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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

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)

(480894-6311

(Registrant’s telephone number, including area code)

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $.01 par value

 

MINI

 

Nasdaq Global Select Market

Preferred Share Purchase Rights

 

 

 

 

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes      No  

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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 Act).    Yes      No  

The aggregate market value on June 28, 2019 of the voting common stock held by non-affiliates of the registrant was approximately $1.3 billion.

As of January 24, 2020, there were 44,152,190 outstanding shares of the registrant’s common stock, par value $.01.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Proxy Statement for the registrant’s 2020 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein.

 

 

 


MOBILE MINI, INC.

2019 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

 

 

 

 

Page

 

 

PART I

 

ITEM 1

 

BUSINESS

4

ITEM 1A

 

RISK FACTORS

16

ITEM 1B

 

UNRESOLVED STAFF COMMENTS

25

ITEM 2

 

PROPERTIES

25

ITEM 3

 

LEGAL PROCEEDINGS

25

ITEM 4

 

MINE SAFETY DISCLOSURES

25

 

 

 

 

 

 

PART II

 

ITEM 5

 

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

26

ITEM 6

 

SELECTED FINANCIAL DATA

28

ITEM 7

 

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

33

ITEM 7A

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

48

ITEM 8

 

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

50

ITEM 9

 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

97

ITEM 9A

 

CONTROLS AND PROCEDURES

97

ITEM 9B

 

OTHER INFORMATION

97

 

 

 

 

 

 

PART III

 

ITEM 10

 

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

98

ITEM 11

 

EXECUTIVE COMPENSATION

98

ITEM 12

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

98

ITEM 13

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

98

ITEM 14

 

PRINCIPAL ACCOUNTING FEES AND SERVICES

98

 

 

 

 

 

 

PART IV

 

ITEM 15

 

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

99

 

 

 

2


Cautionary Statement about Forward Looking Statements

Unless otherwise indicated, the terms “Mobile Mini,” the “Company,” “we,” “us” and “our” refer to Mobile Mini, Inc. together with its consolidated subsidiaries.

Our discussion and analysis in this Annual Report on Form 10-K, our 2019 Annual Report to Stockholders, our other reports that we file with the Securities and Exchange Commission (the “SEC”), our press releases and in public statements of our officers and corporate spokespersons contain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current events. We have tried, wherever possible, to identify such statements by using words such as “may,” “plan,” “seek,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “continue,” “project,” “could,” “should,” “would,” “likely,” “future,” “target,” “forecast,” “goal,” “observe,” and “strategy” or the negative thereof or variations thereon or similar terminology. The forward-looking statements in this Annual Report on Form 10-K reflect management’s beliefs, plans, objectives, goals, expectations, anticipations and intentions with respect to our financial condition, results of operations, future performance and business, and include statements regarding, among other things, our future actions; financial position; management forecasts; efficiencies; cost savings, synergies and opportunities to increase productivity and profitability; our plans and expectations regarding acquisitions; income and margins; liquidity; anticipated growth; the economy; business strategy; budgets; projected costs and plans and objectives of management for future operations; sales efforts; taxes; refinancing of existing debt; and the outcome of contingencies such as legal proceedings and financial results.

Forward-looking statements are neither historical facts nor assurances of future performance.  Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to certain risks and uncertainties, including, without limitation, an economic slowdown in the United States (“U.S.”) and/or the United Kingdom (“U.K.”) that affects any significant portion of our customer base, or the geographic regions where we operate in those countries; our ability to manage growth at existing or new locations; our ability to obtain borrowings under our revolving credit facility or additional debt or equity financings on acceptable terms; changes in the supply and price of used containers; our ability to increase revenue and control operating costs; our ability to continue to develop revenue from managed rental services; our ability to raise or maintain rental rates; our ability to leverage and protect our information technology systems; our ability to protect our patents and other intellectual property; currency exchange and interest rate fluctuations; oil and gas prices; governmental laws and regulations affecting domestic and foreign operations, including tax obligations and labor laws; changes in the supply and cost of the raw materials we use in refurbishing or remanufacturing storage units; competitive developments affecting our industry, including pricing pressures; the timing, effectiveness and number of new markets we enter; our ability to cross-sell our portable storage and specialty containment products; our ability to integrate recent acquisitions; changes in generally accepted accounting principles; changes in local zoning laws affecting either our ability to operate in certain areas or our customer’s ability to use our products; any changes in business, political and economic conditions due to the threat of future terrorist activity in the U.S. and other parts of the world and related U.S. military action overseas; our ability to utilize our deferred tax assets; and those other risks and uncertainties discussed herein, that could cause actual results to differ materially from historical results or those anticipated.  In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Annual Report on Form 10-K will in fact transpire or prove to be accurate.  Readers are cautioned to consider the specific risk factors described herein and in “Item 1A. Risk Factors” of this Annual Report on Form 10-K, and not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof.

The Company undertakes no obligation to update or publicly revise any forward-looking statement whether as a result of new information, future developments or otherwise.  All subsequent written or oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this paragraph.  You are advised, however, to review and consider any further disclosures we make on related subjects in our subsequently filed Form 10-Q and Form 8-K reports and our other filings with the SEC.  Also note that we provide a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our business under “Item 1A. Risk Factors” of this Annual Report on Form 10-K.  We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995.  You should understand it is not possible to predict or identify all such factors.

3


PART I

ITEM 1.

BUSINESS.

Mobile Mini, Inc. - General

We believe we are the world’s leading provider of portable storage solutions, and are committed to providing our customers with superior service and access to a high-quality and diverse fleet.  We are also a leading provider of specialty containment solutions in the United States (“U.S.”).  Our mission is to uphold our leadership positions in portable storage solutions to customers throughout North America and the United Kingdom (“U.K.”) and become the provider of choice for specialty containment products in the U.S.

Business Model

Mobile Mini, founded in 1983, focuses on renting rather than selling our units, with rental revenues representing approximately 95% of our total revenues for the year ended December 31, 2019.  We believe this strategy provides us with predictable, recurring revenue.  Additionally, our assets have long useful lives, low maintenance and generally maintain their value throughout their useful lives.  We also sell new and used units and provide delivery, installation and other ancillary products and value-added services.

Our business is comprised primarily of two product categories:

 

-

Storage Solutions

This category consists of our container and ground level office product offerings. We offer a wide range of Storage Solutions products in varying lengths and widths with an assortment of differentiated features such as patented locking systems, premium doors, electrical wiring and shelving. Our Storage Solutions products provide secure, accessible storage for a diversified client base of approximately 74,000 customers across various industries, including construction, retail and consumer services, industrial, commercial and governmental. Our customers use these products for a wide variety of storage applications, including construction materials and equipment, retail and manufacturing inventory, maintenance supplies, documents and records, household goods, and as portable offices.

 

-

Tank & Pump Solutions

Our Tank & Pump Solutions products consist primarily of liquid and solid containment units, pumps and filtration equipment. Additionally, we provide an offering to our customers of value-added services designed to enhance the efficiency of managing liquid and solid waste. The client base for our Tank & Pump Solutions products includes customers in specialty industries, such as chemical, refinery, oil and natural gas drilling, mining and environmental.

As of December 31, 2019, our network includes 120 Storage Solutions locations, 20 Tank & Pump Solutions locations and 16 combined locations.  Included in our Storage Solutions network are 15 locations in the U.K., where we are a leading provider, and two in Canada. Our Storage Solutions fleet consists of approximately 200,200 units, and our Tank & Pump business has a fleet of approximately 12,700 units.  In the discussions below, we generally refer to our business and assets as either “Storage Solutions” or “Tank & Pump Solutions.”

Recent Strategic Transactions

In March 2019, we created more capital flexibility and positioned Mobile Mini for future growth by entering into the Second Amended and Restated ABL Credit Agreement dated as of March 22, 2019 (the “Credit Agreement”) with Deutsche Bank AG New York Branch (“Deutsche Bank”), as administrative agent, and the other lenders party thereto, which replaced our prior Amended and Restated ABL Credit Agreement dated as of December 14, 2015. The Credit Agreement extends the maturity of our ABL financing to March 2024 and reduces fees associated with unused credit.

Industry Overview

Storage Solutions

The storage industry includes two principal sectors, fixed self-storage and portable storage. The fixed self-storage sector consists of permanent structures located away from customer locations to store excess household goods. We do not participate in the fixed self-storage sector.

The portable storage sector, upon which our business focuses, differs from the fixed self-storage sector, as it brings the storage solution to the customer’s location and fulfills the need for secure storage with immediate access to the storage unit.

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The advantages of portable storage include convenience, immediate accessibility, and lower price. In contrast to the fixed self-storage sector, the portable storage sector is primarily used by businesses. This sector of the storage industry is highly fragmented and remains primarily local in nature. Although there are no published estimates of the size of the portable storage market, we believe the sector is expanding due to the increasing awareness of the advantages of portable storage and that portable storage units are achieving increased market share compared to other portable options because containers provide ground level access, better protection against wind or water damage, higher security and improved aesthetics when compared to certain other portable storage alternatives such as van trailers.

We also offer ground level offices to serve the modular space industry, which includes mobile offices and other modular structures. Our ground level offices are either custom designed and manufactured or made from converted ISO (International Organization for Standardization) containers.  In addition, our fleet includes combination steel ground level office/storage units in varying lengths and widths to serve the various requirements of our customers.

Tank & Pump Solutions

In the specialty containment sector, we service different markets. We serve the industrial market, which is comprised mainly of chemical facilities and refineries (the “downstream” market), and, to a lesser extent, companies engaged in the exploration and production of oil and natural gas (the “upstream” market).  Additionally, we serve a diversified group of customers engaged in projects in the construction, pipeline and mining markets.  Downstream customers utilize our equipment and services to manage and remove liquid and solid waste generated by ongoing operating activities as well as turn-around projects and large-scale expansion projects, while upstream customers tend to rent steel tanks to store water used in well hydraulic fracturing (“fracking”).  Other customers utilize a wide variety of our products differentiated by the type of project in which they are engaged.

Business Environment and Outlook

Based on our assessment, we expect that the majority of our North American end markets will continue to drive demand for our products, although some macro-economic indicators are pointing to slower growth.  The construction industry, which represents approximately 36% of our consolidated rental revenue, is forecasted to continue to show growth.  Economic indicators related to the industrial and commercial end-segment are mixed.  Industrial and commercial customers, which comprise approximately 26% of our rental revenue, generally operate in industries such as:  large processing plants for organic and inorganic chemicals, refineries, distributors and trucking and utility companies.  Our national retail accounts typically involve seasonal demand in the third and fourth quarter during the holiday season.  Retail and consumer service customers comprise approximately 23% of our rental revenue and include department, drug, grocery and strip mall stores as well as hotels, restaurants, service stations and dry cleaners.  Upstream oil and gas customers comprise approximately 2% of our rental revenue and include companies performing such activities as exploratory well drilling, operation of producing wells and bringing crude oil and/or raw natural gas to the surface using alternative methods.

In October 2019, the U.K. and E.U. agreed upon the terms of the U.K.'s withdrawal from the E.U. in the form of a Withdrawal Agreement. The Withdrawal Agreement was ratified by the U.K. Parliament, and the European Parliament in Brussels, in late January, with the consequence that Brexit formally occurred on January 31, 2020.

Economists predict there may be a modest improvement in the U.K. economy in the early months of 2020, as certain of the uncertainties facing the economy are diluted by the decisive U.K. election result and the certainty of the U.K. leaving the E.U. on January 31, 2020. This may lead to business investment decisions and commitments to major projects going ahead. However, the upside is expected to be limited by, among other things, longer-term Brexit uncertainties after the end of 2020. The current opinion of most economists is that, even after the U.K. formally leaves the E.U., there will be no lasting recovery until a U.K.-E.U. trade deal is in place.

Competitive Strengths

Our competitive strengths include the following:

Market Leader. We believe we are the world’s largest provider of portable storage solutions, the largest portable storage provider in North America, a market leader in portable storage and accommodation solutions in the U.K., where we have nearly 100% geographic coverage, and the third largest provider of specialty containment solutions in the U.S.

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Our business units operate under one family of brands.  The portable storage business is branded as “Mobile Mini Storage Solutions,” while our specialty containment business is known as “Mobile Mini Tank + Pump Solutions”.  Together we are “Mobile Mini Solutions”.  The Mobile Mini Solutions brand name is associated with high quality products, superior customer service and value-added solutions. Our branding reinforces this reputation and communicates to Mobile Mini’s customers that the Company offers a diversified portfolio of products, with consistent quality and world-class service.

We believe we are one of a few competitors in the U.S. and the U.K. who possess the brand awareness, network of locations, customer relationships and infrastructure to compete on a national and regional basis while maintaining a strong local market presence.

Superior, Differentiated Products and Service.  Within Storage Solutions, we offer a wide breadth of products and proprietary security features, like our patented tri-cam locking system. This product differentiation within the Storage Solutions sector and our superior service allows us to gain market share and charge premium rental rates.

We also offer a broad range of Tank & Pump Solutions equipment and value-added services, which enables us to meet customers’ ongoing needs throughout the various life cycles of projects unique to the petrochemical and industrial industries.  Our comprehensive turnkey solutions to customers’ containment, storage, pumping and filtration needs drive the creation of strong long-term partnerships with our customers.

Sales and Marketing Emphasis. We target a diverse customer base and, unlike most of our competitors, have developed sophisticated sales and marketing programs enabling us to expand market awareness of our products and generate strong organic growth. We have a dedicated, commissioned sales team that works within our highly customized customer relationship management (“CRM”) system. We manage our salespersons’ effectiveness through extensive sales call monitoring, mentoring and intensive training programs. Our digital advertising includes paid and organic search, industry targeted content, social messaging and strategic partnerships.  Additionally, our web site is designed to maximize organic and local search features, making use of location-specific content using the latest in technology to connect our customers with the nearest branch, as quickly as possible. Our web site features video case studies, product specifications, easy access to our customer portal and supports real time sales inquiries that enable customers to chat live with salespeople.

National Presence with Local Service.  We have invested significant capital developing a national network of locations that serve most major metropolitan areas in the U.S. and the U.K. Our national presence in both markets allows us to offer our products to larger customers who wish to centralize the procurement of Storage Solutions and Tank & Pump Solutions products on a multi-regional or national basis.  We have leveraged and will continue to leverage our national Storage Solutions presence and infrastructure across the U.S. to facilitate the geographic expansion of our Tank & Pump Solutions division.  Locally, our branch managers, sales representatives and drivers develop and maintain critical long-lasting relationships with our customers who benefit from our reach and exceptional service, as well as our wide selection of products.

Customer Service. The portable storage industry is service intensive. To position ourselves to understand our customers’ needs, we have trained our sales force to focus on all aspects of customer service from the sales call onward. We use Salesforce.com® as our CRM platform to increase our responsiveness to customer inquiries and to efficiently monitor our sales force’s performance.

We use a Net Promoter Score (“NPS”) system to measure customer loyalty through real time surveys conducted by a third party. We utilize customer feedback to drive service improvements across the Company, from our field locations to our corporate headquarters, resulting in proven success as evidenced by our best in class NPS score of 86% for 2019. We differentiate ourselves by coupling market-leading product quality, security, convenience, selection and availability, with exceptional customer service. We believe our superior customer service drives customer satisfaction and we survey our customers to determine the ease of doing business with us.  Survey results are scrutinized to prioritize customer-facing process improvements.

Within the tank and pump industry, we have leveraged our broad range of products and expertise to differentiate ourselves from our competitors. Our Tank & Pump Solutions business offers a full suite of the liquid and solid containment equipment required to execute a comprehensive containment solution that often must meet stringent regulatory and technical requirements.  

Management Information Systems and Proprietary Digital Solutions.  We continue to make significant investments in the management information systems supporting our operations. Our customized management information systems enable us to optimize fleet utilization, control pricing, dispatch and track our trucks, capture detailed customer data, evaluate and approve credit applications, monitor company results, gain efficiencies in

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internal control compliance, and support our growth by projecting near-term capital needs. These systems also provide insight into estimating our forward-looking market potential by territory, enabling us to be more proactive and responsive when driving specific revenue streams.  Decision makers and field personnel at all levels have access to real-time business information. In addition, we consistently capture relevant customer demographic and usage information to target new customers within existing and new markets. These capabilities result in a competitive advantage over smaller, less sophisticated regional competitors.

As part of our commitment to be the supplier of choice for our customers in 2019 we expanded several proprietary digital business solutions. Our customer portal MM ConnectTM provides our customers real-time access to track and execute customer rental agreements, request services, review account history and make payments. In 2018 and 2019, we also introduced several mobile applications to drive efficiencies when interacting with our customers including delivery notifications, enabling real time contract activations and confirmation of delivery with digital signatures.  In 2019, we launched a live chat feature on our website that allows customers to be guided through the entire rental process digitally by a sales team member.  This alignment of technology and process provides value for our customers, drives market share growth and enables Mobile Mini to be easy to do business with.

Within the tank and pump industry specifically, we offer EnviroTrackTM, a proprietary, sophisticated technology platform that provides detailed real-time data capture, tracking and customized reporting capabilities.  We continue to further develop EnviroTrackTM as a GPS and smart-device enabled solution allowing our Tank & Pump Solutions customers to manage both their equipment on rent as well as their waste streams through the life cycle of the rental period.  Our technology is a market differentiator, enabling us to develop strong, long-term relationships with the majority of our customer base, many of whom are large, blue-chip companies.

In addition to our customer-facing solutions, we continue to deploy new technology internally to promote efficient and effective processes within operations.  In 2019, we implemented a new mobile platform to facilitate the inspection and repair process of units returning from rental contracts. This process ensures we have accurate status of all assets in yards and provides a clear view of specific required maintenance by unit, which ultimately results in accurate and timely billing of any damage caused while on rent. All solutions deployed are designed to ensure our fleet is maintained in a rent ready state.  

Safety. At Mobile Mini, we are committed to the safety of our employees and our business partners.  We believe that our focus on safety is a competitive advantage, as customers are increasingly focused on safety records in their sourcing decisions, especially in the Tank & Pump Solutions segment.

Business Strategy

Our strategic goal is to accelerate rental revenue growth and expand our operating margins by leveraging our infrastructure, focusing on higher returning assets and driving continuous improvements in efficiency.  To achieve this goal, we intend to continue execution of the following strategies:

Focus on Core Rental Business with Higher Returning Assets. Our rental business provides predictable recurring revenue and high margins.  We are constantly evaluating our portfolio of product offerings to ensure our capital is invested in products that provide optimal returns.

Generate Strong Organic Growth. We focus on increasing market penetration and gaining additional revenues from existing customers as well as gaining new customers through sophisticated sales and marketing programs aimed at increasing brand recognition, expanding market awareness of the uses of portable storage and differentiating our superior products from those of our competitors. In particular, we have experienced increased customer demand for our ground level offices and anticipate strong rental revenue growth related to this product group.

Opportunistic Geographic Expansion. We continue to evaluate potential acquisitions of varying sizes for our North America Storage Solutions business.  Acquisitions are a method we may use to create value, gain market share and expand to new or underserved markets in North America where we believe demand for portable storage units is underdeveloped.  We also have a proven strategy to enter markets by migrating available fleet to new markets that can be serviced by nearby full-service field locations. From these start-up operational yards, we are able to redeploy existing available fleet, allowing for cost effective new location openings with minimal capital expenditures. We also believe we have the opportunity to geographically expand the markets in which we offer Tank & Pump Solutions products.

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Innovative Product Offering. Our wide offering of products with varying features expands the applications and overall market for our Storage Solutions products. Within our Tank & Pump Solutions products, we offer one of the broadest ranges of services and containment equipment in the industry complemented by an assortment of pumps and filtration units designed to allow us to partner with customers through every project stage.  We believe that there will continue to be substantial demand for our rental products throughout North America and the U.K.  

Managed Services.  For certain of our customers, we partner with other rental companies to provide supplementary product and service offerings that may not be provided as part of our core product offering. Arranging these comprehensive services for our customers increases customer loyalty while generating additional rental revenue without additional investment in fleet.

Opportunities for Cross-selling and Expansion. By leveraging Mobile Mini’s national footprint we can expand the geographic reach of our Tank & Pump Solutions products. Additionally, our significant Tank & Pump Solutions presence in downstream markets, particularly in the Gulf Coast region of the U.S., has allowed us to leverage established, long-term Tank & Pump Solutions relationships for their Storage Solutions needs.

Focus on Efficient Utilization of Fleet. We are focused on following disciplined pricing practices and maintaining the right mix of products within each geography to maximize the return on our assets and we continuously strive to enhance our fleet management processes to maximize fleet availability. Additionally, our salesforce proactively reaches out to the market to increase awareness of our products and has sophisticated tools to increase sales productivity. Optimizing fleet availability enables increased utilization resulting in higher rental margins, reduced capital expenditure requirements and maximum return on investment.

Drive Profitability of Existing Locations.  We have established key performance indicators to optimize profitability at individual locations and incentivize local management teams based on the performance of their branch.  We also compare results across locations and regions to identify areas of opportunity for growth or for increased efficiencies.

Continuous Improvement in Our Systems.  We have made significant investments in our management information systems supporting our operations and believe these systems give us a competitive advantage. We utilize SAP® Enterprise Resource Planning (“ERP”) system which is a scalable platform to support future growth. We are focused on continued enhancements that drive further process improvements and efficiencies.

Products

To achieve favorable pricing and optimize our capital expenditures we centrally manage the purchasing of our rental fleet.  We acquire our products through a trusted worldwide network of industry leading suppliers and manufacturers, negotiating competitive purchasing programs aimed at reducing total cost of ownership and maximizing asset returns across all of our business units.  We maintain our assets at industry leading quality standards through rigorous maintenance programs executed throughout its branch network.  We do not generally maintain long-term contracts with any of our suppliers.

We protect our products and brands through the use of trademarks and patents. In particular, we have patented our proprietary tri-cam locking system, our Container Guard Lock and other continued improvements in our locking technology both in the markets in which we operate, as well as in Europe and China.

Storage Solutions

We offer customers a wide range of portable storage and office products with an assortment of differentiated features such as patented locking systems, premium and multiple door options and numerous configuration options. Our portable storage units provide secure, accessible storage. Our principal products are listed below:

 

Steel Storage Containers.  Standard portable storage containers are available in lengths ranging from 5 to 48 feet, widths of either 8 feet or 10 feet and a variety of customization options. Doors can be placed at the front, front and back, or the sides of containers. Other options include partitions and shelving. We believe our steel storage containers are a cost-effective alternative to mass warehouse storage, with a high level of fire and water damage protection.

 

Steel Ground Level Offices. We offer steel ground level offices from 10 to 40 feet in length and 8 or 10 feet in width. Our 8 foot wide offices are available in various configurations, including office and storage combination units that provide a 10- or 15-foot office with the remaining area available for storage. Our office units provide the advantage of ground accessibility for ease of access and high security in an all-steel design. Our U.K. products include canteen units and drying rooms for the construction industry. For customers with space limitations, the

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U.K. office/canteen units can also be stacked two or three-high with stairs for access to the upper units. These office units are equipped with electrical wiring, heating and air conditioning, phone jacks, carpet or tile, high security doors and windows with security bars or shutters. Some of these offices are also equipped with sinks, hot water heaters, cabinets and restrooms.

Tank & Pump Solutions

We offer a broad range of specialty containment equipment and services complemented by an assortment of pumps, filtration units and waste hauling services. In addition, we offer ancillary products for rental and for sale to our customers, such as hoses, pipes, filters and spill containment. Our principal products and services include those listed below:

 

Steel Tanks. Our fleet of steel tanks offers flexible sizes and other options such as weir, gas buster and open top steel tanks. Applications include:  temporary storage of chemicals, water and other liquids, thorough mixing, agitation and circulation of stored liquids with other products, removal of gas from fluids circulated in the wellbore - such as mud used during drilling operations and settling of solids in liquids prior to filtration or discharge.

 

Stainless Steel Tank Trailers. Our stainless steel tankers meet department of transportation specifications for use in the storage and transportation of chemical, caustics and other liquids. Stainless steel tanks are offered insulated or non-insulated with level indication and vapor recovery capability. 

 

Roll-Off Boxes. Utilized for a variety of containment applications where it is necessary to maintain the homogeneity of the contents, our roll-off boxes provide simple, leak-proof storage and transportation of solid industrial byproducts. Roll-tarps or rolling metal lids are available to protect the contents from the elements during transport or storage.

 

Vacuum boxes. Vacuum roll-off boxes are also offered to pair with a vacuum truck for containment, storage or transportation of pressurized contents.

 

Dewatering Boxes. Our dewatering boxes are configured to provide for the draining of excess liquid from slurry or sludge which reduces storage, transportation and disposal costs.  Upon completion of dewatering, the container is generally picked up by a roll-off truck for content disposal.  Vacuum dewatering boxes are also offered.

 

Pumps and Filtration Equipment. We offer a variety of pumps and filtration equipment differentiated by size and power.  This equipment is used primarily for liquid circulation and filtration in municipal and industrial applications.

 

Services. Value-added services performed by our employees include:

 

-

Transportation of containers for waste management between multiple locations or in-plant,

 

-

Waste management oversight and service provision by an on-site dedicated team,

 

-

System design including assessment of pumping, filtration and temporary storage needs, and

 

-

Field services to correctly install and connect customer containment equipment.

Product Lives and Durability

We rent containers and equipment that have been in our fleet for various lengths of time at similar rates, without regard to the age of the unit. Third-party appraisals on our rental fleet are required by our lenders on a regular basis. The appraisals typically report no difference in the value of the unit due to the age or length of time it has been in our fleet.  These appraisals are used to calculate our available borrowings under our Credit Agreement. Based in part upon our lender’s third-party appraiser who evaluated our fleet as of August 31, 2019, management estimates that the net orderly liquidation appraisal value of our rental fleet at December 31, 2019 was approximately $1.1 billion.  Our net book value for this fleet as of December 31, 2019 was $966.2 million.

Storage Solutions

Steel containers have a long useful life with no technical obsolescence. Our steel portable storage containers and steel ground level offices have estimated useful lives of 30 years from the date we build or acquire and remanufacture them, with residual values of 55%. We maintain our steel containers on a regular basis by removing rust, painting them with rust inhibiting paint, plug-welding holes, and occasionally replacing the wooden floor or a rusted steel panel. Repainting the outside of storage

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units is the most common maintenance item.  A properly maintained container is essentially in the same condition as when initially remanufactured.

Tank & Pump Solutions

When purchased new, our steel tanks and stainless steel tank trailers have estimated useful lives of 25 years, dewatering and roll-off boxes have useful lives ranging from 15 to 20 years and our pumps and filtration equipment have estimated lives of 7 years.  We do not assume any residual value at the end of the assets’ useful lives.  There is a limited secondary market for Tank & Pump Solutions products. We have outlined a stringent quality control and maintenance program to ensure that only equipment of the highest quality is released to the field. Each container undergoes a thorough visual inspection, hydro-testing and ultrasonic thickness testing to identify maintenance requirements.  Tank maintenance includes repainting with rust inhibiting paint, replacing interior liners, and repairing valves, gaskets and rails. This periodic maintenance keeps the Tank & Pump units in essentially the same condition as when initially purchased and is designed to maintain the units’ value.

Depreciation

We depreciate our rental fleet using the straight-line method over each unit’s estimated useful life after the date we place the unit in service, and the units are depreciated down to their estimated residual values, if any.  Assets obtained through acquisitions are recorded at their then current fair market value and depreciated to their estimated residual value over each asset’s estimated remaining life.

Remanufacturing and Manufacturing of Storage Solutions Containers

We purchase used ISO containers from leasing companies, shipping lines and brokers. These containers were originally built to ISO standards and are 8 feet wide, up to 9.5 feet high and 20, 40 or 45 feet long. After acquisition, we remanufacture and modify these ISO containers. Remanufacturing typically involves cleaning, removing rust and dents, repairing floors and sidewalls, painting, adding our signs and further customizing units by adding our proprietary easy opening door system and our patented locking system. Modification typically involves splitting some containers into differing lengths.  The capitalized cost for remanufactured units includes the price we paid for the unit, plus the cost of customizing units and freight charges to our location when the unit is first placed in service.  For manufactured units, cost includes our manufacturing cost, customization costs and freight charges to our location when the unit is first placed in service.  In addition, we also purchase containers that have been manufactured in China that meet our size and quality specifications and as a result require no further customization.

Rental Fleet Composition

The table below outlines the composition of our Storage Solutions rental fleet at December 31, 2019:

 

 

 

Rental Fleet

 

 

Number of

Units

 

 

Percentage of

Gross Fleet

in Dollars

 

 

 

Percentage

of Units

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel storage containers

 

$

627,230

 

 

 

170,717

 

 

 

63

 

%

 

 

85

 

%

Steel ground level offices

 

 

366,630

 

 

 

28,762

 

 

 

37

 

 

 

 

14

 

 

Other

 

 

6,565

 

 

 

672

 

 

 

 

 

 

 

1

 

 

Storage Solutions rental fleet

 

 

1,000,425

 

 

 

200,151

 

 

 

100

 

%

 

 

100

 

%

Accumulated depreciation

 

 

(166,565

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Storage Solutions rental fleet, net

 

$

833,860

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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The table below outlines the composition of our Tank & Pump Solutions rental fleet at December 31, 2019:

 

 

 

Rental Fleet

 

 

Number of

Units

 

 

Percentage of

Gross Fleet

in Dollars

 

 

 

Percentage

of Units

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel tanks

 

$

82,015

 

 

 

3,254

 

 

 

42

 

%

 

 

26

 

%

Roll-off boxes

 

 

35,398

 

 

 

5,640

 

 

 

18

 

 

 

 

45

 

 

Stainless steel tank trailers

 

 

29,716

 

 

 

639

 

 

 

15

 

 

 

 

5

 

 

Vacuum boxes

 

 

16,775

 

 

 

1,521

 

 

 

8

 

 

 

 

12

 

 

Dewatering boxes

 

 

9,486

 

 

 

880

 

 

 

5

 

 

 

 

7

 

 

Pumps and filtration equipment

 

 

14,343

 

 

 

725

 

 

 

7

 

 

 

 

5

 

 

Other

 

 

9,776

 

 

n/a

 

 

 

5

 

 

 

n/a

 

 

Tank & Pump Solutions rental fleet

 

 

197,509

 

 

 

12,659

 

 

 

100

 

%

 

 

100

 

%

Accumulated depreciation

 

 

(65,146

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tank & Pump Solutions rental fleet, net

 

$

132,363

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations

Our senior management analyzes and manages our business as (i) two Storage Solutions business segments: North America and the U.K. and (ii) one Tank & Pump Solutions business segment. To effectively manage this business across different geographic areas, we divide these business segments into smaller management areas we call divisions, regions and locations. Each of our locations, in their respective segment, generally has similar characteristics covering products rented or sold, similar customer bases, sales personnel, advertising, yard facilities, general and administrative costs and field operations management. Further financial information by segment is provided in Note 16 “Segment Reporting” to the accompanying consolidated financial statements.

We locate our field operations in markets with attractive demographics and strong growth prospects. Within each market, we are located in areas that allow for easy delivery of units to our customers over a wide geographic area. In addition, when cost effective, we seek locations that are visible from high traffic roads in order to advertise our products and our name. A typical branch consists of outdoor storage space for units not currently on rent and a small office.

Each branch has a manager who has overall supervisory responsibility for all operational activities. Branch managers report to regional managers who each generally oversee multiple locations. Our regional managers, in turn, report to one of our operational senior vice presidents (called a managing director in the U.K.). Performance-based incentive bonuses are a substantial portion of the compensation for these senior vice presidents, regional managers and branch managers.

Locations have dedicated sales staff and transportation personnel that deliver and pick up units from customers. We also supplement our delivery fleet by outsourcing delivery services to independent haulers when appropriate. The locations have delivery trucks and forklifts to load, transport and unload units and a yard staff responsible for unloading and stacking units. Portable storage steel units can be stored by stacking them to maximize usable ground area. Our branch employees perform preventive maintenance tasks but outsource major repairs and other maintenance requirements either externally or to a senior repair team.

Sales and Marketing

Storage Solutions

We approach the market through a territory-based sales model with local, regional and national sales, including dedicated staff at our field locations as well as at our National Sales Center (“NSC”). Our field sales representatives handle local inbound calls and work to develop their branch territory and deepen local relationships through effective networking. Additionally, throughout the salesforce, we have multiple avenues of customer communication, including digital methods like live chat.  The NSC handles overflow, answering inbound calls and working digital leads while initiating outbound sales campaigns across our footprint. Our one-team approach means that everyone works with our local branch managers and dispatchers to ensure customers receive integrated first-class service from inquiry to pickup.  We believe that offering our customers local sales and service support in addition to the convenience of a centralized sales operation, allows us to serve all of our customers in a dedicated, efficient manner.

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Our sales and marketing personnel provide information about our products to prospective customers by handling inbound calls and initiating outbound marketing calls. We have ongoing sales and marketing training programs covering all aspects of sales process and customer service. Our field locations communicate with one another and with corporate headquarters through our ERP system and our CRM platform, Salesforce.com®. This centralization of information enables the sales team to share leads and other information and permits management to monitor and review sales and rental productivity on a location-by-location basis. We improve our sales efforts by recording and rating the sales calls made and received by our trained sales force. Our sales personnel are compensated largely on a commission basis.

Our national footprint in the U.S. and the U.K. allows us to offer our products to larger customers who wish to centralize the procurement of portable storage on a multi-regional or national basis. Within our portable storage business, we are well equipped to meet these customers’ needs through our National Account Program, which centralizes and simplifies the procurement, rental and billing process for those customers.  Our largest customers tend to participate in our National Account Program. We provide our National Account customers with service guarantees, which assure them they will receive the same superior customer service and access to high quality, diverse fleet from any of our field locations. This program has helped us succeed in leveraging customer relationships developed at one location across our entire network of locations.

We focus a significant portion of our marketing expenditures on digital initiatives for both existing and potential customers. We also use targeted direct email and digital programs to build brand awareness by communicating market specific features and tying them to industry benefits of using portable storage solutions. We have implemented aspects of search engine marketing like remarketing, pay per click, content curation, and organic search best practices to drive our customers to on-line lead generation integrated into our CRM. Immediately after completion of the online form, our dedicated sales force contacts the customer and completes the request. External market research vendors are an integral part of our sales and marketing approach.

Tank & Pump Solutions

Each Tank & Pump Solutions branch is responsible for targeting potential new customers in the branch’s service area and to be available to respond to customers 24 hours a day, 365 days a year.  The branches are supported by a corporate team, including a sales and marketing department, business development representatives and National Account management.  Branch managers and business development representatives work with customers to design customized solutions and identify new service and product applications.  National Account management maintains contractual relationships with numerous blue-chip customers and coordinates the provision of services to customers with locations across multiple areas.  Our sales personnel are compensated largely on a commission basis.

Within our Tank & Pump Solutions business we utilize an advanced prospect and customer management software package across our sales force and branch network, providing enhanced visibility and tracking on all prospective customer accounts.  Personnel have access to real-time critical customer information regardless of location.  This access facilitates targeted marketing and sharing of relevant customer information across branches.

Customers

Storage Solutions

In 2019, we served approximately 74,000 customers.  Within the Storage Solutions product lines, our largest customer accounted for approximately 6% and 7% of our rental revenues for the years ended December 31, 2019 and 2018, respectively, while no other customer accounted for more than 2% of rental revenues either year. Our 20 largest customers combined accounted for approximately 14% and 15% of Storage Solutions rental revenues in 2019 and 2018, respectively.  During 2019 and 2018, approximately 56% of our customers rented a single unit. We target customers who we believe can benefit from our Storage Solutions, either for seasonal, temporary or long-term storage needs. Customers use our portable storage units for a wide range of purposes.

Tank & Pump Solutions

Our Tank & Pump Solutions customers are concentrated in the Gulf Coast region of the U.S. and are generally large companies, including blue-chip companies, with whom we have long-term relationships. During the year ended December 31, 2019, our first and second largest customers accounted for approximately 10% and 8%, respectively of Tank & Pump Solutions revenue and during the year ended December 31, 2018 our first and second largest customers accounted for approximately 12% and 7%, respectively of Tank & Pump Solutions rental revenues. Our 20 largest customers combined accounted for

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approximately 52% and 53% of Tank & Pump Solutions rental revenues in 2019 and 2018, respectively.  Generally, our Tank & Pump Solutions customers belong in one of the following three categories:

 

Downstream customers that focus on refining petroleum crude oil as well as processing and purifying raw natural gas.  These customers may also market and distribute products derived from crude oil and natural gas including such products as gasoline, kerosene, jet fuel, diesel oil, lubricants, asphalt, natural gas and hundreds of varieties of petrochemicals.

 

Upstream customers focusing on exploration for underground crude oil and natural gas fields.  Upstream companies perform such activities as well drilling, operation of producing wells and bringing crude oil and/or raw natural gas to the surface using alternative methods.  This category includes companies that perform fracking and transmission services.

 

Diversified customers consist of all other companies to whom we provide products or services.  These customers primarily perform pump and filtration activities such as:  municipal sewer and water infrastructure, mining pit pump work, pipeline construction and maintenance, non-residential construction and other major projects.

We estimate that total 2019 Tank & Pump Solutions rental revenue was 71%, 10% and 19% from downstream, upstream and diversified customers, respectively.

Combined Customer Base

The following table provides an overview of our customers and the estimated portion of total rental revenue generated by each customer group during the year ended December 31, 2019:  

 

Business

 

Estimated

Percentage

 

 

Representative

Customers

Construction

 

36%

 

 

General, electrical, plumbing and mechanical contractors, landscapers, residential homebuilders, and equipment rental companies

 

 

 

 

 

 

 

Retail and consumer services

 

23%

 

 

Department, drug, grocery and strip mall stores, hotels, restaurants, dry cleaners and service stations

 

 

 

 

 

 

 

Industrial and commercial

 

26%

 

 

Major processing plants for organic and inorganic chemicals, refineries, distributors and trucking and utility companies

 

 

 

 

 

 

 

Government and institutions

 

6%

 

 

National, state and local agencies and municipalities, schools, hospitals, medical centers, military, Native American tribal governments and reservations

 

 

 

 

 

 

 

Oil and gas

 

2%

 

 

Companies performing such activities as exploratory well drilling, operation of producing wells and bringing crude oil and/or raw natural gas to the surface using alternative methods (including fracking)

 

 

 

 

 

 

 

Other

 

7%

 

 

 

 

 

 

 

 

 

 

Total

 

100%

 

 

 

 

Rental Terms

Storage Solutions

We enter into contracts with our Storage Solutions customers generally based on a 28-day rate and billing cycle.  The rental continues until cancelled by the customer or the Company. On average, the steel storage containers on rent at December 31, 2019, have been in place for 30 months, and the steel ground level offices on rent at December 31, 2019 have been in place for 15 months. Our rental contracts provide that the customer is responsible for the cost of delivery and pickup and specify that the customer is liable for any damage done to the unit beyond ordinary wear and tear. Customers may purchase

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a damage waiver from us to avoid damage liability in certain circumstances, which provides us with an additional source of recurring revenue. Customer possessions stored within a portable storage unit are the responsibility of that customer.

Tank & Pump Solutions

Our Tank & Pump Solutions rental contracts typically offer daily, weekly or monthly rates. Certain of our larger customers have multi-year agreements that limit rate increases during the term of the contract.  The rental duration varies widely by application, and the rental continues until the unit is returned in clean condition to us. Rental contracts specify that the customer is responsible for carrying commercial general liability insurance, is liable for any damage to the unit beyond ordinary wear and tear, and for all materials the customer contains in rented equipment. The customer is contractually responsible for the cost of delivery and pickup, as well as thoroughly emptying and cleaning the equipment before return.

Competition

In all segments, we face competition from local and regional companies, as well as national companies, in substantially all of our current markets. We compete with several large national and international companies in our ground level office product line. Our competitors include lessors of storage units, mobile offices, van trailers and other structures used for portable storage. We also compete with conventional fixed self-storage facilities. In our Storage Solutions segments, we compete primarily in terms of security, convenience, product quality, broad product selection and availability, rental rates and customer service. In our Storage Solutions business, our largest competitors are WillScot Corporation, PODS, Pac-Van, 1‑800-PACK-RAT, Haulaway Storage Containers, ModSpace, McGrath RentCorp, and Wernick Hire, along with other national, regional and local companies.

The liquid and solid containment industry is highly fragmented, consisting principally of local providers, with a handful of regional and national providers. In our Tank & Pump Solutions business we compete based on factors including:  quality and breadth of equipment, technical applications expertise, knowledgeable and experienced sales and service personnel, on-time delivery and proactive logistics management, geographic areas serviced, rental rates and customer service. Our competitors include United Rentals, Rain For Rent and Adler Tanks.

Employees

As of December 31, 2019, we employed 2,042 employees, the majority of which are full time.  Of these employees, 1,643 are employed in North America and 399 are employed in the U.K.  No employees are currently covered by a collective bargaining agreement, and we have never experienced a work stoppage. We believe that our relations with our employees are good.

Seasonality

Demand from our Storage Solutions customers is somewhat seasonal. Construction customers typically reflect higher demand during months with more temperate weather, while demand for our portable storage units by large retailers is stronger from September through December because these retailers need to store more inventories for the holiday season. Our retail customers usually return these rented units to us in December and early in the following year. In our Tank & Pump Solutions business, demand from customers is typically higher in the middle of the year from March to October, driven by the timing of customer maintenance projects. The demand for rental of our pumps may also be impacted by weather, specifically when temperatures drop below freezing.

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Environmental, Social and Safety

Our operations, and the operations of certain of our customers, are subject to numerous federal and local laws and regulations governing environmental protection and transportation. These laws regulate such issues as wastewater, storm water and the management, storage and disposal of, or exposure to, hazardous substances.  We are not aware of any pending environmental compliance or remediation matters that are reasonably likely to have a material adverse effect on our business, financial position or results of operations.  However, failure by us to comply with applicable environmental and other requirements could result in fines, penalties, enforcement actions, third party claims, remediation actions, and could negatively impact our reputation with customers. We have adopted Environmental and Social Commitment Policies outlining our commitment to environmental responsibility and accountability and our commitment to respect internationally recognized human rights and labor standards. These policies apply to the company as a whole, our customers, and our vendors and suppliers and are available on our website. We have a company-wide focus on safety and have implemented a number of measures to promote workplace safety. Customers are increasingly focused on safety records in their sourcing decisions due to increased regulations to report all incidents that occur at their sites and the costs associated with such incidents.

Cybersecurity

We believe that we have implemented appropriate preventative measures to avert and mitigate the effects of cyber-attacks; however, like other companies, the measures that we employ to protect our systems may not detect or prevent all cybersecurity breaches. We have, from time to time, experienced threats to our data and systems, including malware, computer virus attacks and phishing attempts. We monitor regional regulatory requirements to ensure compliance and to continually improve our processes. Additionally, in the event we encounter any suspected cybersecurity issues, we have a robust response plan, including controls over the sales of securities by executives and those with knowledge of any cybersecurity issues to prevent insider trading on non-public information related to cybersecurity risks and incidents. While we carry robust cybersecurity insurance, costs and consequences of a cybersecurity incident could include remediation expenses, lost revenues, litigation, increased insurance premiums, reputational damage and erosion of shareholder value. Our Board regularly reviews our cybersecurity risks and controls with senior management.  We have not experienced a material cybersecurity breach.

Access to Information

Our website is located at www.mobilemini.com. We make available at this address, free of charge, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Throughout  this Form 10-K, we “incorporate by reference” as identified herein certain information from parts of our proxy statement for the 2020 Annual Meeting of Stockholders, which we will file with the SEC and which will be available free of charge on our website. Reports of our executive officers, directors and any other persons required to file securities ownership reports under Section 16(a) of the Exchange Act are also available through our website. Information contained on our website does not, and shall not be deemed to, constitute part of this Annual Report on Form 10-K.  Mobile Mini’s reference to the URL for our website is intended to be an inactive textual reference only.

 


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ITEM 1A.

RISK FACTORS.

Our business, results of operations and financial condition are subject to numerous risks and uncertainties. Set forth below and elsewhere in this Annual Report on Form 10-K and in other documents we file with the SEC are descriptions of the risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this Annual Report on Form 10-K. Should any of these risks materialize, our business, results of operations, financial condition and future prospects could be negatively impacted, which in turn could affect the trading value of our securities.

RISKS RELATED TO OUR BUSINESS

Our business is subject to the general health of the economy, including non-residential spending and energy prices, accordingly any slowdowns or decreases in the U.S. or international economy could materially affect our revenue and operating results.

An economic slowdown in the U.S. or international economy, including non-residential construction spending and energy prices, may cause substantial volatility in the stock market and layoffs and other restrictions on spending by companies in almost every business sector which could impact our business in a variety of ways, including:

 

a reduction in consumer and business spending, which would result in a reduction in demand for our products;

 

a negative impact on rates we can charge or on the ability of our customers to timely pay their obligations to us or our vendors to timely supply services, thus reducing our cash flow; and

 

an increase in payment risk with others we do business with, including financial institutions.

Without similar changes in expenses, which may be difficult to achieve, our margins will contract if revenue falls, and ultimately may result in having a material adverse effect on our financial condition.

We face unique regulatory and political challenges presented by international markets.

In connection with our business outside the U.S., we face exposure to additional regulatory requirements, including certain trade barriers, unforeseen risks related to foreign trade, tariffs and embargos, changes in political and economic conditions, and exposure to additional and potentially adverse tax regimes. Our success in the U.K. depends, in part, on our ability to anticipate and effectively manage these and other risks.  Our failure to manage these risks may adversely affect our growth, in the U.K. and elsewhere, and lead to increased administrative costs.

On June 23, 2016, the U.K. voted to leave the European Union (the “E.U.”) in a referendum vote that continues to have unknown social, geopolitical and economic impacts (“Brexit”).  In October 2019, the U.K. and E.U. agreed upon the terms of the U.K.'s withdrawal from the E.U. in the form of a Withdrawal Agreement. The Withdrawal Agreement was ratified by the U.K. Parliament, and the European Parliament in Brussels, in late January, with the consequence that Brexit formally occurred on January 31, 2020.

Under the Withdrawal Agreement, a "transition period" will come into force for eleven months, from February 1, 2020 until December 31, 2020. During this time E.U. rules and regulations as they currently apply to our U.K. business will remain the same. The U.K. Government has stated that the transition period will end on December 31, 2020.  This deadline will be incorporated into U.K. legislation. If a U.K.-E.U. trade deal is not agreed to by the end of 2020, the U.K.’s trade with the E.U. and the rest of the world would be subject to tariffs and duties set by the World Trade Organization. Additionally, the movement of goods between the U.K. and the remaining member states of the E.U. would be subject to additional inspections and documentation checks, leading to possible delays at ports of entry and departure. Although the Withdrawal Agreement ensures that a "no-deal" or "cliff-edge" Brexit was avoided on January 31, 2020, there is no certainty that a similar effect will be avoided at the end of 2020. This could result in an adverse impact on labor and trade and will create further short-term currency volatility in global stock markets and currency exchange rate fluctuations, which could result in a decrease in the profitability of our U.K. operations.

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Many of our larger National Account customers are retailers, which is a sector that has been undergoing pressure from changes in their competitive environment.  We also service customers in a variety of other industries, some of which have also been under financial pressure. If changes in the businesses of our customers cause them to rent fewer units or to be unable to meet their obligations to us, our operating results could be materially adversely affected.

National Accounts made up approximately 37% of our 2019 North American Storage Solutions rental revenues. Many of these accounts are large retailers who are under pressure from changes to their industry (including consolidation and lower sales revenue from physical locations). While none of these changes has yet had a material impact on our business, it could be that future changes to the retail industry would cause them to rent fewer units from us. Alternatively, consolidation or financial pressures could see some retail customers either be acquired or become bankrupt. We also service a variety of other industries, some of which have also been under financial pressure.  

Historically, accounts receivable write-offs have not been material.  However, if we are unable to manage credit risk issues, or if a large number of customers have financial difficulties at the same time, our credit losses could increase above historical levels and our operating results would be adversely affected. Delinquencies and credit losses generally can be expected to increase during economic slowdowns or recessions.

We face intense competition that may lead to our inability to increase or maintain our prices, which could have a material adverse impact on our results of operations.

The Storage Solutions and Tank & Pump Solutions industries are highly competitive and highly fragmented. Many of the markets in which we operate are served by numerous competitors, ranging from national companies like ourselves, to smaller multi-regional companies and small, independent businesses with a limited number of locations. See “Business — Competition.” Some of our principal competitors are less leveraged than we are and may have lower fixed costs and may be better able to withstand adverse market conditions within the industry. Additionally, some of our competitors currently offer products outside of our offerings or may have better brand recognition in some end customer sectors. If these competitors use their brand awareness to compete with our product offerings, customers may choose these competitors’ products over ours and we could lose business. Our competitors typically compete aggressively on the basis of pricing and may continue to impact our ability to attract and retain customers or maintain the rental rates we charge. Additionally, general economic factors could negatively impact the rental rates we are able to charge. To the extent that we choose to match our competitors’ declining prices, it could harm our results of operations as we would have lower margins. To the extent that we choose not to match or remain within a reasonable competitive distance from our competitors’ pricing, it could also harm our results of operations, as we may lose rental volume.

We intend to continue to launch operations into new geographic markets and/or add Tank & Pump Solutions operations in existing Storage Solutions markets, which may be costly and may not be successful.

We have in the past, and intend in the future, to expand our Storage Solutions and Tank & Pump Solutions operations into new geographic markets in North America.  This expansion could require financial resources that would not therefore be available for other aspects of our business.  In addition, this expansion could require the time and attention of management, leaving less time to focus on existing business. If we fail to manage the risks inherent in our geographic expansion, we could incur capital and operating costs without any related increase in revenue, which would harm our operating results.

If we fail to attract and retain key management and personnel, we may be unable to implement our business plan.

One of the most important factors in our ability to profitably execute our business plan is our ability to attract, develop and retain qualified personnel, including our chief executive officer (“CEO”) and senior operational management. Our success in retaining a CEO and attracting and retaining qualified people, particularly experienced operational and sales management, is dependent on the resources available in individual geographic areas and the impact on the labor supply due to general economic conditions, as well as our ability to provide a competitive compensation package, including the implementation of adequate drivers of retention and rewards based on performance, and work environment. The departure of any key personnel and our inability to enforce non-competition agreements could have a negative impact on our business.

We may not be able to complete and integrate future acquisitions, or greenfield expansions, or successfully integrate past acquisitions.

Historically, we have achieved growth through acquisitions and continue to consider potential acquisitions on a strategic basis.  We may not be able to successfully complete future strategic acquisitions if we cannot reach agreement on acceptable terms or for other reasons.  Should we be unable to complete future acquisitions, our strategy for growth could be impeded.

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Any acquisition or expansion may result in additional and unexpected expenses, and the anticipated benefits of the integration of an acquisition or expansion may not be realized. In addition, we may assume certain liabilities in connection with any acquisition.  To the extent there are unrecorded liabilities, including current or future environmental-related costs, which we failed to discover during our due diligence investigations and that are not subject to indemnification or reimbursement, our future operations could be materially and adversely affected.

We may have to incur debt or issue equity securities to pay for any future acquisition, the issuance of which could involve the imposition of restrictive covenants or be dilutive to our existing stockholders.

In connection with potential future acquisitions, we may experience difficulty integrating personnel and operations, which could negatively affect our operating results in the following manner:

 

key personnel of the acquired company may decide not to work for us;

 

we may experience business disruptions as a result of information technology systems conversions;

 

we may experience additional financial and accounting challenges and complexities in areas such as tax planning, treasury management, and financial reporting;

 

we may be held liable for environmental risks and liabilities as a result of our acquisitions or expansion, some of which we may not have discovered during our due diligence;

 

we may assume the liabilities of companies we acquire or properties we expand to in the future which could materially and adversely affect our business;

 

our ongoing core business may be disrupted or receive insufficient management attention; and

 

we may not be able to realize anticipated cost savings, synergies or other financial benefits.

Our operational measures designed to increase revenue while continuing to control operating costs may not generate the improvements and efficiencies we expect and may not drive growth or returns.

We continually initiate new operational processes designed to increase revenue while continuing to pursue our strategy of reducing operating costs where available. Additionally, we employ a hybrid sales strategy of using local sales people in addition to a centralized call center team designed to meet customer needs and drive revenue growth.  However, no assurance can be given that these strategies will achieve the desired goals and efficiencies in the future. The success of these strategies is somewhat dependent on a number of factors that are beyond our control.

Even if we carry out these processes in the manner we currently expect, we may not achieve the improvements or efficiencies we anticipate, or on the timetable we anticipate. There may be unforeseen productivity, revenue or other consequences resulting from our strategies that will adversely affect us or impact our strategies for asset management. Therefore, there can be no guarantee that our strategies will prove effective in achieving desired profitability, margins, or returns on capital employed. Additionally, these strategies may have adverse consequences if our cost cutting and operational changes are deemed by customers to adversely impact product quality or service levels.

Any material failure, inadequacy, interruption or breach of security of our information technology could harm our ability to effectively operate our business.

We rely heavily on information systems across our operations. We also utilize third-party cloud providers to host certain of our applications and to store data. Our ability to effectively manage our business depends significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively could result in substantial harm or inconvenience to us, our employees, or our customers and negatively impact our results.

We believe that we have implemented appropriate measures to mitigate potential risks; however, like other companies, our information technology systems may be vulnerable to a variety of interruptions due to our own error or events beyond our control. The measures that we employ to protect our systems may not detect or prevent cybersecurity breaches, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers, phishing attacks, and other security issues. We have, from time to time, experienced threats to our data and systems, including malware, computer virus attacks and phishing attempts. Additionally, we may not anticipate or combat all types of future attacks until after they have been launched. Costs and consequences of each of these situations or data privacy breaches could include remediation expenses, lost revenues, litigation, increased insurance premiums, reputational damage and erosion of shareholder value.


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We are exposed to various possible claims relating to our business and our insurance may not fully protect us.

We are exposed to various possible claims relating to our business. These possible claims include those relating to: (i) personal injury or death caused by products rented or sold by us; (ii) motor vehicle accidents involving our vehicles and our employees; (iii) employment and labor law-related claims; (iv) property damage; (v) cybersecurity breaches or IT compliance issues; (vi) shareholder lawsuits; (vii) medical claims exceeding our insurance limits and (viii) commercial claims. Our insurance policies have deductibles or self-insured retentions which would require us to expend amounts prior to taking advantage of coverage limits. Currently, we believe that we have adequate insurance coverage for the protection of our assets and operations. However, our insurance may not fully protect us for certain types of claims, such as claims for punitive damages or for damages arising from intentional misconduct, which are often alleged in third party lawsuits. In addition, we may be exposed to uninsured liability for claims falling outside the scope of our current coverage or at levels in excess of our policy limits.

If we are found liable for any significant claims that are not covered by insurance, our liquidity and operating results could be materially adversely affected. It is possible that our insurance carrier may disclaim coverage for any class action and derivative lawsuits against us. It is also possible that some or all of the insurance that is currently available to us will not be available in the future on economically reasonable terms or not available at all. In addition, whether we are covered by insurance or not, certain claims may have the potential for negative publicity surrounding such claims, which may lead to lower revenues, as well as additional similar claims being filed.

We depend on our suppliers for the Tank & Pump Solutions equipment we rent to customers.

Nearly all the Tank & Pump Solutions equipment we rent to customers is manufactured by a limited number of suppliers.  We do not maintain long-term contracts with any of these suppliers. If our suppliers were unable or unwilling to provide us with such equipment, our operations would be affected if we were unable to obtain the equipment necessary to operate and grow our business.  Also, should our suppliers substantially increase their prices (due to increased demand in certain products, or otherwise), we may not be able to raise our rental rates to absorb such increased cost.  These events could cause our revenues and earnings to decline.

The supply and cost of raw materials we use in remanufacturing and repairing units fluctuates and could increase our operating costs.

As needed, we remanufacture and repair units for our rental fleet and for sale. In these processes, we purchase steel, paint, glass and other raw materials from various suppliers. We cannot be sure that an adequate supply of these materials will continue to be available on terms acceptable to us. The raw materials we use are subject to price fluctuations that we cannot control. Changes in the cost of raw materials can have a significant effect on our operations and earnings. Rapid increases in raw material prices are often difficult to pass through to customers, particularly to rental customers. If we are unable to pass on these higher costs, our profitability could decline. If raw material prices decline significantly, we may have to write down our raw materials inventory values. If this happens, our results of operations and financial condition could decline.

We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business.

Our ability to compete effectively depends in part upon protection of our rights in trademarks, copyrights and other intellectual property rights we own or license, including patents to our locking system for our Storage Solutions. Our use of contractual provisions, confidentiality procedures and agreements, and trademark, copyright, unfair competition, trade secret and other laws to protect our intellectual property and other proprietary rights may not be adequate. Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information and patents, or to defend against claims by third parties that our services or our use of intellectual property infringe their intellectual property rights. Any litigation or claims brought by or against us could result in substantial costs and diversion of our resources. A successful claim of trademark, copyright or other intellectual property infringement against us could prevent us from providing services, which could harm our business, financial condition or results of operations. In addition, a breakdown in our internal policies and procedures may lead to an unintentional disclosure of our proprietary, confidential or material non-public information, which could in turn harm our business, financial condition or results of operations.

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If we determine that our goodwill, intangible assets or other long-lived assets have become impaired, or if we determine that our fleet residual values are too high, we may incur significant charges to our pre-tax income.

At December 31, 2019, we had $713.4 million of goodwill, $51.2 million of unamortized intangible assets and $966.2 million of undepreciated rental fleet on our Consolidated Balance Sheet. Goodwill is reviewed at least annually for impairment. All long-lived assets are reviewed for impairment when an impairment indicator is present. Impairment may result from, among other things, deterioration in the performance of the business, adverse market conditions, stock price, and adverse changes in applicable laws or regulations, including changes that restrict the activities of the Company.

Additionally, our rental fleet is subject to residual value risk upon disposition. We include in income from operations the difference between the sales price and the depreciated value of a unit sold. Market value at the time of sale is subject to numerous factors including general economic conditions. Fleet may not sell at the prices or in the quantities we expect.  Sales of our rental fleet at prices significantly below our projections will have a negative impact on our results of operations and cash flow.

For more information, see the “Notes to Consolidated Financial Statements” included in our financial statements contained in this Annual Report on Form 10-K.

Unionization by some or all of our employees could cause increases in operating costs.

None of our employees are presently covered by collective bargaining agreements.  From time to time various unions attempt to organize certain of our employees. We cannot predict the outcome of any continuing or future efforts to organize our employees, the terms of any future labor agreements, or the effect, if any, those agreements might have on our operations or financial performance.

We believe that a unionized workforce would generally increase our operating costs, divert the attention of management from servicing customers and increase the risk of work stoppages, all of which could have a material adverse effect on our business, results of operations or financial condition.

Fluctuations in fuel costs or reduced supplies of fuel could harm our business.

In connection with our business, to better serve our customers and limit our capital expenditures, we often move our fleet from branch to branch.  In addition, the majority of our customers arrange for delivery and pickup of our units through us.  Accordingly, we could be materially adversely affected by significant increases in fuel prices that result in higher costs to us for transporting equipment. It is unlikely that we would be able to promptly raise our prices to make up for increased fuel costs. A significant or prolonged price fluctuation or disruption of fuel supplies could have a material adverse effect on our financial condition and results of operations.

RISKS RELATED TO OUR INDEBTEDNESS AND GLOBAL CAPITAL AND CREDIT MARKETS

We operate with a high amount of debt and we may incur significant additional indebtedness.

Our operations are capital intensive, and we operate with a high amount of debt relative to our size. At December 31, 2019, we had $250.0 million in aggregate principal amount of 5.875% senior notes due July 1, 2024 (the “2024 Notes”) and $555.4 million of indebtedness under the Credit Agreement. Our substantial indebtedness could have adverse consequences. For example, it could:

 

require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, which could reduce the availability of our cash flow to fund future working capital, pay dividends, capital expenditures, acquisitions and other general corporate purposes;

 

make it more difficult for us to satisfy our obligations with respect to the 2024 Notes;

 

expose us to the risk of increased interest rates, as approximately 63% of our borrowings are at variable rates of interest;

 

require us to sell assets to reduce indebtedness or influence our decisions about whether to do so;

 

increase our vulnerability to general adverse economic and industry conditions;

 

limit our flexibility in planning for, or reacting to, changes in our business and our industry;

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restrict us from making strategic acquisitions or pursuing business opportunities; and

 

limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds. Failing to comply with those covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations.

Covenants in our debt instruments restrict or prohibit our ability to engage in or enter into a variety of transactions.

Our Credit Agreement requires us, under certain limited circumstances, to maintain certain financial ratios and limits our ability to make capital expenditures. These covenants and ratios could have an adverse effect on our business by limiting our ability to take advantage of financing, merger and acquisition or other corporate opportunities and to fund our operations. Breach of a covenant in our debt instruments could cause acceleration of a significant portion of our outstanding indebtedness. Any future debt could also contain financial and other covenants more restrictive than those imposed under the indenture governing the 2024 Notes, and the Credit Agreement.

The indenture governing the 2024 Notes contains various covenants that limit our discretion in operating our business. In particular, we are limited in our ability to merge, consolidate or transfer substantially all of our assets, issue preferred stock of subsidiaries and create liens on our assets to secure debt. In addition, if there is a default, and we do not maintain borrowing availability in excess of certain pre-determined levels, we may be unable to incur additional indebtedness, make restricted payments (including paying cash dividends on our capital stock) and redeem or repurchase our capital stock. The 2024 Notes do not contain financial maintenance covenants and the financial maintenance covenant under the Credit Agreement is not applicable unless we fall below specific borrowing availability levels.

A breach of a covenant or other provision in any debt instrument governing our current or future indebtedness could result in a default under that instrument and, due to cross-default and cross-acceleration provisions, could result in a default under our other debt instruments. Upon the occurrence of an event of default under the Credit Agreement or any other debt instrument, the lenders could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them, if any, to secure the indebtedness. If the lenders under our current or future indebtedness accelerate the payment of the indebtedness, we cannot assure you that our assets or cash flow would be sufficient to repay in full our outstanding indebtedness, including the 2024 Notes.

The amount we can borrow under our Credit Agreement depends in part on the value of our rental fleet. If the value of our rental fleet declines under appraisals our lenders receive, the amount we can borrow will similarly decline. We are required to satisfy several covenants with our lenders that are affected by changes in the value of our rental fleet. We would be in breach of certain of these covenants if the value of our rental fleet drops below specified levels. If this happens, we may not be able to borrow the amounts we need to expand our business, and we may be forced to liquidate a portion of our existing fleet.

We may not be able to generate sufficient cash to service all of our debt and may be forced to take other actions to satisfy our obligations under such indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our obligations under our debt will depend on our financial and operating performance and that of our subsidiaries, which, in turn, will be subject to prevailing economic and competitive conditions and to financial and business factors, many of which may be beyond our control. See the table under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Contractual Obligations and Commitments” for disclosure regarding the amount of cash required to service our debt.

We may not maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital or restructure our debt. Such alternative measures may not be successful and may not enable us to meet our scheduled debt service obligations. We may not be able to refinance any of our indebtedness or obtain additional financing, particularly because of our anticipated high levels of debt and the debt incurrence restrictions imposed by the agreements governing our debt, as well as prevailing market conditions. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. The instruments governing our indebtedness restrict our ability to dispose of assets and use the proceeds from any such dispositions. We may not be able to consummate those sales, or if we do, at an opportune time, or the proceeds that we realize may not be adequate to meet debt service obligations when due.

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The planned discontinuation or replacement of LIBOR would require us to amend our Credit Agreement and may otherwise adversely affect our business.

The Financial Conduct Authority announced that it intends to phase out the London interbank offered rate (“LIBOR”) by the end of 2021.  Outstanding amounts under our Credit Agreement currently bear interest at our option at either: (i) LIBOR plus an applicable margin or (ii) the prime rate plus an applicable margin.   Under the Credit Agreement, when LIBOR ceases to exist after 2021, Deutsche Bank, as our administrative agent, is required to present us with a new benchmark interest rate they believe is used by the wider industry.  If we agree with the proposed benchmark interest rate, an amendment will be made to the Credit Agreement.  If we disagree, we can negotiate a new benchmark interest rate with Deutsche Bank.  If an agreement is reached, any calculation of interest based upon the new benchmark interest rate may result in higher interest rates than are currently available to us under the Credit Agreement. To the extent that these interest rates increase, our interest expense may also increase, which could adversely affect our financial condition, operating results and cash flows.  If no agreement on a new benchmark interest rate can be reached with Deutsche Bank, our access to credit under the Credit Agreement may be hindered.

Fluctuations between the British pound and U.S. dollar could adversely affect our results of operations.

We derived approximately 13% of our consolidated rental revenues in 2019 from our operations in the U.K. The financial position and results of operations of our U.K. subsidiaries are measured using the British pound as the functional currency. As a result, we are exposed to currency fluctuations both in receiving cash from our U.K. operations and in translating our financial results back into U.S. dollars. We believe the impact on us of currency fluctuations from an operations perspective is mitigated by the fact that the majority of our expenses, capital expenditures and revenues in the U.K. are in British pounds. We do, however, have significant currency exposure as a result of translating our financial results from British pounds into U.S. dollars for purposes of financial reporting. Assets and liabilities of our U.K. subsidiaries are translated at the period-end exchange rate in effect at each balance sheet date. Our income statement accounts are translated at the average rate of exchange prevailing during each month. Translation adjustments arising from differences in exchange rates from period to period are included in accumulated other comprehensive loss in stockholders’ equity.

A strengthening of the U.S. dollar against the British pound reduces the amount of income or loss we recognize on a consolidated basis from our U.K. business. We cannot predict the effects of further exchange rate fluctuations on our future operating results. We are also exposed to additional currency transaction risk when our U.S. operations incur purchase obligations in a currency other than in U.S. dollars and our U.K. operations incur purchase obligations in a currency other than in British pounds. As exchange rates vary, our results of operations and profitability may be harmed. We do not currently hedge our currency transaction or translation exposure, nor do we have any current plans to do so. The risks we face in foreign currency transactions and translation may continue to increase as we further develop and expand our U.K. operations. Furthermore, to the extent we expand our business into other countries, we anticipate we will face similar market risks related to foreign currency translation caused by exchange rate fluctuations between the U.S. dollar and the currencies of those countries.

Global capital and credit market conditions could have an adverse effect on our ability to access the capital and credit markets, including our revolving credit facility.

Disruptions in the global credit markets that materially impact liquidity in the debt market, making financing terms for borrowers less attractive or, in some cases, unavailable altogether, have occurred in the past and may occur again in the future. Such a disruption could result in the unavailability of certain types of debt financing, including access to revolving lines of credit. We engage in borrowing and repayment activities under our revolving credit facility on an almost daily basis and have not had any disruption in our ability to access our revolving credit facility as needed. However, future credit market conditions could increase the likelihood that one or more of our lenders may be unable to honor its commitments under our revolving credit facility, which could have an adverse effect on our business, financial condition and results of operations.

Additionally, in the future we may need to raise additional funds to, among other things, fund our existing operations, improve or expand our operations, respond to competitive pressures, or make acquisitions. If adequate funds are not available on acceptable terms, we may be unable to meet our business or strategic objectives or compete effectively. If we raise additional funds by issuing equity securities, stockholders may experience dilution of their ownership interests, and the newly issued securities may have rights superior to those of the common stock. If we raise additional funds by issuing debt, we may be subject to further limitations on our operations arising out of the agreements governing such debt. If we fail to raise capital when needed, our business will be negatively affected.

22


RISKS RELATED TO GOVERNMENT REGULATIONS

As Department of Transportation regulations change, our operations could be negatively impacted and competition for qualified drivers could increase.

We operate in the U.S. pursuant to operating authority granted by the U.S. Department of Transportation (“DOT”). Our Company drivers must comply with the safety and fitness regulations of the DOT, including those relating to drug and alcohol testing and hours-of-service. Such matters as equipment weight and dimensions are also subject to government regulations. Our safety record could be ranked poorly compared to our peer firms.  A poor safety ranking may result in the loss of customers or difficulty attracting and retaining qualified drivers which could affect our results of operations. Should additional rules be enacted in the future, compliance with such rules could result in additional costs.

We are subject to environmental regulations and could incur costs relating to environmental matters.

Federal, state, local, foreign and provincial laws and regulations regulate such issues as wastewater, storm water, air quality and the management, storage and disposal of, or exposure to, hazardous substances and hazardous and solid wastes. Several aspects of our businesses may involve risks related to environmental and health and safety liability. For example, we own, transport and rent tanks and boxes in which waste materials are placed by our customers. While we have a policy which, with certain limited exceptions, requires customers to return tanks and containers clean of any substances, they may fail to comply with these obligations.  Additionally, we provide waste hauling services, which involves environmental risks during transport.  While we endeavor to comply with all regulatory requirements, failure to be in compliance with any environmental regulatory requirements may increase our compliance or remediation costs or cause restrictions on our business, either of which could have a material effect on our financial position or results of operations.

We are also required to obtain environmental permits from governmental authorities for certain of our operations. If we violate or fail to obtain or comply with these laws, regulations, or permits, we could be fined or otherwise sanctioned by regulators. We could also become liable if employees or other parties are improperly exposed to hazardous materials.

Under certain environmental laws, we could be held responsible for all of the costs relating to any contamination at, or migration to or from, our or our predecessors’ past or present facilities. These laws often impose liability even if the owner, operator or lessor did not know of, or was not responsible for, the release of such hazardous substances.

Environmental laws are complex, change frequently, and have tended to become more stringent over time. The costs of complying with current and future environmental and health and safety laws, and our liabilities arising from past or future releases of, or exposure to, hazardous substances, may adversely affect our business, results of operations, or financial condition.

Ongoing governmental review of hydraulic fracturing (“fracking”) and its environmental impact could lead to changes to this activity or its substantial curtailment, which could adversely affect our revenue and results of operations.

Approximately 2% of our consolidated rental revenue for the year ended December 31, 2019 is related to customers involved in the upstream exploration and production of oil and natural gas.  A portion of this revenue involves rentals to customers that use the fracking method to extract natural gas.  The Environmental Protection Agency has issued regulations or guidance regarding certain aspects of the process.  Other federal, state and local governments and governmental agencies also investigate and/or regulate fracking.  Additional governmental regulation could result in increased costs of compliance or the curtailment of fracking in the future, which would adversely affect our revenue and results of operations.

We have operations throughout North America and the U.K. and are subject to multiple state and local regulations as well as federal, state and local taxing authorities. Changes in applicable law, regulations or our material failure to comply with any of them, can have negative impacts on our business.  Additionally, our effective tax rates and cash payable for taxes could be adversely impacted by changes in tax laws within the jurisdictions in which profits are determined to be earned and taxed.

Most of our customers use our storage units to store their goods on their own properties for various lengths of time. Local zoning laws and temporary planning permission regulations in certain of our markets do not allow some of our customers to keep portable storage and office units on their properties or do not permit portable storage units unless located out of sight from the street or may limit the type of product they may use or how long it can be at their locations. Local building codes may place restrictions on our office units. If local zoning laws or planning permission regulations in one or more of our markets no longer

23


allow our units to be stored on customers’ sites, our business in that market will suffer.  We are also subject to numerous and differing state and local laws governing labor. While we endeavor to comply with all requirements, failure to be in compliance with any labor requirements may result in increased costs, or affect our ability to maintain an effective workforce, either of which could have a material effect on our financial position or results of operations.

Our financial results are significantly impacted by our effective tax rates which could be impacted by a number of factors, including changes in tax rules and regulations or their interpretation, including changes in the U.S. related to the treatment of accelerated depreciation expense, carry-forwards of net operating losses, and taxation of foreign income and expenses.  The enactment of future tax law changes by federal and state taxing authorities may impact the Company’s future period tax provision and its deferred tax liabilities.

Any tariffs on steel imports could result in increased container prices and adversely affect our results of operations.

On June 15, 2018, the U.S. government issued part 2 of the 25% ad valorem tariff that will be applied to Chinese exports to the U.S. The list of proposed commodities that would be subject to this 25% tariff included intermodal containers, however, this was later reversed, and containers were removed from the list of items subject to the tariffs. On May 17, 2019, containers were placed on a subsequent list (“List 4”) of products subject to an additional 10% tariff. While, this List 4 was subsequently reversed again and containers were removed from such list, there cannot be any guarantee that containers will not later be subject to future tariffs. Because most portable storage containers currently in the United States are originally manufactured in China to transport goods before eventually being sold for domestic use, any proposed future tariff would immediately increase the cost of new and used containers being sold into the U.S. If such a tariff were to be enacted, steel container prices would increase. We may not be able to pass such price increases on to our customers and may not be able to secure adequate alternative sources of containers on a timely or cost-effective basis. Either of these occurrences could adversely affect our results of operations and financial condition.

RISKS RELATED TO OUR COMMON STOCK

The market price of our common stock has been volatile and may continue to be volatile and the value of your investment may decline.

Volatility may cause wide fluctuations in the price of our common stock on the NASDAQ Global Select Market. The market price of our common stock is likely to be affected by:

 

changes in general conditions in the economy, geopolitical events or the financial markets;

 

variations in our quarterly operating results;  

 

changes in financial estimates by securities analysts;

 

our ability to maintain our dividend;

 

other developments affecting us, our industry, customers or competitors;

 

changes in demand for our products or the prices we charge due to changes in economic conditions, competition or other factors;

 

general economic conditions in the markets where we operate;

 

the cyclical nature of our customers’ businesses, particularly those operating in the construction sectors;

 

the market perception that we are exposed to oil and gas production more than we currently are, and the related stock market volatility around oil and gas production companies;

 

rental rate changes in response to competitive factors;

 

bankruptcy or insolvency of our customers, thereby reducing demand for our used units;

 

seasonal rental patterns;

 

acquisitions or divestitures and related costs;

 

labor shortages, work stoppages or other labor difficulties;

 

possible unrecorded liabilities of acquired companies;

24


 

possible write-offs or exceptional charges due to changes in applicable accounting standards, goodwill impairment, or divestiture or impairment of assets;

 

the operating and stock price performance of companies that investors deem comparable to us;

 

the number of shares available for resale in the public markets under applicable securities laws; and

 

the composition of our shareholder base.

 

 

ITEM 1B.

UNRESOLVED STAFF COMMENTS.

We have received no written comments regarding our periodic or current reports from the Staff of the SEC that were issued 180 days or more preceding the end of our 2019 fiscal year and that remain unresolved.

 

 

ITEM 2.

PROPERTIES.

The location and general character of our principal properties are as follows:

Corporate and administrative:

 

Our corporate and administrative offices are located in Phoenix, Arizona. These leased offices occupy approximately 50,000 square feet of office space, including our national sales center. The lease term expires in October 2025.

 

Our U.K. headquarters are located in Stockton-on-Tees, United Kingdom, where we lease approximately 10,000 square feet of office space. The lease term expires in July 2027.

Field Locations. We locate our field operations in markets with attractive demographics and strong growth prospects. Within each market, we are located in areas that allow for easy delivery of units to our customers over a wide geographic area. In addition, when cost effective, we seek locations that are visible from high traffic roads in order to advertise our products and our name. A typical branch consists of outdoor storage space for units not currently on rent and a small office. These properties tend to be one to five acre sites with little development needed for us to use them, other than a paved or hard-packed surface, utilities and proper zoning.  In North America we own two locations, and in the U.K., we own one location. We lease the remaining locations in which we operate.

We believe that satisfactory alternative properties can be found in all of our markets if we do not renew existing leased properties.

 

 

ITEM 3.

We are party from time to time to various claims and lawsuits that arise in the ordinary course of business, including claims related to employment matters, contractual disputes, personal injuries and property damage. In addition, various legal actions, claims and governmental inquiries and proceedings are pending or may be instituted or asserted in the future against us and our subsidiaries.  

Litigation is subject to many uncertainties, and the outcome of the individual litigated matters is not predictable with assurance. It is possible that certain of the actions, claims, inquiries or proceedings, including those discussed above, could be decided unfavorably to us or any of our subsidiaries involved. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe that the ultimate resolution of these claims or lawsuits will have a material adverse effect on our business, financial condition, results of operations or cash flows.

 

 

ITEM 4.

MINE SAFETY DISCLOSURES.

Not applicable.

25


PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Common Stock Prices

Our common stock trades on The NASDAQ Global Select Market under the symbol “MINI”.  We had 55 shareholders of record of our common stock on January 24, 2020.  The number of beneficial owners is substantially greater than the number of record holders because a large portion of our common stock is held of record in broker “street names.”

Dividend Policy

In November 2013, our Board of Directors (the “Board”) authorized the initiation of a quarterly cash dividend program to all of our common stockholders with the first quarterly common stock cash dividend paid in the first quarter of 2014. Each dividend payment is subject to review and approval by the Board.  We declared cash dividends of approximately $1.10 per share for a total of $49.1 million during fiscal year 2019 and approximately $1.00 per share for a total of $44.6 million during fiscal year 2018.  Our Credit Agreement contains certain restrictions on the declaration and payment of dividends.

Issuer Purchases of Equity Securities

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

During the full year 2019, we purchased 901,669 shares of our common stock under the authorized share repurchase program for an approximate value of $28.4 million and we withheld 31,181 shares of vested stock awards from employees, for an approximate value of $1.1 million, to satisfy tax withholding obligations.  These shares were not acquired pursuant to the share repurchase program.

The table below summarizes the information about purchases of our common stock during the quarterly period ended December 31, 2019:

 

Period

 

Total

Number of

Shares

Purchased

(1)

 

 

Average

Price Paid

per Share

(2)

 

 

Total

Number of

Shares

Purchased

as Part of

Publicly

Announced

Plans or

Programs

 

 

Approximate

Dollar

Value of

Shares

That May

Yet be

Purchased

Under the

Plans or

Programs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

October 1, 2019 - October 31, 2019

 

 

 

 

$

 

 

 

 

 

$

42,397

 

November 1, 2019 - November 30, 2019

 

 

 

 

 

 

 

 

 

 

 

42,397

 

December 1, 2019 - December 31, 2019

 

 

301

 

 

 

37.96

 

 

 

 

 

 

42,397

 

Total

 

 

301

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Shares not purchased as part of a publicly announced plan or program represent shares withheld from employees to satisfy tax withholding obligations upon the vesting of restricted stock.

(2)

The weighted average price paid per share of common stock does not include the cost of commissions.

26


Stock Performance Graph

The following Performance Graph and related information shall not be deemed “soliciting material” or “filed” with the SEC, nor should such information be incorporated by reference into any future filings under the Securities Act or the Exchange Act, except to the extent that Mobile Mini specifically incorporates it by reference in such filing.

The following graph compares the five-year cumulative total return on our common stock with the cumulative total returns (assuming reinvestment of dividends) on the Standard and Poor’s SmallCap 600 and the NASDAQ US Benchmark TR Index if $100 were invested in our common stock and each index on December 31, 2014.

Comparison of Five Year Cumulative Total Return*

Among Mobile Mini, Inc., the Standard & Poor’s SmallCap 600 and the NASDAQ US Benchmark TR Index

 

 

 

 

 

2014

 

 

2015

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

Mobile Mini, Inc.

 

$

100.00

 

 

$

78.40

 

 

$

78.21

 

 

$

91.87

 

 

$

86.51

 

 

$

106.51

 

Standard & Poor's SmallCap 600

 

 

100.00

 

 

 

98.03

 

 

 

124.06

 

 

 

140.48

 

 

 

128.56

 

 

 

157.85

 

NASDAQ US Benchmark TR Index

 

 

100.00

 

 

 

100.48

 

 

 

113.55

 

 

 

137.83

 

 

 

130.33

 

 

 

170.96

 

 

*

Total Return based on $100 initial investment and reinvestment of dividends.

 

 

27


ITEM 6.

SELECTED FINANCIAL DATA.

The following selected financial data reflect the results of operations, cash flow and balance sheet data as of and for the years ended December 31, 2015 through 2019.  You should read this material with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related footnotes included elsewhere in this Annual Report on Form 10-K.

 

 

 

For the Years Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

 

 

(In thousands, except per share and operating data)

 

Consolidated Statements of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

581,657

 

 

$

558,197

 

 

$

498,825

 

 

$

480,083

 

 

$

494,715

 

Sales

 

 

30,394

 

 

 

34,354

 

 

 

32,440

 

 

 

26,499

 

 

 

29,953

 

Other

 

 

574

 

 

 

678

 

 

 

2,284

 

 

 

2,040

 

 

 

6,109

 

Total revenues

 

 

612,625

 

 

 

593,229

 

 

 

533,549

 

 

 

508,622

 

 

 

530,777

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

 

369,525

 

 

 

364,123

 

 

 

336,438

 

 

 

309,294

 

 

 

326,252

 

Cost of sales

 

 

18,675

 

 

 

22,437

 

 

 

21,001

 

 

 

16,471

 

 

 

19,671

 

Restructuring expenses

 

 

 

 

 

2,006

 

 

 

2,886

 

 

 

6,020

 

 

 

20,798

 

Asset impairment charge and loss on divestiture, net

 

 

 

 

 

102,140

 

 

 

 

 

 

 

 

 

66,128

 

Depreciation and amortization

 

 

70,583

 

 

 

67,000

 

 

 

63,372

 

 

 

63,734

 

 

 

60,344

 

Total costs and expenses

 

 

458,783

 

 

 

557,706

 

 

 

423,697

 

 

 

395,519

 

 

 

493,193

 

Income from operations

 

 

153,842

 

 

 

35,523

 

 

 

109,852