McGrath Rentcorp: Form 10-Q for the period ended Mar 31, 2025

This Form 10-Q, including the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contains forward-looking statements under federal securities laws. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. Our actual results could differ materially from those indicated by forward-looking statements as a result of various factors. These factors include, but are not limited to, those set forth under this Item, those discussed in Part II—Item 1a, “Risk Factors” and elsewhere in this Form 10-Q and those that may be identified from time to time in our reports and registration statements filed with the SEC.

This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes included in Part I—Item 1 of this Form 10-Q and the Consolidated Financial Statements and related Notes and the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on February 19, 2025 (the “2024 Annual Report”). In preparing the following MD&A, we presume that readers have access to and have read the MD&A in our 2024 Annual Report, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K. We undertake no duty to update any of these forward-looking statements after the date of filing of this Form 10-Q to conform such forward-looking statements to actual results or revised expectations, except as otherwise required by law.

General

The Company, incorporated in 1979, is a leading rental provider of relocatable modular buildings for classroom and office space and electronic test equipment for general purpose and communications needs. The Company’s primary emphasis is on equipment rentals. The Company is comprised of four reportable business segments: (1) its modular building segment (“Mobile Modular”); (2) its portable storage container segment (“Portable Storage”); (3) its electronic test equipment segment (“TRS-RenTelco”); and (4) its classroom manufacturing business selling modular buildings used primarily as classrooms in California (“Enviroplex”).

In the three months ended March 31, 2025, Mobile Modular, Portable Storage, TRS-RenTelco and Enviroplex contributed 66%, 15%, 17% and 2% of the Company’s income before provision for taxes (the equivalent of “pretax income”), respectively, compared to 63%, 23%, 16% and negative 2% for the same period in 2024.

The Company generates its revenues primarily from the rental of its equipment on operating leases and from sales of equipment occurring in the normal course of business. The Company requires significant capital outlay to purchase its rental inventory and recovers its investment through rental and sales revenues. Rental revenues and certain other service revenues negotiated as part of lease agreements with customers and related costs are recognized on a straight-line basis over the terms of the leases. Sales revenues and related costs are recognized upon delivery and installation of the equipment to customers. Sales revenues are less predictable and can fluctuate from quarter to quarter and year to year depending on customer demands and requirements. Generally, rental revenues less cash operating costs recover the equipment’s capitalized cost in a short period of time relative to the equipment’s potential rental life and when sold, sale proceeds are usually above its net book value.

The Company’s modular revenues (consisting of revenues from Mobile Modular, Kitchens To Go and Enviroplex) are derived from rentals and sales to commercial and education customers. Modular revenues are affected by demand for classrooms, which in turn is affected by shifting and fluctuating school populations, the levels of state funding to public schools, the need for temporary classroom space during reconstruction of older schools and changes in policies regarding class size. As a result of any reduced funding, lower expenditures by these schools may result in certain planned programs to increase the number of classrooms, such as those that the Company provides, to be postponed or terminated. However, reduced expenditures may also result in schools reducing their long-term facility construction projects in favor of using the Company’s modular classroom solutions. At this time, the Company can provide no assurances as to whether public schools will either reduce or increase their demand for the Company's modular classrooms as a result of fluctuations in state funding of public schools. Looking forward, the Company believes that any interruption in the passage of facility bonds or contraction of class size reduction programs by public schools may have a material adverse effect on both rental and sales revenues of the Company. (For more information, see “Item 1. Business – Relocatable Modular Buildings – Classroom Rentals and Sales to Public Schools (K-12)” in the Company’s 2024 Annual Report and “Item 1a. Risk Factors – Significant reductions of, or delays in, funding to public schools have caused the demand and pricing for our modular classroom units to decline, which has in the past caused, and may cause in the future, a reduction in our revenues and profitability” in Part II – Other Information of this Form 10-Q.)

Revenues of Portable Storage consists of the rental and sale of steel containers and ground level offices to provide a temporary storage solution that is delivered to the customer’s location and addresses the need for secure temporary storage with immediate access to the unit. The portable storage container rental market in the U.S. has a large and diverse number of market segments including construction, retail, commercial and industrial, energy and petrochemical, manufacturing, education and healthcare.

Revenues of TRS-RenTelco are derived from the rental and sale of general purpose and communications test equipment to a broad range of companies, from Fortune 500 to middle and smaller market companies primarily in the aerospace, defense, communications, manufacturing and semiconductor industries. Electronic test equipment revenues are primarily affected by the business activity within these industries related to research and development, manufacturing, and communication infrastructure installation and maintenance.

The Company’s rental operations include rental and rental related service revenues which comprised approximately 79% and 80% of consolidated revenues in the three months ended March 31, 2025 and 2024, respectively. Of the total rental operations revenues for the three months ended March 31, 2025, Mobile Modular, Portable Storage and TRS-RenTelco comprised 70%, 13% and 17%, respectively, compared to 67%, 15% and 18%, respectively, in the same period of 2024. The Company’s direct costs of rental operations include depreciation of rental equipment, rental related service costs, impairment of rental equipment (if applicable), and other direct costs of rental operations (which include direct labor, supplies, repairs, insurance, property taxes, license fees, cost of sub-rentals and amortization of certain lease costs).

The Company’s Mobile Modular, Portable Storage and TRS-RenTelco business segments sell modular units, storage containers and electronic test equipment, respectively, which are either new or previously rented. In addition, Enviroplex sells new modular buildings used primarily as classrooms in California. For the three months ended March 31, 2025 and 2024, sales and other revenues of modular, container and electronic test equipment comprised approximately 21% and 20% of the Company’s consolidated revenues, respectively. Of the total sales and other revenues from operations for the three months ended March 31, 2025 and 2024, Mobile Modular and Enviroplex together comprised 75% and 76%, respectively, Portable Storage comprised 4% in both periods, and TRS-RenTelco comprised 21% and 20%, respectively. The Company’s cost of sales includes the carrying value of the equipment sold and the direct costs associated with the equipment sold, such as delivery, installation, modifications and related site work.

Selling and administrative expenses primarily include personnel and benefit costs, which include share-based compensation, depreciation and amortization, bad debt expense, advertising costs, and professional service fees. Transaction costs incurred by the Company in 2024 attributed to the terminated Merger Agreement with WillScot Mobile Mini were considered non-operating and excluded from Selling and administrative expenses. The Company believes that sharing of common facilities, financing, senior management, and operating and accounting systems by all of the Company’s operations results in an efficient use of overhead. Historically, the Company’s operating margins have been impacted favorably to the extent its costs and expenses are leveraged over a large installed customer base. However, there can be no assurances as to the Company’s ability to maintain a large installed customer base or ability to sustain its historical operating margins.

Recent Developments

Dividends

On February 19, 2025, the Company announced that the Board of Directors declared a quarterly cash dividend of $0.485 per common share for the quarter ended March 31, 2025, an increase of 2% over the prior year’s comparable quarter.

Business Outlook

Macroeconomic conditions, such as a volatile interest rate environment, ongoing inflation, the geopolitical landscape, and foreign exchange rate fluctuations, continue to impact the global economy. In addition, recent changes in legislation and regulations, including enacted and proposed tariffs and other trade policies, have introduced additional uncertainty in the global economy. In periods of perceived or actual unfavorable economic conditions, our customers or potential customers could delay or re-evaluate their decisions to initiate various projects which in turn could result in a delay or cessation of engagement or other business activities with us. These factors also make it difficult for us to forecast and plan future budgetary decisions or business activities accurately. Our operating results could be materially impacted by changes in the overall macroeconomic environment and other economic factors.

Results of Operations

Three Months Ended March 31, 2025 Compared to

Three Months Ended March 31, 2024

Overview

Consolidated revenues for the three months ended March 31, 2025, increased $7.6 million, or 4%, to $195.4 million from $187.8 million for the same period in 2024. Consolidated net income for the three months ended March 31, 2025, increased $5.4 million, or 23%, to $28.2 million from $22.8 million for the same period in 2024. Earnings per diluted share for the three months ended March 31, 2025, increased 23% to $1.15, from $0.93 for the same period in 2024. The increase in consolidated net income and earnings per diluted share during the period was primarily attributed to an increase in gross profit on rental operations revenues at Mobile Modular and a reduction in interest expense incurred on outstanding debt obligations.

For the three months ended March 31, 2025, on a consolidated basis:

• Gross profit increased $3.2 million, or 3%, to $96.4 million in 2025. Mobile Modular’s gross profit increased $3.6 million, or 6%, primarily due to higher gross profit on rental and rental related services revenues, partly offset by a reduction in gross profit on sales revenues. Portable Storage's gross profit decreased $3.2 million, or 18%, primarily due to lower gross profit on rental and rental related services revenues. TRS-RenTelco’s gross profit increased $1.0 million, or 7%, primarily due to higher gross profit on rental revenues. Enviroplex’s gross profit increased $1.7 million, due to higher sales revenues and gross margins in 2025.
• Selling and administrative expenses increased 1% to $50.9 million.
• During the three months ended March 31, 2025, the Company had no reportable transactions under Other income, net on the condensed consolidated statements of income. For the three months ended March 31, 2024, the Company had Other income, net of $9.3 million due to the net gain on sale of a property.
• During the three months ended March 31, 2024, the Company incurred $9.4 million in transaction costs related to the Merger Agreement with Willscot Mobile Mini that was terminated September 20, 2024. These significant costs that did not recur during the three months ended March 31, 2025 are reported separately on the Company’s condensed consolidated statements of income.
• Interest expense decreased $4.5 million, or 35%, to $8.2 million, which was primarily attributed to $205.9 million lower average debt levels of the Company and a lower effective interest rate in 2025 of 5.70%, compared to 6.53% for the same period in 2024. The 27% decrease in average debt when compared to 2024 was primarily attributed to lower rental equipment purchases in 2025 and the proceeds received in 2024 from the merger termination with WillScot Mobile Mini after transaction costs and income taxes.
• Pre-tax income contribution by Mobile Modular, Portable Storage and TRS-RenTelco was 66%, 15% and 17%, respectively, compared to 63%, 23% and 16%, respectively, for the comparable 2024 period. These results are discussed on a segment basis below. Enviroplex pre-tax income contribution was 2% and negative 2% in 2025 and 2024, respectively.
• The provision for income taxes resulted in an effective tax rate of 24.6% and 23.6%, for the quarters ended March 31, 2025 and 2024, respectively.
• Adjusted EBITDA increased $2.4 million, or 3%, to $74.5 million in 2025.

Mobile Modular

For the three months ended March 31, 2025, Mobile Modular’s total revenues increased $4.3 million, or 3%, to $131.9 million compared to the same period in 2024, primarily due to higher rental related services and rental revenues, partly offset by lower sales revenues. The total revenue increase, together with higher gross profit on rental and rental related services revenues, and lower interest expense, partly offset by a $6.2 million decrease in other income, net, attributed to the allocated net gain on sale of a corporate property in 2024, resulted in a $0.3 million increase in pre-tax income to $25.0 million for the three months ended March 31, 2025, from $24.7 million for the same period in 2024.

The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.

Mobile Modular – Three Months Ended 3/31/25 compared to Three Months Ended 3/31/24 (Unaudited)

(dollar amounts in thousands)

1. Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.

2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period.

3. Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding new equipment inventory and accessory equipment. Average utilization for the period is calculated using the average month end costs of rental equipment.

4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent, for the period.

5. During the year ended December 31, 2024, the Company determined that transaction costs incurred by the Company attributed to the terminated Merger Agreement were significant. Due to this determination, the Company reclassified $6.4 million in transaction costs from Selling and administrative expenses for the three months ended March 31, 2024, and reported such expenses separately as non-operating expense under the Corporate segment.

nm = Not meaningful

Mobile Modular’s gross profit for the three months ended March 31, 2025, increased $3.6 million, or 6%, to $65.5 million. For the three months ended March 31, 2025, compared to the same period in 2024:

• Gross Profit on Rental Revenues – Rental revenues increased $2.0 million, or 3%, due to 4% higher average rental equipment on rent, partly offset by 1% lower average monthly rental rates in 2025. As a percentage of rental revenues, depreciation was 13% in both 2025 and 2024, and other direct costs were 27% in 2025 and 30% in 2024, which resulted in gross margin percentages of 60% in 2025, compared to 58% in 2024. The higher rental revenues and higher rental margins, resulted in gross profit on rental revenues increasing $3.2 million, or 7%, to $47.1 million in 2025.
• Gross Profit on Rental Related Services – Rental related services revenues increased $5.3 million, or 22%, compared to 2024. The increase in rental related services revenues was primarily attributable to higher delivery, return delivery and dismantle revenues and higher site related services. The increase in rental related services revenues and lower gross margin percentage of 33% in 2025, compared to 35% in 2024, resulted in rental related services gross profit increasing $1.4 million, or 17%, to $9.7 million in 2025.
• Gross Profit on Sales – Sales revenues decreased $2.8 million, or 11%, compared to 2024, due to lower new and used equipment sales. The lower sales revenues, partly offset by the higher gross margin percentage of 32% in 2025, compared to 31% in 2024, resulted in gross profit on sales decreasing $0.8 million, or 10%, to $7.1 million. The lower gross profit on sales in 2025 was primarily due to lower new and used equipment sales. Sales occur routinely as a normal part of Mobile Modular’s rental business; however, these sales and related gross margins can fluctuate from quarter to quarter and year to year depending on customer requirements, the scope of work to be performed, equipment availability and funding.

For the three months ended March 31, 2025, selling and administrative expenses increased $0.4 million, or 1%, to $34.0 million.

Portable Storage

For the three months ended March 31, 2025, Portable Storage’s total revenues decreased $3.5 million, or 14%, to $21.3 million compared to the same period in 2024, primarily due to lower rental and rental related services revenues. Lower gross profit on rental and rental related services revenues and a $1.3 million decrease in other income, net, attributed to the allocated net gain on sale of a corporate property in 2024, resulted in a decrease in pre-tax income of $3.8 million, or 41%, to $5.4 million in 2025.

The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.

Portable Storage – Three Months Ended 3/31/25 compared to Three Months Ended 3/31/24 (Unaudited)

(dollar amounts in thousands)

1. Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.

2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period.

3. Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding new rental equipment inventory and accessory equipment. Average utilization for the period is calculated using the average month end costs of rental equipment.

4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent, for the period.

5. During the year ended December 31, 2024, the Company determined that transaction costs incurred by the Company attributed to the terminated Merger Agreement were significant. Due to this determination, the Company reclassified $1.2 million in transaction costs from Selling and administrative expenses for the three months ended March 31, 2024, and reported such expenses separately as non-operating expense under the Corporate segment.

nm = Not meaningful

Portable Storage’s gross profit for the three months ended March 31, 2025, decreased $3.2 million, or 18%, to $13.9 million. For the three months ended March 31, 2025, compared to the same period in 2024:

• Gross Profit on Rental Revenues – Rental revenues decreased $2.3 million, or 13%, due to 10% lower average rental equipment on rent and 3% lower average monthly rental rates. As a percentage of rental revenues, depreciation was 6% and 5% in 2025 and 2024, respectively, and other direct costs were 9% and 8% in 2025 and 2024, respectively, which resulted in gross margin percentage of 84% in 2025 and 87% in 2024. The lower rental revenues and lower rental margins resulted in gross profit on rental revenues decreasing $2.5 million, or 15%, to $13.5 million in 2025.
• Gross Profit on Rental Related Services – Rental related services revenues was $3.6 million, compared to $4.7 million during the same period in 2024. The gross margin on rental related services revenues was negative 8% in 2025, compared to 6% in 2024. The lower revenues coupled with lower gross margins in 2025 resulted in rental related services gross profit decreasing $0.6 million, when compared to 2024.
• Gross Profit on Sales– Sales revenues were comparable to 2024 at $1.2 million. The comparable sales revenues and lower gross margins of 33% in 2025, compared to 37% in 2024, resulted in a comparable sales gross profit of $0.4 million in 2025. Sales occur routinely as a normal part of Portable Storage’s rental business; however, these sales can fluctuate from period to period depending on customer requirements, equipment availability and funding.

For the three months ended March 31, 2025, Portable Storage’s selling and administrative expenses decreased $0.3 million, or 3%, to $7.6 million.

TRS-RenTelco

For the three months ended March 31, 2025, TRS-RenTelco’s total revenues increased $1.3 million to $35.0 million, compared to the same period in 2024, primarily due to higher sales revenues. The total revenue increase, together with higher gross profit on rental revenues and lower interest expense, partly offset by a $1.7 million decrease in other income, net, attributed to the allocated net gain on sale of a corporate property in 2024, resulted in a comparable pre-tax income of $6.2 million for the three months ended March 31, 2025, when compared to 2024.

The following table summarizes results for each revenue and gross profit category, income from operations, pre-tax income and other selected information.

TRS-RenTelco – Three Months Ended 3/31/25 compared to Three Months Ended 3/31/24 (Unaudited)

(dollar amounts in thousands)

1. Average and Period end rental equipment represents the cost of rental equipment, excluding new equipment inventory and accessory equipment.

2. Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment, for the period.

3. Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding new rental equipment inventory and accessory equipment. Average utilization for the period is calculated using the average month end costs of rental equipment.

4. Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent, for the period.

5. During the year ended December 31, 2024, the Company determined that transaction costs incurred by the Company attributed to the terminated Merger Agreement were significant. Due to this determination, the Company reclassified $1.7 million in transaction costs from Selling and administrative expenses for the three months ended March 31, 2024, and reported such expenses separately as non-operating expense under the Corporate segment.

nm = Not meaningful

TRS-RenTelco’s gross profit for the three months ended March 31, 2025 increased $1.0 million, or 7%, to $14.9 million. For the three months ended March 31, 2025 compared to the same period in 2024:

• Gross Profit on Rental Revenues – Rental revenues increased $0.1 million, depreciation expense decreased $1.6 million, or 14%, and other direct costs increased by $0.4 million, or 9%, resulting in a 14% increase in gross profit on rental revenues to $10.3 million. As a percentage of rental revenues, depreciation was 39% and 45% in 2025 and 2024, respectively, and other direct costs were 21% and 19% in 2025 and 2024, respectively, which resulted in a gross margin percentage of 40% and 36% in 2025 and 2024, respectively.
• Gross Profit on Sales – Sales revenues increased $1.2 million, or 17%, to $8.0 million in 2025. Gross profit on sales decreased $0.2 million, or 4%, to $3.7 million, with a lower gross margin percentage of 47% in 2025, compared to 57% in 2024. Sales occur as a normal part of TRS-RenTelco’s rental business; however, these sales and related gross margins can fluctuate from quarter to quarter depending on customer requirements and related mix of equipment sold, equipment availability and funding.

For the three months ended March 31, 2025, selling and administrative expenses increased $0.2 million, or 3%, to $7.4 million.

Adjusted EBITDA

To supplement the Company’s financial data presented on a basis consistent with accounting principles generally accepted in the United States of America (“GAAP”), the Company presents “Adjusted EBITDA”, which is defined by the Company as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs, share-based compensation, transaction costs, gains on property sales and non-operating transactions. The Company presents Adjusted EBITDA as a financial measure as management believes it provides useful information to investors regarding the Company’s liquidity and financial condition and because management, as well as the Company’s lenders, use this measure in evaluating the performance of the Company.

Management uses Adjusted EBITDA as a supplement to GAAP measures to further evaluate period-to-period operating performance, compliance with financial covenants in the Company’s revolving lines of credit and senior notes and the Company’s ability to meet future capital expenditure and working capital requirements. Management believes the exclusion of non-cash charges and non-recurring transactions, including share-based compensation, transaction costs and gains on property sales is useful in measuring the Company’s cash available for operations and performance of the Company. Because management finds Adjusted EBITDA useful, the Company believes its investors will also find Adjusted EBITDA useful in evaluating the Company’s performance.

Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows, or other consolidated income or cash flow data prepared in accordance with GAAP or as a measure of the Company’s profitability or liquidity. Adjusted EBITDA is not in accordance with or an alternative for GAAP and may be different from non−GAAP measures used by other companies. Unlike EBITDA, which may be used by other companies or investors, Adjusted EBITDA does not include share-based compensation charges, transaction costs, gains on property sales and non-operating transactions. The Company believes that Adjusted EBITDA is of limited use in that it does not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP and does not accurately reflect real cash flow. In addition, other companies may not use Adjusted EBITDA or may use other non-GAAP measures, limiting the usefulness of Adjusted EBITDA for purposes of comparison. The Company’s presentation of Adjusted EBITDA should not be construed as an inference that the Company will not incur expenses that are the same as or similar to the adjustments in this presentation. Therefore, Adjusted EBITDA should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures. The Company compensates for the limitations of Adjusted EBITDA by relying upon GAAP results to gain a complete picture of the Company’s performance. Because Adjusted EBITDA is a non-GAAP financial measure, as defined by the SEC, the Company includes in the tables below reconciliations of Adjusted EBITDA to the most directly comparable financial measures calculated and presented in accordance with GAAP.

Reconciliation of Net Income to Adjusted EBITDA

(dollar amounts in thousands)

1. Adjusted EBITDA is defined as income from operations before interest expense, provision for income taxes, depreciation, amortization, share-based compensation, other income, net and non-operating transactions.

2. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total revenues for the period.

3. Transaction costs include merger and acquisition related legal and professional fees and other costs specific to these transactions.

4. Other income, net consists of net gains on property, plant and equipment sales that are infrequent in nature and excluded from Adjusted EBITDA.

Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA

(dollar amounts in thousands)

1. Adjusted EBITDA is defined as income from operations before interest expense, provision for income taxes, depreciation, amortization, share-based compensation and non-operating transactions.

Adjusted EBITDA is a component of two restrictive financial covenants for the Company’s unsecured Credit Facility, the Note Purchase Agreement, Series D Senior Notes, Series E Senior Notes and Series F Senior Notes (as defined and more fully described under the heading “Liquidity and Capital Resources” in this MD&A). These instruments contain financial covenants requiring the Company to not:

• Permit the Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Facility and the Note Purchase Agreement (as defined and more fully described under the heading “Liquidity and Capital Resources” in this MD&A)) of Adjusted EBITDA (as defined in the Credit Facility and the Note Purchase Agreement) to fixed charges as of the end of any fiscal quarter to be less than 2.50 to 1. At March 31, 2025, the actual ratio was 3.38 to 1.
• Permit the Consolidated Leverage Ratio of funded debt (as defined in the Credit Facility and the Note Purchase Agreement) to Adjusted EBITDA at any time during any period of four consecutive quarters to be greater than 2.75 to 1. At March 31, 2025, the actual ratio was 1.58 to 1.

At March 31, 2025, the Company was in compliance with each of the aforementioned covenants. There are no anticipated trends that the Company is aware of that would indicate non-compliance with these covenants, although, significant deterioration in our financial performance could impact the Company’s ability to comply with these covenants.

Liquidity and Capital Resources

The Company’s rental businesses are capital intensive and generate significant cash flows. Cash flows for the Company for the three months ended March 31, 2025 compared to the same period in 2024 are summarized as follows:

Cash Flows from Operating Activities: The Company’s operations provided net cash of $53.9 million in 2025, compared to $59.4 million in 2024. The $5.5 million decrease in net cash provided by operating activities was primarily attributable to $24.3 million lower cash provided due to a reduction in accounts payable, a result of the payment timing of rental equipment acquisitions and other trade accounts payable. In addition, the Company's inventories provided for $6.3 million higher cash flows in 2025, compared to 2024, primarily due to lower rental equipment manufacturing in progress when compared to the same period in 2024. Finally, the Company's prepaid expenses and other assets provided $5.7 million higher cash flows in 2025, compared to 2024, primarily as a result of lower prepaid income taxes.

Cash Flows from Investing Activities: Net cash used in investing activities was $2.7 million in 2025, down from $78.1 million in 2024. The $75.4 million decrease in net cash used was primarily due to $67.1 million lower rental equipment purchases when compared to the previous year, due to the higher rental equipment acquisitions in the first quarter of 2024 to meet customer rental demand. Further, the Company had $21.3 million and $12.3 million lower purchases and proceeds of property, plant and equipment in 2025, respectively, which was primarily attributed to decreased land and building purchases during the year, and the sale of a corporate property in 2024.

Cash Flows from Financing Activities: Net cash used in financing activities was $48.6 million in 2025, compared to $19.7 million in net cash provided during 2024. The $68.3 million change was largely attributed to reduced borrowings under bank lines of credit, primarily as a result of lower rental equipment purchases during the period, when compared to 2024.

Significant capital expenditures are required to maintain and grow the Company’s rental assets. During the last three years, the Company has financed its working capital and capital expenditure requirements through cash flow from operations, proceeds from the sale of rental equipment and from borrowings. Sales occur routinely as a normal part of the Company’s rental business. However, these sales can fluctuate from period to period depending on customer requirements and funding. Although the net proceeds received from sales may fluctuate from period to period, the Company believes its liquidity will not be adversely impacted from lower sales in any given year because it believes it has the ability to increase its bank borrowings and conserve its cash in the future by reducing the amount of cash it uses to purchase rental equipment, pay dividends, or repurchase the Company’s common stock.

Unsecured Revolving Lines of Credit

On July 15, 2022, the Company entered into an amended and restated credit agreement with Bank of America, N.A., as Administrative Agent, Swing Line Lender, L/C Issuer and lender, and other lenders named therein (the “Credit Facility”). The Credit Facility provides for a $650.0 million unsecured revolving credit facility (which may be further increased to $950.0 million, of which as of Mach 31, 2025, $73.0 million was utilized through the term loan entered on April 23, 2024, by adding one or more tranches of term loans and/or increasing the aggregate revolving commitments), which includes a $40.0 million sublimit for the issuance of standby letters of credit and a $20.0 million sublimit for swingline loans. The proceeds of the Credit Facility are available to be used for general corporate purposes, including permitted acquisitions. The Credit Facility permits the Company’s existing indebtedness to remain, which includes the Company’s $20.0 million Treasury Sweep Note due July 15, 2027, the Company’s existing senior notes issued pursuant to the Note Purchase and Private Shelf Agreement with Prudential Investment Management, Inc., dated as of April 21, 2011 (as amended): (i) the $60.0 million aggregate outstanding principal of notes issued November 5, 2015 and due November 5, 2022, (ii) the $40.0 million aggregate outstanding principal of notes issued March 17, 2021 and due March 17, 2028, and (iii) the $60.0 million aggregate outstanding principal of notes issued June 16, 2021 and due June 16, 2026. In addition, the Company may incur additional senior note indebtedness in an aggregate amount not to exceed $250.0 million. The Credit Facility matures on July 15, 2027 and replaced the Company’s prior $420.0 million credit facility dated March 31, 2020 with Bank of America, N.A., as agent, as amended. All obligations outstanding under the prior credit facility as of the date of the Credit Facility were refinanced by the Credit Facility on April 23, 2022.

On August 19, 2022, the Company entered into an amended and restated Credit Facility Letter Agreement and a Credit Line Note in favor of MUFG Union Bank, N.A., which provides for a $20.0 million line of credit facility related to its cash management services (“Sweep Service Facility”). The Sweep Service Facility matures on the earlier of July 15, 2027, or the date the Company ceases to utilize MUFG Union Bank, N.A. for its cash management services. The Sweep Service Facility replaced the Company’s prior $12.0 million sweep service facility, dated as of March 30, 2020.

On April 23, 2024, the Company entered into a first incremental facility amendment with Bank of America, N.A., as Administrative Agent and the first incremental lender (“BoA”) and the guarantors named therein (the “First Incremental Amendment”). The First Incremental Amendment amends the Second Amended and Restated Credit Agreement, dated as of July 15, 2022, as amended, by and among the Company, BoA, the other lenders named therein, and the guarantors named therein (the “Credit Agreement”) to institute an incremental term loan “A” facility in an aggregate principal amount of $75.0 million (the “Incremental Credit Facility”). The proceeds from the Incremental Credit Facility were used for general corporate purposes. Concurrently with entry into the First Incremental Amendment, the Company repaid revolving loans issued under the Credit Agreement in an aggregate amount equal to approximately $75.0 million.

At March 31, 2025, under the Credit Facility and Sweep Service Facility, the Company had unsecured lines of credit that permit it to borrow up to $650.0 million of which $311.5 million was outstanding and had capacity to borrow up to an additional $338.5 million. The Credit Facility contains financial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to such terms in the Credit Facility):

• Permit the Consolidated Fixed Charge Coverage Ratio as of the end of any fiscal quarter to be less than 2.50 to 1. At March 31, 2025, the actual ratio was 3.38 to 1.
• Permit the Consolidated Leverage Ratio at any time during any period of four consecutive fiscal quarters to be greater than 2.75 to 1. At March 31, 2025, the actual ratio was 1.58 to 1.

At March 31, 2025, the Company was in compliance with each of the aforementioned covenants. There are no anticipated trends that the Company is aware of that would indicate non-compliance with these covenants, although significant deterioration in our financial performance could impact the Company’s ability to comply with these covenants.

Note Purchase and Private Shelf Agreement

On June 8, 2023, the Company entered into a Second Amended and Restated Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”) with PGIM, Inc. (“PGIM”) and the holders of Series D and Series E Notes previously issued pursuant to the Prior Amended and Restated NPA, among the Company and the other parties to the Note Purchase Agreement. The Note Purchase Agreement amended and restated, and superseded in its entirety, the Prior NPA. Pursuant to the Prior NPA, the Company issued (i) $40.0 million aggregate principal amount of its 2.57% Series D Senior Notes, due March 17, 2028, and (ii) $60.0 million aggregate principal amount of its 2.35% Series E Senior Notes, due June 16, 2026, to which the terms of the Note Purchase Agreement shall apply.

In addition, pursuant to the Note Purchase Agreement, the Company may authorize the issuance and sale of additional senior notes (the “Shelf Notes”) in the aggregate principal amount of (x) $300 million minus (y) the amount of other notes (such as the Series D Senior Notes, Series E Senior Notes and Series F Senior Notes, each defined below) then outstanding, to be dated the date of issuance thereof, to mature, in case of each Shelf Note so issued, no more than 15 years after the date of original issuance thereof, to have an average life, in the case of each Shelf Note so issued, of no more than 15 years after the date of original issuance thereof, to bear interest on the unpaid balance thereof from the date thereof at the rate per annum, and to have such other particular terms, as shall be set forth, in the case of each Shelf Note so issued, in accordance with the Note Purchase Agreement. Shelf Notes may be issued and sold from time to time at the discretion of the Company’s Board of Directors and in such amounts as the Board of Directors may determine, subject to prospective purchasers’ agreement to purchase the Shelf Notes. The Company will sell the Shelf Notes directly to such purchasers. The full net proceeds of each Shelf Note will be used in the manner described in the applicable Request for Purchase with respect to such Shelf Note.

6.25% Senior Notes Due in 2030

On September 27, 2023, the Company issued and sold to the purchasers $75.0 million aggregate principal amount of 6.25% Series F Notes (the “Series F Senior Notes”) pursuant to the terms of the Second Amended and Restated Note Purchase and Private Shelf Agreement, dated June 8, 2023 (the “Note Purchase Agreement”), among the Company, PGIM, Inc. and the noteholders party thereto.

The Series F Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 6.25% per annum and mature on September 27, 2030. Interest on the Series F Senior Notes is payable semi-annually beginning on March 27, 2024 and continuing thereafter on September 27 and March 27 of each year until maturity. The principal balance is due when the notes mature on September 27, 2030. The full net proceeds from the Series F Senior Notes will primarily be used to fulfill the income tax obligations incurred from the divestiture of Adler Tanks. At March 31, 2025, the principal balance outstanding under the Series F Senior Notes was $75.0 million.

2.57% Senior Notes Due in 2028

On March 17, 2021, the Company issued and sold to the purchasers $40.0 million aggregate principal amount of 2.57% Series D Notes (the “Series D Senior Notes”) pursuant to the terms of the Amended and Restated Note Purchase and Private Shelf Agreement, dated March 31, 2020 (the “Note Purchase Agreement”), among the Company, PGIM, Inc. and the noteholders party thereto.

The Series D Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 2.57% per annum and mature on March 17, 2028. Interest on the Series D Senior Notes is payable semi-annually beginning on September 17, 2021 and continuing thereafter on March 17 and September 17 of each year until maturity. The principal balance is due when the notes mature on March 17, 2028. The full net proceeds from the Series D Senior Notes were used to pay off the Company’s $40 million Series B Senior Notes. At March 31, 2025, the principal balance outstanding under the Series D Senior Notes was $40.0 million.

2.35% Senior Notes Due in 2026

On June 16, 2021, the Company issued and sold to the purchasers $60.0 million aggregate principal amount of 2.35% Series E Notes (the "Series E Notes") pursuant to the terms of the Amended and Restated Note Purchase and Private Shelf Agreement, dated March 31, 2020 (the “Note Purchase Agreement”), among the Company, PGIM, Inc. and the noteholders party thereto.

The Series E Senior Notes are an unsecured obligation of the Company and bear interest at a rate of 2.35% per annum and mature on June 16, 2026. Interest on the Series E Senior Notes is payable semi-annually beginning on December 16, 2021 and continuing thereafter on June 16 and December 16 of each year until maturity. The principal balance is due when the notes mature on June 16, 2026. The full net proceeds from the Series E Senior Notes were used to pay down the Company’s credit facility. At March 31, 2025, the principal balance outstanding under the Series E Senior Notes was $60.0 million.

Among other restrictions, the Note Purchase Agreement, which has superseded in its entirety the Prior NPA, under which the Series D Senior Notes, Series E Senior Notes and Series F Senior Notes were sold, contains financial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to such terms in the Note Purchase Agreement):

• Permit the Consolidated Fixed Charge Coverage Ratio of EBITDA to fixed charges as of the end of any fiscal quarter to be less than 2.50 to 1. At March 31, 2025, the actual ratio was 3.38 to 1.
• Permit the Consolidated Leverage Ratio of funded debt to EBITDA at any time during any period of four consecutive quarters to be greater than 2.75 to 1. At March 31, 2025, the actual ratio was 1.58 to 1.

At March 31, 2025, the Company was in compliance with each of the aforementioned covenants. There are no anticipated trends that the Company is aware of that would indicate non-compliance with these covenants, although significant deterioration in our financial performance could impact the Company’s ability to comply with these covenants.

Although no assurance can be given, the Company believes it will continue to be able to negotiate general bank lines of credit and issue senior notes adequate to meet capital requirements not otherwise met by operational cash flows and proceeds from sales of rental equipment.

Contractual Obligations and Commitments

We believe that our contractual obligations and commitments have not changed materially from those included in our 2024 Annual Report.

Critical Accounting Estimates

There were no material changes in our judgments and assumptions associated with the development of our critical accounting estimates during the three month period ended March 31, 2025. Refer to our 2024 Annual Report for a discussion of our critical accounting policies and estimates.

There have been no material changes in the Company’s market risk exposures from those reported in our 2024 Annual Report.

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), the Company’s principal executive officer and principal financial officer, respectively, performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2025. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of March 31, 2025. There were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There have been no material changes from the risk factors associated with our business previously disclosed in the “Item 1A. Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, except as set forth below. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our common stock.

Changes in the U.S. trade environment, including uncertainty over global tariffs and the financial impact of tariffs, as well as economic uncertainty associated with geopolitics, may negatively affect our business, financial condition and results of operations.

The United States has enacted and proposed to enact significant new tariffs, as well as changes to existing tariffs. Additionally, various federal agencies have been directed further evaluate key aspects of U.S. trade policy and there has been ongoing discussion regarding potential significant changes to U.S. trade policies, treaties, and tariffs, all of which has resulted and may continue to result in retaliatory tariffs enacted by trading partners in response to such actions. Trade restrictions and rising political tensions could reduce trade volume, investment and other economic activities between major international economies, resulting in a material adverse effect on global economic conditions and the stability of global financial markets. Any of these factors could negatively impact our customers and suppliers. These developments or a perception of these developments could cause our customers or potential customers to delay or re-evaluate their decisions to initiate various projects which in turn could result in a delay or cessation of engagement or other business activities with us. During challenging times, our customers may tighten their budgets or face constraints in gaining timely access to sufficient funding or other credit, which could result in an impairment of their ability to make timely payments to us. All these developments could negatively impact our business, financial condition and results of operations.