at the end of the lease term.

15


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

Future Debt Obligations

The scheduled maturity for debt obligations for balances outstanding at March 31, 2018 are as follows:

 

 

 

Lines of

Credit

 

 

Senior

Notes

 

 

Capital Lease

Obligations

 

 

Total

 

 

 

(In thousands)

 

2018 (remaining)

 

$

 

 

$

 

 

$

6,384

 

 

$

6,384

 

2019

 

 

 

 

 

 

 

 

8,709

 

 

 

8,709

 

2020

 

 

621,843

 

 

 

 

 

 

10,016

 

 

 

631,859

 

2021

 

 

 

 

 

 

 

 

9,799

 

 

 

9,799

 

2022

 

 

 

 

 

 

 

 

8,529

 

 

 

8,529

 

Thereafter

 

 

 

 

 

250,000

 

 

 

10,260

 

 

 

260,260

 

Total

 

$

621,843

 

 

$

250,000

 

 

$

53,697

 

 

$

925,540

 

 

 

(11) Income Taxes

We are subject to taxation in the U.S. federal jurisdiction, as well as various U.S. state and foreign jurisdictions. We have identified our U.S. federal tax return as our “major” tax jurisdiction. As of March 31, 2018, we are no longer subject to examination by U.S. federal tax authorities for years prior to 2014, to examination for any U.S. state taxing authority prior to 2012, or to examination for any foreign jurisdictions prior to 2013.  All subsequent periods remain open to examination.  

Our effective income tax rate decreased to 25.0% for the three months ended March 31 2018, compared to 34.4% for the prior-year quarter.  The decrease in the effective tax rate was primarily due to the reduction of the U.S. federal tax rate from 35% to 21%, which was partially offset by the increase in disallowed deductions for officers’ compensation, both of which are a result of the Tax Cuts and Jobs Act (the “Tax Act”) enacted on December 22, 2017.

In December 2017, the Company recorded $3.1 million of provisional tax expense related to the repatriation of foreign earnings for the impact of the Tax Act. The Company has not yet finalized these calculations and no adjustments to the provisional amount have been made in the current period. We will finalize the provisional amounts within one year from the date of enactment.

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.

As of March 31, 2018, we had approximately $14.1 million of gross unrecognized tax benefits, of which, none would affect our effective tax rate if recognized.

 

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.

 

 

(12) Share-Based Compensation

We have historically awarded stock options and restricted stock awards for employees and non-employee directors as a means of attracting and retaining quality personnel and to