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

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2018

or

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

For the transition period from                      to                     

Commission File Number: 1-12804

 

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

86-0748362

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

4646 E. Van Buren Street, Suite 400

Phoenix, Arizona

 

85008

(Address of principal executive offices)

 

(Zip Code)

(480) 894-6311

(Registrant’s telephone number, including area code)

 

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

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

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

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

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

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

 

 

 


MOBILE MINI, INC.

INDEX TO FORM 10-Q FILING

FOR THE QUARTER ENDED SEPTEMBER 30, 2018

 

 

 

 

 

PAGE

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1. Financial Statements

 

3

 

 

 

 

 

 

 

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

 

3

 

 

 

 

 

 

 

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

 

4

 

 

 

 

 

 

 

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

 

5

 

 

 

 

 

 

 

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

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

 

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

 

33

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

49

 

 

 

 

 

Item 4. Controls and Procedures

 

50

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1A. Risk Factors

 

51

 

 

 

 

 

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

 

51

 

 

 

 

 

Item 6. Exhibits

 

52

 

 

 

 

2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MOBILE MINI, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value data)

 

 

 

September 30,

2018

 

 

December 31,

2017

 

 

 

(unaudited)

 

 

(audited)

 

ASSETS

 

Cash and cash equivalents

 

$

4,935

 

 

$

13,451

 

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

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

 

 

118,101

 

 

 

111,562

 

Inventories

 

 

13,444

 

 

 

15,671

 

Rental fleet, net

 

 

925,956

 

 

 

989,154

 

Property, plant and equipment, net

 

 

155,621

 

 

 

157,304

 

Other assets

 

 

17,586

 

 

 

15,334

 

Intangibles, net

 

 

57,164

 

 

 

62,024

 

Goodwill

 

 

706,768

 

 

 

708,907

 

Total assets

 

$

1,999,575

 

 

$

2,073,407

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

32,610

 

 

$

26,955

 

Accrued liabilities

 

 

80,114

 

 

 

78,084

 

Lines of credit

 

 

610,223

 

 

 

634,285

 

Obligations under capital leases

 

 

61,853

 

 

 

52,791

 

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

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

 

 

246,329

 

 

 

245,850

 

Deferred income taxes

 

 

158,758

 

 

 

173,754

 

Total liabilities

 

 

1,189,887

 

 

 

1,211,719

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

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

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

   December 31, 2017

 

 

500

 

 

 

497

 

Additional paid-in capital

 

 

616,850

 

 

 

605,369

 

Retained earnings

 

 

407,559

 

 

 

463,322

 

Accumulated other comprehensive loss

 

 

(67,387

)

 

 

(60,334

)

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

   December 31, 2017, respectively

 

 

(147,834

)

 

 

(147,166

)

Total stockholders' equity

 

 

809,688

 

 

 

861,688

 

Total liabilities and stockholders' equity

 

$

1,999,575

 

 

$

2,073,407

 

 

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

3


MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

140,924

 

 

$

127,695

 

 

$

406,149

 

 

$

360,288

 

Sales

 

 

8,716

 

 

 

8,438

 

 

 

25,700

 

 

 

24,817

 

Other

 

 

67

 

 

 

503

 

 

 

511

 

 

 

1,748

 

Total revenues

 

 

149,707

 

 

 

136,636

 

 

 

432,360

 

 

 

386,853

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

 

90,764

 

 

 

87,745

 

 

 

269,033

 

 

 

248,954

 

Cost of sales

 

 

5,770

 

 

 

5,519

 

 

 

16,925

 

 

 

16,039

 

Restructuring expenses

 

 

 

 

 

625

 

 

 

1,306

 

 

 

2,062

 

Asset impairment charge and loss on divestiture, net

 

 

98,278

 

 

 

 

 

 

98,278

 

 

 

 

Depreciation and amortization

 

 

16,191

 

 

 

15,935

 

 

 

50,206

 

 

 

46,941

 

Total costs and expenses

 

 

211,003

 

 

 

109,824

 

 

 

435,748

 

 

 

313,996

 

(Loss) income from operations

 

 

(61,296

)

 

 

26,812

 

 

 

(3,388

)

 

 

72,857

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

4

 

 

 

6

 

 

 

20

 

Interest expense

 

 

(10,487

)

 

 

(9,203

)

 

 

(30,179

)

 

 

(26,412

)

Foreign currency exchange

 

 

24

 

 

 

(2

)

 

 

69

 

 

 

(29

)

(Loss) income before income tax provision

 

 

(71,759

)

 

 

17,611

 

 

 

(33,492

)

 

 

46,436

 

Income tax (benefit) provision

 

 

(19,594

)

 

 

6,383

 

 

 

(11,182

)

 

 

16,279

 

Net (loss) income

 

$

(52,165

)

 

$

11,228

 

 

$

(22,310

)

 

$

30,157

 

(Loss) earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.18

)

 

$

0.25

 

 

$

(0.50

)

 

$

0.68

 

Diluted

 

 

(1.18

)

 

 

0.25

 

 

 

(0.50

)

 

 

0.68

 

Weighted average number of common and common share

   equivalents outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

44,323

 

 

 

44,039

 

 

 

44,275

 

 

 

44,030

 

Diluted

 

 

44,323

 

 

 

44,206

 

 

 

44,275

 

 

 

44,190

 

Cash dividends declared per share

 

$

0.25

 

 

$

0.23

 

 

$

0.75

 

 

$

0.68

 

 

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

4


MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net (loss) income

 

$

(52,165

)

 

$

11,228

 

 

$

(22,310

)

 

$

30,157

 

Foreign currency translation adjustment

 

 

(2,696

)

 

 

7,566

 

 

 

(7,053

)

 

 

19,165

 

Comprehensive (loss) income

 

$

(54,861

)

 

$

18,794

 

 

$

(29,363

)

 

$

49,322

 

 

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

5


MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(22,310

)

 

$

30,157

 

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

   by operating activities:

 

 

 

 

 

 

 

 

Asset impairment charge and loss on divestiture, net

 

 

98,278

 

 

 

 

Provision for doubtful accounts

 

 

1,980

 

 

 

3,176

 

Amortization of deferred financing costs

 

 

1,545

 

 

 

1,545

 

Amortization of long-term liabilities

 

 

109

 

 

 

98

 

Share-based compensation expense

 

 

7,866

 

 

 

5,890

 

Depreciation and amortization

 

 

50,206

 

 

 

46,941

 

Gain on sale of rental fleet

 

 

(4,523

)

 

 

(4,273

)

Loss on disposal of property, plant and equipment

 

 

548

 

 

 

472

 

Deferred income taxes

 

 

(12,891

)

 

 

15,167

 

Foreign currency exchange

 

 

(69

)

 

 

29

 

Changes in certain assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(9,029

)

 

 

(3,183

)

Inventories

 

 

(922

)

 

 

(1,443

)

Other assets

 

 

1,875

 

 

 

(497

)

Accounts payable

 

 

3,217

 

 

 

(3,200

)

Accrued liabilities

 

 

340

 

 

 

4,953

 

Net cash provided by operating activities

 

 

116,220

 

 

 

95,832

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of assets held for sale

 

 

3,508

 

 

 

 

Additions to rental fleet, excluding acquisitions

 

 

(65,620

)

 

 

(45,945

)

Proceeds from sale of rental fleet

 

 

11,447

 

 

 

9,602

 

Additions to property, plant and equipment, excluding acquisitions

 

 

(14,635

)

 

 

(12,816

)

Proceeds from sale of property, plant and equipment

 

 

603

 

 

 

780

 

Net cash used in investing activities

 

 

(64,697

)

 

 

(48,379

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net repayments under lines of credit

 

 

(24,062

)

 

 

(281

)

Deferred financing costs

 

 

 

 

 

(12

)

Principal payments on capital lease obligations

 

 

(6,683

)

 

 

(5,526

)

Issuance of common stock

 

 

3,617

 

 

 

4,685

 

Dividend payments

 

 

(33,312

)

 

 

(30,120

)

Purchase of treasury stock

 

 

(668

)

 

 

(8,359

)

Net cash used in financing activities

 

 

(61,108

)

 

 

(39,613

)

Effect of exchange rate changes on cash

 

 

1,069

 

 

 

632

 

Net (decrease) increase in cash

 

 

(8,516

)

 

 

8,472

 

Cash and cash equivalents at beginning of period

 

 

13,451

 

 

 

4,137

 

Cash and cash equivalents at end of period

 

$

4,935

 

 

$

12,609

 

 

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

6


MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

31,753

 

 

$

30,379

 

Cash paid for income and franchise taxes

 

 

2,346

 

 

 

1,313

 

Equipment and other acquired through capital lease obligations

 

 

15,746

 

 

 

6,610

 

Capital expenditures accrued or payable

 

 

9,774

 

 

 

8,931

 

 

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

 

 

 

7


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

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

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

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

Basis of Presentation and Consolidation

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

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

Use of Estimates

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

 

(2) Impact of Recently Issued Accounting Standards

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

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

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

8


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

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

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

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

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

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

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

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

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

 

(3) Fair Value Measurements

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

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

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

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

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

9


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

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

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

 

 

 

September 30,

2018

 

 

December 31,

2017

 

 

 

(In thousands)

 

Carrying value

 

$

250,000

 

 

$

250,000

 

Fair value

 

 

253,200

 

 

 

262,500

 

 

 

(4) Revenue from Contracts with Customers

Revenue Recognition

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

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

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

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

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

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

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

10


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

Contract Costs and Liabilities

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

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

Disaggregated Rental Revenue

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

 

 

 

For the Three Months Ended September 30, 2018

 

 

 

Storage Solutions

 

 

 

 

 

 

 

 

 

 

 

North

America

 

 

United

Kingdom

 

 

Total

 

 

Tank &

Pump

Solutions

 

 

Consolidated

 

 

 

(In thousands)

 

Direct rental revenue

 

$

68,073

 

 

$

14,068

 

 

$

82,141

 

 

$

19,461

 

 

$

101,602

 

Delivery, pickup and similar revenue

 

 

21,671

 

 

 

5,118

 

 

 

26,789

 

 

 

8,329

 

 

 

35,118

 

Ancillary rental revenue

 

 

2,497

 

 

 

1,212

 

 

 

3,709

 

 

 

495

 

 

 

4,204

 

Total rental revenues

 

$

92,241

 

 

$

20,398

 

 

$

112,639

 

 

$

28,285

 

 

$

140,924

 

 

 

 

For the Three Months Ended September 30, 2017

 

 

 

Storage Solutions

 

 

 

 

 

 

 

 

 

 

 

North

America

 

 

United

Kingdom

 

 

Total

 

 

Tank &

Pump

Solutions

 

 

Consolidated

 

 

 

(In thousands)

 

Direct rental revenue

 

$

61,681

 

 

$

14,163

 

 

$

75,844

 

 

$

16,231

 

 

$

92,075

 

Delivery, pickup and similar revenue

 

 

19,686

 

 

 

4,922

 

 

 

24,608

 

 

 

6,341

 

 

 

30,949

 

Ancillary rental revenue

 

 

2,882

 

 

 

1,154

 

 

 

4,036

 

 

 

635

 

 

 

4,671

 

Total rental revenues

 

$

84,249

 

 

$

20,239

 

 

$

104,488

 

 

$

23,207

 

 

$

127,695

 

 

 

 

For the Nine Months Ended September 30, 2018

 

 

 

Storage Solutions

 

 

 

 

 

 

 

 

 

 

 

North

America

 

 

United

Kingdom

 

 

Total

 

 

Tank &

Pump

Solutions

 

 

Consolidated

 

 

 

(In thousands)

 

Direct rental revenue

 

$

196,029

 

 

$

42,684

 

 

$

238,713

 

 

$

57,301

 

 

$

296,014

 

Delivery, pickup and similar revenue

 

 

59,893

 

 

 

14,822

 

 

 

74,715

 

 

 

21,970

 

 

 

96,685

 

Ancillary rental revenue

 

 

8,305

 

 

 

3,560

 

 

 

11,865

 

 

 

1,585

 

 

 

13,450

 

Total rental revenues

 

$

264,227

 

 

$

61,066

 

 

$

325,293

 

 

$

80,856

 

 

$

406,149

 

 

11


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

 

 

For the Nine Months Ended September 30, 2017

 

 

 

Storage Solutions

 

 

 

 

 

 

 

 

 

 

 

North

America

 

 

United

Kingdom

 

 

Total

 

 

Tank &

Pump

Solutions

 

 

Consolidated

 

 

 

(In thousands)

 

Direct rental revenue

 

$

176,013

 

 

$

39,999

 

 

$

216,012

 

 

$

47,205

 

 

$

263,217

 

Delivery, pickup and similar revenue

 

 

51,712

 

 

 

14,035

 

 

 

65,747

 

 

 

17,699

 

 

 

83,446

 

Ancillary rental revenue

 

 

8,601

 

 

 

3,420

 

 

 

12,021

 

 

 

1,604

 

 

 

13,625

 

Total rental revenues

 

$

236,326

 

 

$

57,454

 

 

$

293,780

 

 

$

66,508

 

 

$

360,288

 

 

 

(5) Earnings Per Share

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

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

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(In thousands, except per share data)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(52,165

)

 

$

11,228

 

 

$

(22,310

)

 

$

30,157

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

 

44,323

 

 

 

44,039

 

 

 

44,275

 

 

 

44,030

 

Dilutive effect of share-based awards

 

 

 

 

 

167

 

 

 

 

 

 

160

 

Weighted average shares outstanding - diluted

 

 

44,323

 

 

 

44,206

 

 

 

44,275

 

 

 

44,190

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.18

)

 

$

0.25

 

 

$

(0.50

)

 

$

0.68

 

Diluted

 

 

(1.18

)

 

 

0.25

 

 

 

(0.50

)

 

 

0.68

 

 

 

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

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Stock options

 

 

691

 

 

 

2,185

 

 

 

724

 

 

 

2,213

 

Restricted share awards

 

 

42

 

 

 

1

 

 

 

27

 

 

 

4

 

Total

 

 

733

 

 

 

2,186

 

 

 

751

 

 

 

2,217

 

 

 

12


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

(6) Inventories

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

 

 

 

September 30,

2018

 

 

December 31,

2017

 

 

 

(In thousands)

 

Raw materials and supplies

 

$

9,892

 

 

$

11,732

 

Work-in-process

 

 

 

 

 

50

 

Finished units

 

 

3,552

 

 

 

3,889

 

Inventories

 

$

13,444

 

 

$

15,671

 

 

 

(7) Rental Fleet

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

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

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

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

13


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

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

 

 

 

Residual Value

as Percentage of

Original Cost (1)

 

 

Estimated

Useful Life

in Years

 

September 30,

2018

 

 

December 31,

2017

 

 

 

 

 

 

 

 

 

(In thousands)

 

Storage Solutions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel storage containers

 

 

55%

 

 

30

 

$

596,403

 

 

$

655,553

 

Steel ground level offices

 

55

 

 

30

 

 

342,712

 

 

 

374,836

 

Other

 

 

 

 

 

 

 

 

7,530

 

 

 

8,290

 

Total

 

 

 

 

 

 

 

 

946,645

 

 

 

1,038,679

 

Accumulated depreciation

 

 

 

 

 

 

 

 

(149,158

)

 

 

(168,112

)

Total Storage Solutions fleet, net

 

 

 

 

 

 

 

$

797,487

 

 

$

870,567

 

Tank & Pump Solutions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel tanks

 

 

 

 

 

25

 

$

68,689

 

 

$

64,254

 

Roll-off boxes

 

 

 

 

 

15 - 20

 

 

33,887

 

 

 

29,897

 

Stainless steel tank trailers

 

 

 

 

 

25

 

 

28,969

 

 

 

28,871

 

Vacuum boxes

 

 

 

 

 

20

 

 

16,790

 

 

 

12,700

 

Dewatering boxes

 

 

 

 

 

20

 

 

8,250