mini-10q_20190331.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, 2019

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

(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 12, 2019, there were outstanding 44,972,730 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, 2019

 

 

 

 

 

PAGE

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1. Financial Statements

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets March 31, 2019 (unaudited) and December 31, 2018

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 2019 and March 31, 2018

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Three Months Ended
March 31, 2019 and March 31, 2018

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statement of Changes in Stockholders’ Equity (unaudited) for the Three Months Ended
March 31, 2019

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2019 and March 31, 2018

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

9

 

 

 

 

 

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

 

31

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

42

 

 

 

 

 

Item 4. Controls and Procedures

 

43

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1A. Risk Factors

 

44

 

 

 

 

 

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

 

44

 

 

 

 

 

Item 6. Exhibits

 

45

 

 

 

 

2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MOBILE MINI, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value data)

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(unaudited)

 

 

(audited)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,296

 

 

$

5,605

 

Receivables, net of allowance for doubtful accounts of $4,532 and $4,599

   at March 31, 2019 and December 31, 2018, respectively

 

 

113,201

 

 

 

130,233

 

Inventories

 

 

11,702

 

 

 

11,725

 

Rental fleet, net

 

 

943,937

 

 

 

929,090

 

Property, plant and equipment, net

 

 

150,649

 

 

 

154,254

 

Operating lease assets

 

 

90,084

 

 

 

 

Other assets

 

 

15,945

 

 

 

13,398

 

Intangibles, net

 

 

53,967

 

 

 

55,542

 

Goodwill

 

 

706,639

 

 

 

705,217

 

Total assets

 

$

2,090,420

 

 

$

2,005,064

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

28,746

 

 

$

33,177

 

Accrued liabilities

 

 

66,245

 

 

 

88,136

 

Operating lease liabilities

 

 

91,863

 

 

 

 

Lines of credit

 

 

593,700

 

 

 

593,495

 

Obligations under finance leases

 

 

62,380

 

 

 

63,359

 

Senior notes, net of deferred financing costs of $3,352 and $3,511

   at March 31, 2019 and December 31, 2018, respectively

 

 

246,648

 

 

 

246,489

 

Deferred income taxes

 

 

175,681

 

 

 

170,139

 

Total liabilities

 

 

1,265,263

 

 

 

1,194,795

 

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, 50,300 issued and 44,975

   outstanding at March 31, 2019 and 49,986 issued and 44,690 outstanding at

   December 31, 2018

 

 

503

 

 

 

500

 

Additional paid-in capital

 

 

624,941

 

 

 

619,850

 

Retained earnings

 

 

416,387

 

 

 

410,641

 

Accumulated other comprehensive loss

 

 

(67,756

)

 

 

(72,861

)

Treasury stock, at cost, 5,325 and 5,296 shares at March 31, 2019 and

   December 31, 2018, respectively

 

 

(148,918

)

 

 

(147,861

)

Total stockholders' equity

 

 

825,157

 

 

 

810,269

 

Total liabilities and stockholders' equity

 

$

2,090,420

 

 

$

2,005,064

 

 

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,

 

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

Rental

 

$

142,172

 

 

$

132,338

 

Sales

 

 

7,223

 

 

 

8,103

 

Other

 

 

266

 

 

 

213

 

Total revenues

 

 

149,661

 

 

 

140,654

 

Costs and expenses:

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

 

92,234

 

 

 

88,998

 

Cost of sales

 

 

4,602

 

 

 

5,391

 

Restructuring expenses

 

 

 

 

 

111

 

Depreciation and amortization

 

 

17,335

 

 

 

16,823

 

Total costs and expenses

 

 

114,171

 

 

 

111,323

 

Income from operations

 

 

35,490

 

 

 

29,331

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

6

 

Interest expense

 

 

(10,760

)

 

 

(9,599

)

Deferred financing costs write-off

 

 

(123

)

 

 

 

Foreign currency exchange

 

 

1

 

 

 

66

 

Income before income tax provision

 

 

24,608

 

 

 

19,804

 

Income tax provision

 

 

6,523

 

 

 

4,949

 

Net income

 

$

18,085

 

 

$

14,855

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.41

 

 

$

0.34

 

Diluted

 

 

0.40

 

 

 

0.33

 

Weighted average number of common and common share

   equivalents outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

44,448

 

 

 

44,214

 

Diluted

 

 

44,877

 

 

 

44,842

 

Cash dividends declared per share

 

$

0.28

 

 

$

0.25

 

 

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,

 

 

 

2019

 

 

2018

 

Net income

 

$

18,085

 

 

$

14,855

 

Foreign currency translation adjustment

 

 

5,105

 

 

 

8,626

 

Comprehensive income

 

$

23,190

 

 

$

23,481

 

 

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

 

5


MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Three Months ended March 31, 2019

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Treasury Stock

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income (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 loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

6


MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

18,085

 

 

$

14,855

 

Adjustments to reconcile net income to net cash provided

   by operating activities:

 

 

 

 

 

 

 

 

Deferred financing costs write-off

 

 

123

 

 

 

 

Provision for doubtful accounts

 

 

1,212

 

 

 

961

 

Amortization of deferred financing costs

 

 

505

 

 

 

515

 

Amortization of long-term liabilities

 

 

13

 

 

 

36

 

Share-based compensation expense

 

 

3,404

 

 

 

2,229

 

Depreciation and amortization

 

 

17,335

 

 

 

16,823

 

Gain on sale of rental fleet

 

 

(1,425

)

 

 

(1,533

)

Loss on disposal of property, plant and equipment

 

 

18

 

 

 

334

 

Deferred income taxes

 

 

5,058

 

 

 

4,397

 

Foreign currency exchange

 

 

(1

)

 

 

(66

)

Changes in certain assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

16,180

 

 

 

5,486

 

Inventories

 

 

76

 

 

 

(1,067

)

Other assets

 

 

(1,394

)

 

 

2,547

 

Accounts payable

 

 

(1,741

)

 

 

2,678

 

Accrued liabilities

 

 

(18,665

)

 

 

(13,264

)

Net cash provided by operating activities

 

 

38,783

 

 

 

34,931

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to rental fleet, excluding acquisitions

 

 

(23,016

)

 

 

(15,389

)

Proceeds from sale of rental fleet

 

 

3,338

 

 

 

3,844

 

Additions to property, plant and equipment, excluding acquisitions

 

 

(2,919

)

 

 

(4,752

)

Proceeds from sale of property, plant and equipment

 

 

49

 

 

 

179

 

Net cash used in investing activities

 

 

(22,548

)

 

 

(16,118

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net borrowings (repayments) under lines of credit

 

 

203

 

 

 

(12,443

)

Deferred financing costs

 

 

(3,254

)

 

 

 

Principal payments on finance lease obligations

 

 

(2,586

)

 

 

(1,990

)

Issuance of common stock

 

 

1,690

 

 

 

1,525

 

Dividend payments

 

 

(12,426

)

 

 

(11,054

)

Purchase of treasury stock

 

 

(1,057

)

 

 

(533

)

Net cash used in financing activities

 

 

(17,430

)

 

 

(24,495

)

Effect of exchange rate changes on cash

 

 

(114

)

 

 

(6

)

Net decrease in cash

 

 

(1,309

)

 

 

(5,688

)

Cash and cash equivalents at beginning of period

 

 

5,605

 

 

 

13,451

 

Cash and cash equivalents at end of period

 

$

4,296

 

 

$

7,763

 

 

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

7


MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

14,276

 

 

$

12,348

 

Cash paid for income and franchise taxes

 

 

2,020

 

 

 

120

 

Equipment and other acquired through finance lease obligations

 

 

1,609

 

 

 

2,897

 

Capital expenditures accrued or payable

 

 

8,012

 

 

 

6,613

 

 

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

 

 

 

8


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, 2019, 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, 2019 and 2018, 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, 2018 filed with the Securities and Exchange Commission (“SEC”) on February 5, 2019.

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 (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 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.

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.

9


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

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 adopted this standard effective January 1, 2019, utilizing a modified retrospective transition approach.  We chose to use the effective date as our date of initial application.  Consequently, financial information was not updated and the disclosures required under the new standard were not provided for dates and periods before January 1, 2019.  

The standard includes optional transition practical expedients intended to simplify its adoption.  We elected to adopt the package of practical expedients, which allowed us to retain the historical lease classification determined under legacy GAAP as well as a relief from reviewing expired or existing contracts to determine if they contain leases.  

Upon adoption, we recognized operating lease liabilities totaling approximately $91 million, with corresponding right of use assets.  The liabilities were calculated as the present value of the remaining minimum rental payments for existing operating leases.  When we enter contractual arrangements as lessor, we expect the period of each rental to be less than one year.  As such, the accounting for contracts in which we are the lessor is not affected.  This standard did not materially impact our consolidated net earnings and had no impact on cash flows.  See Note 11 for additional information.  

 

(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, 2019 and December 31, 2018, 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 finance 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 finance leases, which are measured using Level 2 inputs, at March 31, 2019 and December 31, 2018 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:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(In thousands)

 

Carrying value

 

$

250,000

 

 

$

250,000

 

Fair value

 

 

257,055

 

 

 

247,028

 

 

(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.

10


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

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.

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, 2019 and December 31, 2018, we had approximately $37.6 million and $41.0 million, respectively, of unearned rental revenue included in accrued liabilities in the Condensed Consolidated Balance Sheets for March 31, 2019 and December 31, 2018.  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 March 31, 2019

 

 

 

Storage Solutions

 

 

 

 

 

 

 

 

 

 

 

North

America

 

 

United

Kingdom

 

 

Total

 

 

Tank &

Pump

Solutions

 

 

Consolidated

 

 

 

(In thousands)

 

Direct rental revenue

 

$

68,475

 

 

$

13,281

 

 

$

81,756

 

 

$

20,109

 

 

$

101,865

 

Delivery, pickup and similar revenue

 

 

21,789

 

 

 

4,676

 

 

 

26,465

 

 

 

8,594

 

 

 

35,059

 

Ancillary rental revenue

 

 

3,252

 

 

 

1,252

 

 

 

4,504

 

 

 

744

 

 

 

5,248

 

Total rental revenues

 

$

93,516

 

 

$

19,209

 

 

$

112,725

 

 

$

29,447

 

 

$

142,172

 

11


 MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

 

 

 

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

 

 

 

(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

March 31,

 

 

 

2019

 

 

2018

 

 

(In thousands, except per share data)

 

Numerator:

 

 

 

 

 

 

 

 

Net income

 

$

18,085

 

 

$

14,855

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

 

44,448

 

 

 

44,214

 

Dilutive effect of share-based awards

 

 

429

 

 

 

628

 

Weighted average shares outstanding - diluted

 

 

44,877

 

 

 

44,842

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.41

 

 

$

0.34

 

Diluted

 

 

0.40

 

 

 

0.33

 

 

 

 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

March 31,

 

 

 

2019

 

 

2018

 

 

(In thousands)

 

Stock options

 

 

1,504

 

 

 

986

 

Restricted share awards

 

 

75

 

 

 

 

Total

 

 

1,579

 

 

 

986

 

 

 

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.  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, 2019 and December 31, 2018 consisted of the following:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(In thousands)

 

Raw materials and supplies

 

$

7,780

 

 

$

8,078

 

Finished units

 

 

3,922

 

 

 

3,647

 

Inventories

 

$

11,702

 

 

$

11,725

 

 

 

(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, 2018, management estimates that the net orderly liquidation appraisal value as of March 31, 2019 was approximately $1.1 billion.  Our net book value for this fleet as of March 31, 2019 was $0.9 billion.

Depreciation expense related to our rental fleet for the three months ended March 31, 2019 and 2018 was $7.7 million and $8.1 million, respectively. At March 31, 2019, all rental fleet units were pledged as collateral under our Second Amended and Restated ABL Credit Agreement dated as of March 22, 2019 (the “New 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 March 31, 2019 and December 31, 2018:

 

 

 

Residual Value

as Percentage of

Original Cost (1)

 

 

Estimated

Useful Life

in Years

 

March 31,

2019

 

 

December 31,

2018

 

 

 

 

 

 

 

 

 

(In thousands)

 

Storage Solutions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel storage containers

 

 

55%

 

 

30

 

$

608,025

 

 

$

601,127

 

Steel ground level offices

 

55

 

 

30

 

 

348,591

 

 

 

341,385

 

Other

 

 

 

 

 

 

 

 

7,421

 

 

 

7,249

 

Total

 

 

 

 

 

 

 

 

964,037

 

 

 

949,761

 

Accumulated depreciation

 

 

 

 

 

 

 

 

(155,948

)

 

 

(151,666

)

Total Storage Solutions fleet, net

 

 

 

 

 

 

 

$

808,089

 

 

$

798,095

 

Tank & Pump Solutions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel tanks

 

 

 

 

 

25

 

$

78,355

 

 

$

72,770

 

Roll-off boxes

 

 

 

 

 

15 - 20

 

 

35,793

 

 

 

34,205

 

Stainless steel tank trailers

 

 

 

 

 

25

 

 

28,701

 

 

 

28,764

 

Vacuum boxes

 

 

 

 

 

20

 

 

16,997

 

 

 

17,005

 

Dewatering boxes

 

 

 

 

 

20

 

 

8,659

 

 

 

8,429

 

Pumps and filtration equipment

 

 

 

 

 

7

 

 

13,934

 

 

 

13,984

 

Other

 

 

 

 

 

 

 

 

9,046

 

 

 

8,475

 

Total

 

 

 

 

 

 

 

 

191,485

 

 

 

183,632

 

Accumulated depreciation

 

 

 

 

 

 

 

 

(55,637

)

 

 

(52,637

)

Total Tank & Pump Solutions fleet, net

 

 

 

 

 

 

 

$

135,848

 

 

$

130,995

 

Total rental fleet, net

 

 

 

 

 

 

 

$

943,937

 

 

$

929,090

 

 

(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, 2019 and 2018 was $8.0 million and $7.2 million, respectively. Normal repairs and maintenance to property, plant and equipment are expensed as incurred. When property or equipment is retired or sold, the net book value of the asset, reduced by any proceeds, is charged to gain or loss on the disposal of property, plant and equipment and is included in rental, selling and general expenses in the Condensed Consolidated Statements of Operations.

Property, plant and equipment at March 31, 2019 and December 31, 2018 consisted of the following:

 

 

 

Residual Value

as Percentage of

Original Cost

 

Estimated

Useful Life

in Years

 

March 31,

2019

 

 

December 31,

2018

 

 

 

 

 

 

 

(In thousands)

 

Land

 

 

 

 

 

$

1,648

 

 

$

1,638

 

Vehicles and machinery

 

   0 - 55%

 

5 - 30

 

 

158,589

 

 

 

156,195

 

Buildings and improvements (1)

 

0 - 25

 

3 - 30

 

 

28,099

 

 

 

27,614

 

Computer equipment and software

 

0

 

3 - 10

 

 

71,848

 

 

 

70,903

 

Furniture and office equipment

 

0

 

3 - 10

 

 

6,895

 

 

 

6,680

 

Property, plant and equipment

 

 

 

 

 

 

267,079

 

 

 

263,030

 

Accumulated depreciation

 

 

 

 

 

 

(116,430

)

 

 

(108,776

)

Property, plant and equipment, net

 

 

 

 

 

$

150,649

 

 

$

154,254

 

 

(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

 

(9) Goodwill and Intangibles

For acquired businesses, we record assets acquired and liabilities assumed at their estimated fair values on the respective acquisition dates. Based on these values, the excess purchase prices over the fair value of the net assets acquired is recorded as goodwill. Of the $706.6 million total goodwill at March 31, 2019, $468.5 million related to the North America Storage Solutions segment, $56.9 million related to the U.K. Storage Solutions segment and $181.2 million related to the Tank & Pump Solutions segment.

The following table shows the activity and balances related to goodwill from January 1, 2019 to March 31, 2019 (in thousands): 

 

Balance at January 1, 2019

 

$

705,217

 

Foreign currency

 

 

1,422

 

Balance at March 31, 2019

 

$

706,639

 

 

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, 2019

 

 

December 31, 2018

 

 

 

Estimated

Useful Life

in Years