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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.01pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.01pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.01pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
unable+1
negatively+1
delays+1
impair+1
dispose+1
Positive rising
successfully+1
efficiencies+1
Risk Factors (Item 1A)
10,554 words
ITEM 1A. Risk Factors
Risks Relating to Our Business
Global or local economic movements could have a material adverse effect on our business.
Our business, which operates in the US, Canada, and Mexico, has been, and may continue to be, negatively impacted by economic movements or downturns in the local markets in which we operate or global markets generally. Adverse economic conditions may reduce commercial activity, cause disruption and extreme volatility in global financial markets and increase rates of default and bankruptcy. Reduced economic activity has at times historically resulted in reduced demand for our products and services. Disruptions in financial markets could negatively impact the ability of our customers to pay their obligations to us in a timely manner and increase our counterparty risk. If economic conditions worsen, we may face reduced demand and an increase, relative to historical levels, in the time it takes to receive customer payments. If we are not to adjust our business in a timely and manner to changing economic conditions, our business, results of operations, and financial condition may be materially affected.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
loss+18
decline+5
restructuring+4
idle+4
losses+3
Positive rising
benefit+6
strong+3
improve+2
effective+2
progresses+2
MD&A (Item 7)
10,489 words
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our operations and current business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes thereto, contained in Part II, Item 8. Financial Statements and Supplemental Data of this Annual Report on Form 10-K. All references to "Notes" in this MD&A are to notes to our financial statements. The discussion of results of operations in this MD&A is presented on a historical basis, as of or for the year ended December 31, 2025 or prior periods.
For further discussion regarding our results of operations for the year ended December 31, 2024, as compared to the year ended December 31, 2023, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations , in our Annual Report on Form 10-K for the year ended December 31, 2024.
The consolidated financial statements were prepared in conformity with GAAP. We use certain non-GAAP financial measures to supplement the GAAP reported results to highlight key metrics that are used by management to evaluate Company performance. Reconciliations of GAAP financial information to the disclosed non-GAAP measures are provided in the Reconciliation of Non-GAAP Financial Measures section.
Executive Summary
We are a business services provider specializing in and flexible turnkey temporary space solutions. We offer our customers an extensive selection of space solutions with over 128,000 modular space units and over 176,000 portable storage units in our fleet. Our diverse product offering includes:
Moreover, the level of demand for our products and services is sensitive to the level of demand within various sectors, particularly the commercial and industrial, construction and infrastructure, education, energy and natural resources, and government end markets. We experienced a decline in new contract activations and resulting units on rent over the past three years as a result of the decline in non-residential construction square foot starts in the US from peak levels near the end of 2022. Each of these sectors is influenced not only by the state of the general global economy, but also by a number of more specific factors as well. For example, a decline in global or local energy prices may materially adversely affect demand for modular buildings within the energy and resources sector. The levels of activity in these sectors and geographic regions may also be cyclical, and we may not be able to predict the timing, extent or duration of the activity cycles in the markets in which we or our key customers operate. A decline or slowed growth in any of these sectors or geographic regions could result in reduced demand for our products and services, which may materially adversely affect our business, results of operations, and financial condition.
We face significant competition in the modular space and portable storage industries. Such competition may result in pricing pressure or an inability to maintain or grow our market share. If we are unable to compete successfully, we could lose customers and our revenue and profitability could decline.
Although our competition varies significantly by market, the modular space and portable storage industries are highly competitive and highly fragmented. We compete based on a number of factors, including customer relationships, product quality and availability, delivery speed, VAPS and service capabilities, pricing, and overall ease of doing business. We may experience pricing pressures in our operations as some of our competitors seek to obtain market share by reducing prices, and we may face reduced demand for our products and services if our competitors are able to provide new or innovative products or services that better appeal to customers. In most of our end markets, we face competition from national, regional and local companies that have an established market position in the specific service area, and we expect to encounter similar competition in any new markets or new product lines that we may enter. In certain markets or product lines, some of our competitors may have greater market share, less debt, greater pricing flexibility, more attractive product or service offerings, better brand recognition or superior marketing and financial resources. Increased competition could result in lower profit margins, substantial pricing pressure, and reduced market share. Price competition, together with other forms of competition, may materially adversely affect our business, results of operations, and financial condition.
If we do not manage our credit risk effectively, collect on our accounts receivable, or recover our rental equipment from our customers, it could materially adversely affect our business, financial condition and results of operations.
We perform credit evaluation procedures on our customers and require advance payment, security deposits, or other forms of security from our customers when we identify a significant credit risk. Failure to manage our credit risk and receive timely payments on our customer accounts receivable may result in the write-off of customer receivables and loss of units if we are unable to recover our rental equipment from our customers’ sites. If we are not able to manage credit risk, or if a large number of our customers have financial difficulties at the same time, our credit and rental equipment losses would increase above historical levels. If this should occur, our business, financial condition, results of operations, and cash flows may be materially adversely affected.
We face risks from our Network Optimization Plan, which could adversely affect our financial condition, results of operations and cash flows.
The execution of our Network Optimization Plan involves operational, financial, and execution risks. We may experience delays or increased costs associated with exiting leased properties, including costs to dispose of or relocate related rental equipment. Additionally, the abandonment of rental fleet units may reduce the availability of certain equipment types or configurations, which could impair our ability to meet customer demand or maintain service levels in certain markets. Although we believe the Network Optimization Plan will maintain market coverage and adequate idle fleet to support projected
demand, there is no assurance that these actions will not negatively impact customer relationships, revenue, or our competitive position.
If we are unable to successfully implement the Network Optimization Plan as intended, or if the anticipated cost savings and operational efficiencies are not realized on the expected timeline or at all, our business, financial condition, cash flows, and results of operations could be adversely affected.
We are subject to various laws and regulations governing antitrust, climate related disclosures, cybersecurity and information technology, privacy, government contracts, anti-corruption and the environment. Obligations and liabilities under these laws and regulations may materially harm our business.
Our operations are subject to an array of governmental regulations in each of the jurisdictions in which we operate. For example, our activities in the US are subject to regulation by several federal and state government agencies, including the Occupational Safety and Health Administration, and by federal and state laws. Our operations and activities in other jurisdictions are subject to similar governmental regulations. Similar to conventionally constructed buildings, the modular business industry is also subject to regulations by multiple governmental agencies in each jurisdiction relating to, among others, environmental, zoning and building standards, and health, safety and transportation matters. These regulations affect our portable storage solutions customers, most of whom use our storage units to store their goods on their own properties for various lengths of time. If local zoning laws or planning permission regulations in one or more of our markets no longer allow our units to be stored on customers' sites, our business in that market will suffer. Noncompliance with applicable regulations, implementation of new regulations or modifications to existing regulations may increase costs of compliance, require the termination of certain activities or otherwise materially adversely affect our business, results of operations, and financial condition.
US Government Contract Laws and Regulations
Our government customers include the US government, which means we are subject to various statutes and regulations applicable to doing business with the US government. These types of contracts customarily contain provisions that give the US government substantial rights and remedies, many of which are not typically found in commercial contracts and which are unfavorable to contractors, including provisions that allow the government to unilaterally terminate or modify our federal government contracts, in whole or in part, at the government’s convenience. Under general principles of US government contracting law, if the government terminates a contract for convenience, the terminated company may generally recover only its incurred or committed costs, settlement expenses and profit on work completed prior to the termination. If the government terminates a contract for default, the defaulting company may be liable for any extra costs incurred by the government in procuring undelivered items from another source.
In addition, US government contracts and grants normally contain additional requirements that may increase our costs of doing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions. These requirements include, for example: (a) specialized disclosure and accounting requirements unique to US government contracts; (b) financial and compliance audits that may result in potential liability for price adjustments, recoupment of government funds after such funds have been spent, civil and criminalpenalties, or administrative sanctions such as suspension or debarment from doing business with the US government; (c) public disclosures of certain contract and company information; and (d) mandatory socioeconomic compliance requirements, including labor requirements, non-discrimination and affirmative action programs and environmental compliance requirements.
If we fail to comply with these requirements, our contracts may be subject to termination, and we may be subject to financial and/or other liability under our contracts or under the Federal Civil FalseClaims Act (the "FalseClaims Act"). The FalseClaims Act’s “whistleblower” provisions allow private individuals, including present and former employees, to sue on behalf of the US government. The FalseClaims Act statute provides for treble damages and other penalties, and if our operations are found to be in violation of the FalseClaims Act, we could face other adverse actions, including suspension or prohibition from doing business with the US government. Any penalties, damages, fines, suspension or damages could adversely affect our ability to operate our business and our financial results.
Department of Transportation and Titling Regulations
We operate in the US pursuant to operating authority granted by the US Department of Transportation (the “DOT”). Our 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 peer firms. A poor safety ranking may result in the loss of customers or difficulty attracting and retaining qualified drivers, which could adversely affect our results of operations. Should additional rules be enacted in the future, compliance with such rules could result in material additional costs.
Additionally, we are subject to and may be required to expend funds to ensure compliance with a variety of laws, regulations, and ordinances related to unit titling, stamping, and registration rules and procedures, and notification requirements to agencies and law enforcement relating to unit transfers, particularly when acquiring new assets and operations. Many of these laws and regulations are frequently complex and subject to interpretation, and failure to comply with present or future regulations or changes in interpretations of existing laws or regulations may result in impairment or suspension of our operations and the imposition of penalties and other liabilities. At various times, we may be involved in
disputes with local governmental officials regarding the development and/or operation of our units. We may be subject to similar types of regulations by governmental agencies in new markets. In addition, new legal or regulatory requirements or changes in existing requirements may delay or increase the cost of acquiring and integrating new units, which may adversely impact our ability to conduct our business.
Anti-Corruption Laws and Regulations
We are subject to various anti-corruption laws that prohibit improper paym ents or offers of payments to foreign governments and their officials by a US person for the purpose of obtaining or retaining business. We also operate in countries outside the US where activities such as unauthorized payments or offers of payments by one of our employees or agents could be in violation of various laws, including the FCPA. We have implemented safeg uards and policies to discourage these practices by our employees and agents. However, existing safeguards and any future improvements may prove to be ineffective, and employees or agents may engage in conduct for which we might be held responsible.
If employees violate our policies or we fail to maintain adequate record-keeping and internal accounting practices to accurately record our transactions, we may be subject to regulatory sanctions. Violations of the FCPA or other anti-corruption laws may result in severecriminal or civil sanctions and penalties, including suspension or debarment from US government contracting, and we may be subject to other liabilities which could materially adversely affect our business, results of operations and financial condition. We are also subject to similar anti-corruption laws in other jurisdictions.
Environmental Laws and Regulations
We are subject to a variety of national, state, regional and local environmental laws and regulations. Among other things, these laws and regulations impose limitations and prohibitions on the discharge and emission of, and establish standards for the use, disposal and management of, regulated materials and waste and impose liabilities for the costs of investigating and cleaning up, and damages resulting from, present and past spills, disposals or other releases of hazardous substances or materials. In the ordinary course of business, we use and generate substances that are regulated or may be hazardous under environmental laws. We have an inherent risk of liability under environmental laws and regulations, both with respect to ongoing operations and with respect to contamination that may have occurred in the past on our properties or as a result of our operations. While we endeavor to comply with all regulatory requirements, from time to time, our operations or conditions on properties that we have acquired have resulted in liabilities under these environmental laws. We may in the future incur material costs to comply with environmental laws or sustain material liabilities from claims concerning noncompliance or contamination. 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. While we maintain certain related insurance coverages, we have no reserves for any such liabilities.
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 improperlyexposed to hazardous materials.
We cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted, or what environmental conditions may be found to exist at our facilities or at third-party sites for which we may be liable. Enactment of stricter laws or regulations, stricter interpretations of existing laws and regulations or the requirement to undertake the investigation or remediation of currently unknown environmental contamination at sites we own or third-party sites may require us to make additional expenditures, some of which could be material. Responding to governmental investigations or other actions may be both time-consuming and disruptive to our operations and could divert the attention of our management and key personnel from our business operations. The impact of these and other investigations and lawsuits could have a material adverse effect on our financial statements.
Actions of activist shareholders could negatively affect our business
We have in the past received, and we may in the future be subject to, communications from activist investors urging us to take certain corporate actions. Activist investor activities could adversely affect our business as responding to threatened or actual proxy contests and other demands of activist investors can be costly and time-consuming, disrupt our operations, and divert the attention of management and our employees. For example, we have retained, and may in the future need to retain, the services of various professionals to advise us on activist investor matters, including legal, financial and communications advisors, the costs of which may negatively impact our future financial results. Activist investors may lead campaigns to effect changes at publicly-traded companies such as financial restructuring, increased debt, special dividends, stock repurchases, or sales of assets or the entire company. Additionally, activist investors may attempt to replace some or all members of our Board of Directors, which could create uncertainly regarding our strategic direction and negatively impact our governance and leadershipstability. Perceived uncertainties regarding our future direction, strategy or leadership that arise as a consequence of activist investor initiatives may result in the loss of potential business opportunities, harm our ability to attract or retain investors, employees and business partners, and cause our stock price to experience periods of volatility or stagnation.
We may be unable to successfully acquire and integrate new operations, which could cause our business to suffer.
We have historically achieved a significant portion of our growth through acquisitions, and we will continue to consider potential acquisitions on a selective basis. There can be no assurance that we will be able to identify suitable acquisition
opportunities in the future or that we will be able to consummate any such transactions on terms and conditions acceptable to us.
Additionally, we cannot predict if or when acquisitions will be completed, and we may face significant competition for acquisition targets. Acquisitions involve numerous risks, including (a) difficulties in integrating the operations, technologies, management information systems, products and personnel of the acquired companies; (b) diversion of management’s attention from normal daily operations of the business; (c) loss of key employees; (d) difficulties in entering markets in which we have no or limited prior experience and where our competitors in such markets have stronger market positions; (e) difficulties in complying with regulations, such as antitrust and environmental regulations, and managing risks related to an acquired business; (f) an inability to timely obtain financing, including any amendments required to existing financing agreements; (g) an inability to implement uniform standards, controls, procedures and policies; (h) undiscovered and unknown problems, defects, liabilities or other issues related to any acquisition that become known to us only after the acquisition, particularly relating to rental equipment on lease that are unavailable for inspection during the diligence process; and (i) loss of key customers or suppliers.
Acquisitions are inherently risky, and we cannot provide assurance that any future acquisitions will be successful or will not materially adversely affect our business, results of operations and financial condition. If we do not manage new markets or product lines effectively, some of our new branches or product lines obtained through acquisitions may lose money or fail, and we may have to close unprofitable branches or cease offering a new product. We must continue to take actions to realize the combined cost and commercial synergies that we forecast for our acquisitions. We may incur more costs than we anticipated to achieve the forecast synergies (thus reducing the net benefit of the cost or commercial synergies), realize synergies later than we expected or fail altogether to achieve a portion of the cost savings or commercial synergies we anticipated. Any of these events could cause lower revenue growth than anticipated, reductions in our earnings per share, impact our ability to borrow funds under our credit facility, decrease or delay the accretive effect of the acquisitions that we anticipated and negatively impact our stock price.
Any failure of our management information systems could disrupt our business operations, which could result in decreased lease or sale revenue and increase overhead costs.
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 our management information systems to perform as anticipated could damage our reputation with our customers, disrupt our business or result in, among other things, decreased lease and sales revenue and increased overhead costs. Any such failure could harm our business, results of operations and financial condition. In addition, the delay or failure to implement information system upgrades and new systems effectively could disrupt our business, distract management’s focus and attention from business operations and growth initiatives and increase our implementation and operating costs, any of which could materially adversely affect our operations and operating results. Moreover, the integration of any acquisition may create unforeseenchallenges for our management information systems, which could result in unforeseen expenditures and other risks, including difficulties in managing facilities and employees in different geographic areas or those operating other product lines.
Although we believe we have implemented appropriate measures to mitigate potential risks, 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 threats or incidents, natural disasters, terrorist attacks, telecommunication failures, computer viruses, hackers, phishing attacks, and other security issues. We have previously been the target of attempted cyber-attacks and have, from time to time, experienced threats to our data and information systems, computer virus attacks and phishing attempts, and we may be subject to breaches of the information systems that we use. We have not experienced a material cybersecurity incident. We have programs in place that are intended to detect, contain and respond to data security incidents and that provide employee awareness training regarding phishing, malware, and other cyber risks to protect against cyber risks and security breaches. However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventative measures. In addition, because our systems contain information about individuals and other businesses, the failure to maintain the security of the data we hold, whether the result of our own error or the malfeasance or errors of others, could harm our reputation or give rise to legal liabilities or other consequences leading to lower revenue, increased costs, regulatory sanctions and other potential material adverse effects on our business, results of operations, and financial condition.
Trade policies and changes in trade policies, including the imposition of or increases in tariffs, their enforcement, downstream consequences, including any resulting changes in international trade relations, may materially adversely affect our business, results of operations, and outlook.
Tariffs and/or other developments with respect to trade policies, trade agreements and government regulations may materially adversely affect our business, financial condition and results of operations. From time to time, the US government has historically imposed and may in the future impose tariffs on steel, aluminum, lumber, and other imports from certain countries or countries generally, which could result in increased costs for these materials. Without limitation, (i) tariffs currently in place and (ii) the imposition by the federal government of new tariffs on imports to the US could materially increase (a) the cost of our products that we are offering for sale or lease, (b) the cost of certain products that we source from foreign
manufacturers, and (c) the cost of certain raw materials or products that we utilize. We may not be able to pass such increased costs on to our customers, and we may not be able to secure sources of certain products and materials that are not subject to tariffs on a timely basis. The current US administration has implemented or increased, or announced plans to implement or increase tariffs, including on products manufactured in China, Canada, and Mexico, though it remains unclear what specific actions will be implemented or be maintained. The implementation or maintenance of tariffs announced to date or announced in the future, or any escalation of trade tensions, additional tariffs, retaliatory measures by foreign governments or shifts in US or international trade policies could increase uncertainty and adversely impact our supply chain, increase costs, and reduce demand for our products, directly or indirectly due to negative effects on our customers, the US economy, the economies of other countries in which we operate or the global economy, any or all of which developments may materially adversely affect our business, financial condition, and results of operations. Further, the duration and scope of these potential effects are unknown. Although we actively monitor our procurement policies and practices to avoid undue reliance on foreign goods subject to tariffs, when practicable, there is no assurance that any actions we implement as a result will allow us to avoid these potential effects.
Fluctuations in interest rates and commodity prices may also materially adversely affect our revenues, results of operations and cash flows.
Although we have fixed-rate debt through our Senior Secured Notes (as defined below), our borrowings under our senior secured asset-based revolving credit facility (the "ABL Facility") remain variable rate debt. Our interest rate swaps have partially mitigated the impacts of fluctuations in interest rates under the ABL Facility. However, fluctuations in interest rates have in the past negatively impacted, and may continue to negatively impact, the amount of our interest payments, as well as our ability to refinance portions of our existing debt in the future at attractive interest rates. In addition, certain of our end markets have in the past been, and may continue to be, sensitive to interest rates for project financing, which can impact the demand for our services. Lastly, certain of our end markets, as well as portions of our cost structure, such as transportation costs, have in the past been, and may continue to be, sensitive to changes in commodity prices, which can impact both demand for and profitability of our services. These changes could impact our future earnings and cash flows.
We are subject to risks as sociated with labor relations, labor costs and labor disruptions.
We are subject to the costs and risks generally associated with labor disputes and organizing activities related to unionized labor. It is possible that strikes, public demonstrations or other coordinated actions and publicity may disrupt our operations. We may incur increased legal costs and indirect labor costs as a result of contractual disputes, negotiations or other labor-related disruptions. Labor organizing activities could result in employees becoming unionized. Furthermore, collective bargaining agreements may limit our ability to reduce the size of work forces during an economic downturn, which could put us at a competitive disadvantage. We believe a unionized workforce would generally increase our operating costs, divert 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.
Anticipated changes in immigration laws and regulations could decrease the pool of candidates with legal work authorization, cause disruption in the workforce for companies, and increase the costs, time, and requirements to hire new employees.
Our ability to profitably execute our business plan depends on our ability to attract, develop and retain qualified personnel. Certain of our key executives, managers and employees have knowledge and an understanding of our business and our industry, and/or have developed meaningful customer relationships, that cannot be duplicated readily. Our ability to attract and retain qualified personnel is dependent on, among other things, the availability of qualified personnel and our ability to provide a competitive compensation package, including the implementation of adequate drivers of retention and rewards based on performance, and work environment. Failure to retain qualified key personnel may materially adversely affect our business, results of operations and financial condition. The departure of any key personnel and our inability to enforce non-competition agreements could have a negative impact on our business.
Moreover, labor shortages, the inability to hire or retain qualified employees and increased labor costs could have a material adverse effect on our ability to control expenses and efficiently conduct our operations. We may not be able to continue to hire and retain the sufficiently skilled labor force necessary to operate efficiently and to support our operating strategies. Labor expenses could also increase as a result of continuing shortages in the supply of personnel.
Our customer base includes customers operating in a variety of industries which may be subject to changes in their competitive environment as a result of the global, national or local economic climate in which they operate and/or economic or financial disruptions to their industry.
Our customer base includes customers operating in a variety of industries, including commercial and industrial, construction and infrastructure, education, energy and natural resources, government, retail, and other end markets. Many of these customers, across this wide range of industries, are facing economic and/or financial pressure from changes to their industry resulting from the global, national and local economic climate in which they operate and industry-specific economic and financial disruptions, including, in some cases, consolidation and lower sales revenue from physical locations, resulting from changes in political, social and economic conditions. These and any future changes to any of the industries in which our customers operate could cause them to rent fewer units from us or otherwise be unable to satisfy their obligations to us. In addition, certain of our customers are facing financial pressure and such pressure, or other factors, may result in consolidation
in some industries and/or an increase in bankruptcy filings by certain customers. Each of these facts and industry impacts, individually or in the aggregate, could have a materially adverse effect on our operating results.
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. 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 defendagainstclaims 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 resources. A successful claim of trademark, copyright or other intellectual property infringementagainst 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.
Our operations could be subject to natural disasters and other business disruptions, which could materially adversely affect our information systems, future revenue, financial condition, cash flows, and increase our costs and expenses.
Our operations could be subject to natural disasters and other business disruptions such as pandemics, fires, floods, hurricanes, tornados, earthquakes and terrorism, which could adversely affect our information systems, future revenue, financial condition, and cash flows and increase our costs and expenses. In addition, the occurrence and threat of terrorist attacks may directly or indirectly affect economic conditions, which could adversely affect demand for our products and services. In the event of a major natural or man-made disaster, we could experience loss of life of our employees, destruction of facilities or business interruptions, any of which may materially adversely affect our business. If any of our facilities or a significant amount of our rental equipment were to experience a catastrophicloss, it could disrupt our operations, delay orders, shipments and revenue recognition and result in expenses to repair or replace the damaged rental equipment and facility not covered by asset, liability, business continuity or other insurance contracts. Also, we could face significant increases in premiums or losses of coverage due to the loss experienced during and associated with these and potential future natural or man-made disasters that may materially adversely affect our business. In addition, attacks or armed conflicts that directly impact one or more of our properties could significantly affect our ability to operate those properties and thereby impair our results of operations.
In general, any of these events could cause consumer confidence and spending to decrease or result in increased volatility in the global economy and worldwide financial markets. Any such occurrence could materially adversely affect our business, results of operations, and financial condition.
Our operations are dependent, in part, on our ability to establish and profitably maintain the appropriate physical presence in the markets we serve.
Our operations depend, in part, on our ability to develop and optimize our branch network and market coverage while maintaining profitability. Our ability to optimize our branch network and market coverage requires active management of our real estate portfolio in a manner that permits locations and offerings to evolve over time, which to the extent it involves the relocation of existing branch locations or the opening of additional branch locations will depend on a number of factors, including our identification and availability of suitable locations; our success in negotiating leases on acceptable terms; and our timely development of new branch locations, including the availability of construction materials and labor and the absence of significant construction and other delays based on weather or other events. These factors could potentially increase the cost of doing business and the risk that our business practices could result in liabilities that may adversely affect our business, results of operations, and financial condition.
We have in the past, and we intend in the future, to expand our operations into new geographic markets and into new product lines. 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 or product line expansion, we could incur capital and operating costs without any related increase in revenue, which would harm our operating results.
We may incur property, casualty or other losses not covered by our insurance.
We are partly self-insured for a number of different risk categories, such as general liability (including product liability), workers' compensation, automobile claims, crime, property and cyber liability, with insurance coverage for certain catastrophic risks. The types and amounts of insurance may vary from time to time based on our decisions with respect to risk retention and regulatory requirements. The occurrence of significant claims, a substantial rise in costs to maintain our insurance, or the failure to maintain adequate insurance coverage could have an adverse impact on our financial condition and results of operations.
Failure to close our unit sales transactions as we project could cause our actual revenue or cash flow for a particular fiscal period to differ from expectations.
Sales of new and used modular space and portable storage units to customers represented approximately 6% of our revenue during the year ended December 31, 2025. Sale transactions are subject to certain factors that are beyond our control, including permit requirements, the timely completion of prerequisite work by others and weather conditions. Accordingly, the actual timing of the completion of these transactions may take longer than we expect. As a result, our actual revenue and cash flow in a particular fiscal period may not consistently correlate to our internal operational plans and budgets. If we are unable to accurately predict the timing of these sal es, we may fail to take advantage of business and growth opportunities otherwise available, and our business, results of operations, financial condition, and cash flows may be materially adversely affected.
We may be unable to achieve our sustainability goals.
We are dedicated to corporate social responsibility and sustainability and our employees, customers, and stockholders expect us to make significant advancements in sustainability matters. In part to address these concerns, we established certain goals as part of our sustainability strategy. Achievement of our goals is subject to risks and uncertainties, many of which are outside of our control, and it is possible that we may fail to achieve these goals or that our colleagues, customers, or stockholders might not be satisfied with our efforts. These risks and uncertainties include: our ability to execute our operational strategies and achieve our goals within the costs that we currently project and the timeframes we expect; the availability and cost of renewable energy and other materials; compliance with, and changes or additions to, global and regional regulations, taxes, charges, mandates or requirements relating to climate-related goals; labor-related regulations and requirements that restrict or prohibit our ability to impose requirements on third-party contractors; the actions of competitors and competitive pressures; and an acquisition of or merger with another company that has not adopted similar goals or whose progress towards reaching its goals is not as advanced as ours. A failure to meet our goals could adversely affect public perception of our business, employee morale, or customer or stockholder support.
Further, an increasing percentage of employees, customers, and stockholders considers sustainability factors in making employment, business and investment decisions. If we are unable to meet our goals, we may lose employees, and have difficulty recruiting new employees, investors, customers, or partners, our stock price may be negatively impacted, our reputation may be negatively affected, and it may be more difficult for us to compete effectively, all of which would have an adverse effect on our business, operating results, and financial condition.
Effective management of our fleet is vital to our business, and our failure to properly safeguard, design, manufacture, repair, maintain and manage our fleet could harm our business and reduce our operating results and cash flows.
Our modular space solutions and portable storage units have long economic lives and managing our fleet is a critical element to our leasing business. Rental equipment asset management requires designing and building long-lived products that anticipate customer needs and changes in legislation, regulations, building codes and local permitting in the various markets in which we operate. In addition, we must cost-effectively maintain and repair our fleet to maximize the economic life of the products and the proceeds we receive from product sales. As the needs of our customers change, we may incur costs to relocate or retrofit our assets to better meet shifts in demand. If the distribution of our assets is not aligned with regional demand, we may be unable to take advantage of sales and leasing opportunities in certain regions, despite excess inventory in other regions. If we are not able to successfully manage our lease assets, our business, results of operations, and financial condition may be materially adversely affected.
If we do not appropriately manage the design, manufacture, repair and maintenance of our product fleet, or if we delay or defer such repair or maintenance or sufferunexpectedlosses of rental equipment due to theft or obsolescence, we may be required to incur impairment charges for equipment that is beyond economic repair or incur significant capital expenditures to acquire new rental equipment to serve demand. These failures may also result in personal injury or property damageclaims, including claims based on poor indoor air quality and termination of leases or contracts by customers. Costs of contract performance, potential litigation and profits lost from termination could materially adversely affect our future operating results and cash flows. If a significant number of leased units are returned in a short period of time, a large supply of units would need to be remarketed. Our failure to effectively remarket a large influx of units returning from leases could materially adversely affect our financial performance.
Changes in state building codes could adversely impact our ability to remarket our buildings, which could have a material adverse impact on our business, financial condition and results of operations.
Building codes are generally reviewed, debated and, in certain cases, modified on a national level every three years as an ongoing effort to keep the regulations current and improve the life, safety and welfare of the buildings' occupants. All aspects of a given code are subject to change, including such items as structural specifications for earthquake safety, energy efficiency and environmental standards, fire and life safety, transportation, lighting and noise limits. On occasion, state agencies have undertaken studies of indoor air quality and noise levels with a focus on permanent and modular classrooms. This process leads to a systematic change that requires engagement in the process and recognition that past methods will not always be accepted. New modular construction is very similar to conventional construction where newer codes and regulations
generally increase costs. New governmental regulations may increase our costs to acquire new rental equipment, as well as increase our costs to refurbish existing equipment.
Compliance with building codes and regulations entails risk as state and local government authorities do not necessarily interpret building codes and regulations in a consistent manner, particularly where applicable regulations may be unclear and subject to interpretation. These regulations often provide broad discretion to governmental authorities that oversee these matters, which can result in unanticipateddelays or increases in the cost of compliance in particular markets. The construction and modular industries have developed many “best practices,” which are constantly evolving. Some of our peers and competitors may adopt practices that are more or less stringent than ours. When, and if, regulators clarify regulatory standards, the effect of the clarification may be to impose rules on our business and practices retroactively, at which time we may not be in compliance with such regulations and we may be required to incur costly remediation. If we are unable to pass these increased costs on to our customers, our business, financial condition, operating cash flows, and results of operations could be negatively impacted.
Significant increases in the costs and restrictions on the availability of raw materials and labor could increase our operating costs significantly and harm our profitability.
We incur labor costs and purchase raw materials, including steel, lumber, siding and roofing, paint, glass, fuel and other parts and materials to perform periodic repairs, modifications and refurbishments to maintain physical conditions of our units and in connection with get-ready, delivery and installation of our units. The volume, timing and mix of such work may vary quarter-to-quarter and year-to-year. Generally, increases in labor and raw material costs will increase the acquisition costs of new units and also increase the repair and maintenance costs of our fleet. We also maintain a truck fleet to deliver units to and return units from our customers, the cost of which is sensitive to maintenance, replacement, and fuel costs and rental rates on leased equipment. During periods of rising prices for labor or raw materials, and in particular, when the prices increase rapidly or to levels significantly higher than normal, we have incurred and may continue to incur significant increases in our acquisition costs for new units and higher operating costs that we may not be able to recoup from customers through changes in pricing, which could materially adversely affect our business, results of operations and financial condition. 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.
In addition, the availability of raw materials components fluctuates from time to time due to factors outside of our control, including trade laws and tariffs, natural disasters, global pandemics, military conflicts, supply chain constraints and disruptions, and may impact our ability to meet the production demands of our customers. If the costs of raw materials increase or the availability of raw materials is restricted, it could adversely affect our financial condition, operating results, and cash flows.
Fluctuations in fuel costs or a reduction in fuel supplies may have a material adverse effect on our business and results of operations.
In connection with our business, to better serve our customers and optimize our capital expenditures, we often move our fleet from branch to branch. In addition, most of our customers arrange for delivery and pick up 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. In the event of fuel and trucking cost increases, we may not be able to promptly raise our prices to make up for increased 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.
Third parties may fail to manufacture or provide necessary components for our products properly or in a timely manner.
We are often dependent on third parties to manufacture or supply components for our products. We typically do not enter into long-term contracts with third-party suppliers. We may experience supply problems as a result of financial or operating difficulties or the failure or consolidation of our suppliers. We may also experience supply problems as a result of shortages and discontinuations resulting from product obsolescence or other shortages or allocations by suppliers. Unfavorable economic conditions may also adversely affect our suppliers or the terms on which we purchase products. We may not be able to negotiate arrangements with third parties to secure products that we require in sufficient quantities or on reasonable terms. If we cannot negotiate arrangements with third parties to produce our products or if the third parties fail to produce our products to our specifications or in a timely manner, our business, results of operations, and financial condition may be materially adversely affected.
If we determine that our goodwill, intangible assets, and indefinite-life intangible assets have become impaired, we may incur impairment charges, which may adversely impact our operating results.
We have a substantial amount of goodwill and indefinite-life intangible assets (trade names), which represents the excess of the total purchase price of our acquisitions over the fair value of the assets acquired, and other intangible assets. As of December 31, 2025, we had approximately $1,257.6 million and $224.1 million of goodwill and intangible assets, net, respectively, in our consolidated balance sheet, which represented approximately 21.6% and 3.9% of total assets, respectively.
We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis and when events occur or circumstances change that indicate that the fair value of the reporting unit or intangible asset may be below its carrying
amount. Fair value determinations require considerable judgment and are sensitive to inherent uncertainties and changes in estimates and assumptions regarding revenue growth rates, EBIT margins, capital expenditures, working capital requirements, tax rates, terminal growth rates, discount rates, exchange rates, royalty rates, benefits associated with a taxable transaction and synergistic benefits available to market participants. 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 and regulations, including changes that restrict our activities. Declines in market conditions, a trend of weaker than anticipated financial performance for our reporting units or declines in projected revenue, a decline in our share price for a sustained period of time, an increase in the market-based weighted average cost of capital or a decrease in royalty rates, among other factors, are indicators that the carrying value of our goodwill or indefinite-life intangible assets may not be recoverable. In the event impairment is identified, a charge to earnings would be recorded which may materially adversely affect our financial condition and results of operations.
Risks Relating to Income Tax
Our ability to use our net operating los s carryforwards and other tax attributes may be limited.
As of December 31, 2025, we had US net operating loss (“NOL”) carryforwards of approximately $180.8 million and $187.0 million for US federal income tax and state tax purposes, respectively, available to offset future taxable income, prior to consideration of annual limitations that Section 382 of the Internal Revenue Code of 1986 may impose. The US NOL carryforwards begin to expire in 2026 for state and in 2031 for federal if not utilized.
Our US NOL and tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under Section 382 of the Internal Revenue Code and corresponding provisions of US state law, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its US NOLs and other applicable tax attributes before the ownership change, such as research and development tax credits, to offset its income after the ownership change may be limited. Similar provisions apply with respect to certain state and non-US jurisdictions, which could limit our ability to offset taxable income. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
Lastly, we may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If we determine that an ownership change has occurred and our ability to use our historical NOL and tax credit carryforwards is materially limited, it may result in increased future tax obligations and income tax expense.
Some of the tax loss carryforwards could expire, and if we do not have sufficient taxable income in future years to use the tax benefits before they expire, the benefit may be permanently lost. In addition, the taxing authorities could challenge our calculation of the amount of our tax attributes, which could reduce certain of our recognized tax benefits. Further, tax laws in certain jurisdictions may limit the ability to use carryforwards upon a change in control.
We may be unable to recognize deferred tax assets such as those related to our tax loss carryforwards and, as a result, lose future tax savings, which could have a negative impact on our liquidity and financial position.
We recognize deferred tax assets primarily related to deductible temporary differences based on our assessment that the item will be utilized against future taxable income and the benefit will be sustained upon ultimate settlement with the applicable taxing authority. Such deductible temporary differences primarily relate to tax loss carryforwards and business interest expense limitations. Tax loss carryforwards arising in a given tax jurisdiction may be carried forward to offset taxable income in future years from such tax jurisdiction and reduce or eliminate income taxes otherwise payable on such taxable income, subject to certain limitations. Deferred interest expense exists primarily within our US operating companies, where interest expense was not previously deductible as incurred but may become deductible in the future subject to certain limitations. We may have to write down, through income tax expense, the carrying amount of certain deferred tax assets to the extent we determine it is not probable that we will realize such deferred tax assets under accounting principles generally accepted in the US ("GAAP").
Unanticipated changes in our tax obligations, the adoption of new tax legislation, or exposure to additional income tax liabilities could affect profitability.
We are subject to income taxes in the US, Canada, Me xico, and India. Our tax liab ilities are affected by the amounts we charged for inventory, services, funding and other transactions on an intercompany basis. We are subject to potential tax examinations in these jurisdictions. Tax authorities may disagree with our intercompany charges, cross-jurisdictional transfer pricing or other tax positions and assess additional taxes. We regularly assess the likely outcomes of these examinations to determine the appropriateness of our tax provision. However, there can be no assurance that we will accurately predict the outcomes of these potential examinations, and the amounts that we ultimately pay upon resolution of examinations could be materially different from the amounts we previously included in our income tax provision and, therefore, could have a material impact on our results of operations and cash flows. In addition, our future effective tax rate could be adversely affected by changes to our operating structure, changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation allowance of deferred tax assets, changes in tax laws and the discovery of new information during our tax return
preparation process. Changes in tax laws or regulations, including changes in the US related to the treatment of accelerated depreciation expense, carry-forwards of net operating losses, and taxation of foreign income and expenses may increase tax uncertainty and adversely affect our results of operations.
Risks Relating to Our Capital Structure
Global capital and credit market conditions could materially and adversely affect our ability to access the capital and credit markets or the ability of key counterparties to perform their obligations to us.
In the future, we may need to raise additional funds to, among other things, refinance existing indebtedness, fund 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 achieve our business or strategic objectives or compete effectively. Our ability to pursue certain future opportunities may depend in part on our ongoing access to debt and equity capital markets. We cannot assure you that any such financing will be available on terms satisfactory to us or at all. If we are unable to obtain financing on acceptable terms, we may have to curtail our growth by, among other things, curtailing the expansion of our fleet of units or our acquisition strategy. Additionally, future credit market conditions could increase the likelihood that one or more of our lenders may be unable to honor their commitments under our ABL Facility, which could have an adverse effect on our financial condition and results of operations.
Economic disruptions affecting key counterparties could also materially adversely affect our business. We monitor the financial strength of our larger customers, derivative counterparties, lenders, vendors, service providers and insurance carriers on a periodic basis using publicly-available information to evaluate our exposure to those who have or who we believe may likely experience significant threats to their ability to adequately perform their obligations to us. The information available will differ from counterparty to counterparty and may be insufficient for us to adequately interpret or evaluate our exposure and/or determine appropriate or timely responses.
Our leverage may make it difficult for us to service our debt and operate our business.
As of December 31, 2025, we had $3.6 billion of total indebtedness, excluding deferred financing fees, consisting of $1.5 billion of borrowings under our ABL Facility, $500.0 million of our 4.625% senior secured notes due 2028 ("2028 Secured Notes"), $500.0 million of our 6.625% senior secured notes due 2029 ("2029 Secured Notes"), $500.0 million of our 6.625% senior secured notes due 2030 ("2030 Secured Notes"), $450.0 million of our 7.375% senior secured notes due 2031 ("2031 Secured Notes" and collectively "Senior Secured Notes"), and $166.9 million of finance leases. Our leverage could have important consequences, including (a) making it more difficult to satisfy our obligations with respect to our various debt and liabilities; (b) requiring us to dedicate a substantial portion of our cash flow from operations to debt payments, thus reducing the availability of cash flow to fund internal growth through working capital and capital expenditure on our existing fleet or on new fleet and for other general corporate p urposes; (c) increasing our vulnerability to a downturn in our business or adverse economic or industry conditions; (d) placing us at a competitive disadvantage compared to our competitors that have less debt in relation to cash flow and that, therefore, may be able to take advantage of opportunities that our leverage would prevent us from pursuing; (e) limiting our flexibility in planning for or reacting to changes in our business and industry; (f) restricting us from pursuing strategic acquisitions or exploiting certain business opportunities or causing us to make non-strategic divestitures; restricting us from pursuing strategic acquisitions or exploiting certain business opportunities or causing us to make non-strategic divestitures; (g) requiring additional monitoring, reporting and borrowing base requirements under our ABL Facility if borrowings significantly increase or if certain liquidity thresholds are not satisfied; and (h) limiting our ability to borrow additional funds or raise equity capital in the future and increasing the costs of such additional financings.
Our ability to meet our debt service obligations or to refinance our debt depends on our future operating and financial performance, which will be affected by our ability to successfully implement our business strategy as well as general economic, financial, competitive, regulatory and other factors beyond our control. If our business does not generate sufficient cash flow from operations, or if future borrowings are not available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs, we may need to refinance all or a portion of our indebtedness on or before its maturity, sell assets, reduce or delay capital investments or seek to raise additional capital, any of which could have a material adverse effect on our operations. In addition, we may not be able to affect any of these actions, if necessary, on commercially reasonable terms or at all. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of our existing or future debt instruments may limit or prevent us from taking any of these actions . If we default on the payments required under the terms of certain of our indebtedness, that indebtedness, together with debt incurred pursuant to other debt agreements or instruments that contain cross-default or cross-acceleration provisions, may become payable on demand, and we may not have sufficient funds to repay all of our debts. As a result, our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, would have an adverse effect, which could be material, on our business, financial condition, and results of operations, as well as on our ability to satisfy our debt obligations .
Despite our current level of indebtedness, we and our subsidiaries will still be able to incur significant additional amounts of debt, which could further exacerbate the risks associated with our substantial indebtedness.
We and our subsidiaries may be able to incur substantial additional debt in the future, including in connection with capital leases. Although the ABL Facility and the indentures that govern our Senior Secured Notes contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances, the amount of debt that we could incur in compliance with these restrictions could be substantial. In addition, the ABL Facility and the indentures that govern our Senior Secured Notes do not prevent us from incurring other obligations that do not constitute indebtedness under those agreements. If we add debt to our and our subsidiaries’ existing debt levels, the risks associated with our substantial indebtedness described above, including our possible inability to service our debt, will increase.
We are subject to and may, in the future become subject to, covenants that limit our operating and financial flexibility and, if we default under our debt covenants, we may not be able to meet our payment obligations.
Our ABL Facility and the indentures that govern our Senior Secured Notes, as well as any instruments that govern any future debt obligations, contain covenants that impose significant restrictions on the way we can operate, including restrictions on the ability to (a) incur or guarantee additional debt and issue certain types of stock; (b) create or incur certain liens; (c) make certain payments, including dividends or other distributions, with respect to our equity securities; (d) prepay or redeem junior debt; (e) make certain investments or acquisitions, including participating in joint ventures; (f) engage in certain transactions with affiliates; (g) create unrestricted subsidiaries; (h) create encumbrances or restrictions on the payment of dividends or other distributions, loans or advances to, and on the transfer of, assets to the issuer or any restricted subsidiary; (i) sell assets, consolidate or merge with or into other companies; (j) sell or transfer all or substantially all our assets or those of our subsidiaries on a consolidated basis; and (k) issue or sell share capital of certain subsidiaries.
Although these limitations are subject to significant exceptions and qualifications, these covenants could limit our ability to finance future operations and capital needs and our ability to pursue acquisitions and other business activities that may be in our interest. Our ability to comply with these covenants and restrictions may be affected by events beyond our control. These include prevailing economic, financial and industry conditions. If we default on our obligations under our ABL Facility or our Senior Secured Notes, then the relevant lenders or holders could elect to declare the debt, together with accrued and unpaid interest and other fees, if any, immediately due and payable and proceed against any collateral securing that debt. If the debt under our ABL Facility, our Senior Secured Notes, or any other material financing arrangement that we enter into were to be accelerated, our assets may be insufficient to repay in full such indebtedness.
Our ABL Facility also requires us to satisfy specified financial maintenance tests in the event that we do not satisfy certain excess liquidity requirements. Deterioration in our operating results, as well as events beyond our control, including increases in raw materials prices and unfavorable economic conditions, could affect the ability to meet these tests, and we cannot assure that we will meet these tests. If an event of default occurs under our ABL Facility, the lenders could terminate their commitments and declare all amounts borrowed, together with accrued and unpaid interest and other fees, to be immediately due and payable. Borrowings under other debt instruments that contain cross-acceleration or cross-default provisions also may be accelerated or become payable on demand. In these circumstances, our assets may not be sufficient to repay in full that indebtedness and our other indebtedness then outstanding.
The amount of borrowings permitted at any time under our ABL Facility is subject to compliance with limits based on a periodic borrowing base valuation of the collateral thereunder. As a result, our access to credit under our ABL Facility is subject to potential fluctuations depending on the value of the borrowing base of eligible assets as of any measurement date, as well as certain discretionary rights of the agent in respect of the calculation of such borrowing base value. As a result of any change in valuation, the availability under our ABL Facility may be reduced, or we may be required to make a repayment of our ABL Facility, which may be significant. The inability to borrow under our ABL Facility or the use of available cash to repay it as a result of a valuation change may adversely affect our liquidity, results of operations, and financial position.
leading
innovative
• Modular Space Solutions : modular office complexes, mobile offices, classrooms, ground level offices, blast-resistant modules, clearspan structures and sanitation solutions.
• Portable Storage Solutions : portable storage containers and climate-controlled containers and trailers.
• Value-Added Products ("VAPS") : a thoughtfully curated selection of solutions that supports our "Right from the Start" value proposition, including workstations, furniture, appliances, media packages, power and solar solutions, telematics, connectivity and data solutions, security and protection products, entrance packages, electrical and lighting products, organization and space optimization assets, perimeter solutions and other items that improve the customer experience.
We operate a hybrid in-house and outsourced logistics and service infrastructure that provides delivery, site work, installation, disassembly, removal and other services to our customers for an additional fee as part of our leasing and sales operations. We also provide incremental value to our customers by providing other services, including technical expertise and oversight for customers regarding building design and permitting, site preparation, and project management, including expansion or contraction of installed space based on changes in project requirements. We service diverse end markets across all sectors of the economy throughout the United States ("US"), Canada, and Mexico. As of December 31, 2025, our branch network included approximately 260 branch locations and additional drop lots to service our over 85,000 customers.
We primarily lease, rather than sell, our space solutions to customers, which results in a highly diversified and predictable recurring revenue stream. Over 90% of new lease orders are on our standard lease agreement, pre-negotiated master lease or enterprise account agreements. Rental contracts with customers are generally based on a 28-day or monthly rate and billing cycle. The initial lease periods vary, and our leases are customarily renewable on a month-to-month basis after their initial term and continue until cancelled by the customer or us. Given that our customers value flexibility, they consistently extend their leases or renew on a month-to-month basis such that the average effective duration of our consolidated lease portfolio, excluding seasonal portable storage units, was approximately 42 months as of December 31, 2025. We believe our lease revenue is highly predictable due to its recurring nature and the underlying stability and diversification of our lease portfolio. We complement our core leasing business by selling both new and used units, allowing us to leverage scale, achieve purchasing benefits and redeploy capital employed in our lease fleet.
We remain focused on safely and frugally growing lease revenue by increasing volumes, driving VAPS penetration, and optimizing rates. To achieve these objectives, we continue to invest in initiatives to improve customer service and increase the scope of our portfolio of turnkey space solutions. In 2025, we supported these initiatives by:
• Expanding our Enterprise Accounts and business development team with a focus on key industry verticals,
• Investing in the sales force and implementing new sales enablement tools to support stronger operational productivity and effectiveness,
• Launching an ecommerce solution to facilitate the customer experience through technology and self-service capabilities, and
• Continuing to grow our portfolio of new product solutions for our customers, including climate-controlled storage, clearspan structures, and perimeter solutions.
2025 Full-Year Summary
For the year ended December 31, 2025, as compared to the year ended December 31, 2024, results and key drivers of our financial performance included:
• Total revenues decreased $114.3 million, or 4.8%, to $2,281.4 million for the year ended December 31, 2025. The decline in revenue was driven by a decrease in units on rent, two large projects in the prior year of approximately $26.0 million, and a $63.5 million increase in accounts receivable write-offs recorded as a reduction to revenue compared to the same period in 2024. The increased write-offs were primarily driven by aged receivables that we deemed uncollectible as our central operations team progresses our initiative to improve our order-to-cash process and reduce our days sales outstanding. However, write-offs to receivables recorded as a reduction to revenue result in a corresponding reduction to the provision for credit losses recorded in selling, general, and administrative expense ("SG&A") to the extent that the related receivables were already reserved. Additionally, seasonal retail demand, primarily for storage containers, was down approximately $13 million year-over-year.
• Leasing revenue decreased $90.9 million, or 4.9%, driven by a decrease in total average units on rent of 24,903, or 11.3%. Lower demand was driven by reductions in non-residential construction project start activity over the past three years as a result of higher interest rates. The decline was also driven by an increase of $48.7 million of write-offs of aged receivables deemed uncollectible recorded as a reduction to revenue, as well as a decrease of $6 million in seasonal retail demand, primarily for storage containers, partially offset by a 4.9% increase in modular average monthly rate and a 7.5% increase in storage average monthly rate. The 4.9% increase in modular average monthly rate was driven by our continued price optimization strategy. The 7.5% increase in storage average monthly rate was driven by a higher mix of climate-controlled containers on rent relative to steel containers.
• Delivery and installation revenue decreased $30.0 million, or 7.2%, driven by fewer deliveries, two large projects in the prior year representing approximately $26.0 million, and a $10.7 million increase in accounts receivable write-offs, partially offset by increased delivery and installation revenue driven by favorable product mix from large complex installations.
• Sales revenue: new unit sales revenue increased by $3.4 million, or 4.6%, and rental unit sales revenue increased $3.1 million, or 5.0%.
• Generated net loss of $53.0 million for the year ended December 31, 2025, representing a decrease to net income of $81.1 million ver sus the year ended December 31, 2024. The net loss included costs of $361.9 million, including:
– $301.9 million of restructuring costs related to our Network Optimization Plan, consisting of accelerated depreciation of rental equipment.
– $41.0 million of accelerated depreciation expense and $3.8 million reported in costs of leasing to implement the Company's real estate exit initiatives prior to the approval of the Network Optimization Plan.
– $5.1 million in non-equity executive transition costs included in SG&A.
• Generated Adjusted EBITDA of $971.0 million for the year ended December 31, 2025, representing a decrease of $92.1 million, or 8.7%, as compared to 2024.
• Net cash provided by operating activities increased $200.3 million to $762.0 million for the year ended December 31, 2025, primarily due to 2024 payments of $225.7 million for the termination fee paid in connection with the termination of our proposed merger with McGrath RentCorp. ("McGrath") and transaction costs from terminated acquisitions.
• Net cash used in investing activities , excluding cash used for acquisitions, increased $31.6 million to $272.8 million due to an increase in the purchase of rental equipment and refurbishments of $36.8 million as a result of increased new fleet purchases, modular refurbishments, and investments in VAPS to support strong activity in large project demand.
• Generated Adjusted Free Cash Flow of $488.8 million for the year ended December 31, 2025, representing a decrease of $65.2 million, or 11.8%, as compared to 2024. During the year ended December 31, 2025, we deployed Free Cash Flow to:
– Acquire a regional provider of climate-controlled containers and trailers and rental fleet assets from two companies for $141.3 million.
– Repurchase $97.5 million of our Common Stock, reducing outstanding Common Stock by 3.9 million shares.
– Redeem $50.0 million of our 2031 Secured Notes to reduce borrowing costs.
– Reduce outstanding borrowings under our ABL Facility by $67.6 million.
– Pay quarterly dividends of $0.07 per share, returning $51.1 million to our stockholders.
• We believe that the predictability of our Adjusted Free Cash Flow allows us to pursue multiple capital allocation priorities opportunistically, including investing in organic opportunities that we see in the market, maintaining appropriate leverage, opportunistically executing accretive acquisitions, and returning capital to stockholders via
share repurchases and dividends. We also believe our strong operating cash flow generation, countercyclical net capital expenditure ("Net CAPEX") profile, and $1.4 billion of available borrowing capacity under our ABL Facility, provide ample liquidity to execute our strategy.
In addition to using GAAP financial measures, to evaluate our operating results, we use Adjusted EBITDA, Adjusted Free Cash Flow, and Net CAPEX, which are non-GAAP financial measures. As such, we include in this Annual Report on Form 10-K reconciliations to their most directly comparable GAAP financial measures. These reconciliations and descriptions of why we believe these measures provide useful information to investors as well as a description of the limitations of these measures are included in "Reconciliation of Non-GAAP Financial Measures."
Significant Developments
Leadership Updates
On September 3, 2025, our Board of Directors unanimously elected Tim Boswell as Chief Executive Officer and as a director, effective January 1, 2026. Also effective September 4, 2025, Worthing Jackman, former non-Executive Chairman of the Board, began serving as Executive Chairman of the Board, to continue to lead the Board and to assist the CEO and senior management team in achieving the Company’s strategic plan. In addition, Jeff Sagansky was appointed Lead Independent Director.
Network Optimization Plan
During 2025, following the integration of our modular and storage field operations in 2024, we evaluated our real estate footprint on a property-by-property basis to opportunistically reduce overall real estate costs while maintaining market coverage. To exit certain real estate positions, we disposed of certain rental fleet units, with a primary focus on long idle, non-standard, or higher repair cost units, while maintaining adequate idle fleet to meet projected demand. During the eleven months ended November 30, 2025, rental equipment identified for disposal was depreciated to its salvage value, resulting in approximately $41.0 million of incremental rental equipment depreciation. During 2025, we exited 60 acres of real estate.
In December 2025, we initiated a comprehensive Network Optimization Plan based on a robust, strategic analysis, identifying additional real estate locations for exit, which was approved by the Board of Directors on December 18, 2025. Exiting those locations necessitates the disposal of certain rental equipment. The restructuring plan encompasses exiting approximately 665 acres of real estate over the next four years, representing 108 branch and drop lot locations and approximately 25% of our leased acreage. To enable these exits, we identified rental fleet units with a net book value of $312.1 million to be abandoned, representing approximately 53,000 units (approximately 31,000 portable storage units and 22,000 modular space units), concentrated on long idle, nonstandard, or higher repair cost units. We believe these actions will reduce expected annual real estate cost increases, leave adequate idle fleet to meet future projected demand, and maintain all market coverage and customer service capabilities. We expect to substantially complete all real estate exits and related rental equipment disposals under the Network Optimization Plan by 2029. For the year ended December 31, 2025, we recorded restructuring costs for the Network Optimization Plan of $301.9 million, consisting primarily of accelerated depreciation of rental equipment.
We expect the initiative to result in future costs consisting of rental equipment disposal costs of approximately $40 million and rental equipment relocation costs of approximately $20 million. Disposal costs consist of demolition costs, waste removal fees and scrapping fees. Disposal costs will be recorded within restructuring costs when incurred. Relocation costs consist primarily of costs to relocate units to other branch locations. Relocation costs will be recorded within costs of leasing when incurred. The amount and timing of the actual charges may vary due to a variety of factors, including the ability of vendors to accommodate disposal volumes and additional time needed to exit leased properties. The Company’s estimates for the charges discussed above exclude any potential income tax effects.
Financing Activities
On March 26, 2025, we completed a private offering of $500.0 million in aggregate principal amount of our 2030 Secured Notes. We used the net proceeds of the offering, together with $33.0 million of additional borrowings under the ABL Facility to (i) redeem all outstanding 2025 Secured Notes at a redemption price equal to 100.00% of the principal amount of the 2025 Secured Notes outstanding, totaling $526.5 million, plus accrued and unpaid interest, and (ii) pay related fees and expenses. We redeemed the 2025 Secured Notes to extend the Company's debt maturity profile, consistent with our capital structure optimization strategy. The redemption did not result in a material gain or loss on extinguishment of debt, as the 2025 Secured Notes were redeemed at par and related fees were expensed as incurred.
On October 16, 2025, we amended our ABL Facility to reduce borrowing costs and extend the maturity date to October 16, 2030. The aggregate principal amount of the ABL Facility was reduced from $3.7 billion to $3.0 billion to reduce undrawn line fees, and the accordion feature was increased from $750 million to $1.0 billion. We anticipate meaningful annual cash interest expense savings of approximately $5.0 million at current borrowing levels with opportunities to further reduce our interest costs in the future based on availability under the ABL Facility and net debt to EBITDA leverage levels. We recorded a loss on extinguishment of debt of $3.4 million associated with the amendment. After giving effect to the extension, we have no maturities of debt until 2028 other than for finance leases.
On November 18, 2025, we redeemed $50.0 million of the 2031 Secured Notes to reduce borrowing costs. The redemption resulted in a $2.0 million loss on extinguishment of debt.
Business Combination and Asset Acquisitions
During the year ended December 31, 2025, we acquired a regional provider of climate-controlled containers and trailers for $115.6 million, net of cash acquired, which consisted primarily of approximately 2,100 temperature-controlled units. We expect this acquisition to expand our climate-controlled product offering and enhance our regional market presence, with anticipated operational synergies and customer cross-sell opportunities. As of the acquisition date, the fair value of the goodwill recorded was $54.8 million, the fair value of the intangible assets acquired was $18.7 million, and the fair value of rental equipment acquired was $36.6 million. The purchase price allocation is preliminary, based on the best estimates of management, and subject to revision as management obtains additional information regarding the valuation of acquired rental equipment and intangible assets. Revenue and earnings from the business combination following the acquisition date are not available, as the business was integrated into the Company's centralized financial and operational processes following acquisition.
During the year ended December 31, 2025, we also acquired $23.2 million in rental fleet assets from two companies for $25.8 million in cash.
Share Repurchases
During the year ended December 31, 2025, we repurchased 3,924,846 shares of Common Stock for $97.5 million. As of December 31, 2025, $724.3 million of the approved share repurchase pool remained available. The Company intends to continue its share repurchases based on available cash flow, capital allocation priorities, and market conditions.
Dividends
On February 18, 2025, our Board of Directors approved a quarterly dividend program. In 2025, our Board of Directors declared quarterly dividends of $0.07 per share, totaling $51.7 million. Dividends paid were $51.1 million for the year ended December 31, 2025. The Company intends to continue its quarterly dividend program, subject to Board approval and based on available cash flow, capital allocation priorities, and market conditions.
Economic Conditions
Over the past three years, as a result of the decline in non-residential construction starts in the US due to higher interest rates and the impact of these higher rates on lending availability, primarily on smaller projects, we experienced a decline in unit activations resulting in lower units on rent. Lower demand in the retail and wholesale trade customer segment also negatively impacted portable storage unit demand. Given the flexibility in our cost structure, we reacted quickly to the lower activity levels and reduced variable costs.
Business Environment and Outlook
Our customers operate in a diversified set of end markets such as construction and infrastructure; commercial and industrial, including retail and wholesale trade; energy and natural resources; and government and institutions, including education and healthcare. We track several market leading indicators to predict demand, including those related to our two largest end markets, the commercial and industrial sector and the construction and infrastructure sector, which collectively accounted for approximately 85% of our revenues in the year ended December 31, 2025. Even in an uncertain macro-economic environment, market catalysts such as increased infrastructure spending, onshoring and reshoring, and large scale projects like data centers and power generation support our revenues. Additionally, we are investing in our sales team to drive enterprise account and local market execution with continued penetration of our customer base with our VAPS offerings, long-term pricing initiatives, and cross-selling our portfolio of products.
Components of Our Consolidated Historical Results of Operations
Revenues
Our revenues consist mainly of leasing and services revenue and sales revenue. We derive our leasing and services revenue primarily from the leasing of space solutions. Included in leasing revenue are VAPS, such as workstations, furniture, appliances, media packages, power and solar solutions, telematics, connectivity and data solutions, security and protections products, entrance packages, electrical and lighting products, organization and space optimization assets, perimeter solutions, and other items our customers use in connection with our products. Delivery and installation revenue includes fees that we charge for the delivery, site work, installation, disassembly, unhooking and removal, and other services to our customers for an additional fee as part of our leasing and sales operations.
The key drivers of changes in our leasing revenue are:
• the average number of units on rent;
• the average monthly rental rate per unit, including VAPS.
The average number of units on rent during a period represents the number of units in use from the time they are leased to a customer until the time they are returned to us. Our average monthly rental rate per unit for a period is equal to the
ratio of (i) our rental revenue for that period including VAPS but excluding delivery and installation services and other leasing-related revenues, to (ii) the average number of lease units rented to our customers during that period. We also measure the average utilization rate of our lease units, which is the ratio of (i) the average number of units on rent to (ii) the average total number of units available for lease in our fleet during a period.
In addition to leasing revenue, we also generate revenue from sales of new and used units to our customers, as well as delivery, installation, maintenance, removal services and other incidental items related to accommodation services for our customers. Included in our sales revenue are charges for modifying or customizing sales equipment to customers’ specifications.
Cost of Revenues and Gross Profit
Cost of revenues associated with our leasing business includes payroll and payroll-related costs for branch operations personnel, material and other costs related to the repair, maintenance, storage and transportation of rental equipment. Cost of revenues also includes depreciation expense associated with our rental equipment. Cost of revenues associated with our new unit sales business includes the cost to purchase , assemble, transport and customize units that are sold. Cost of revenues for our rental unit sales consist primarily of the net book value of the unit at date of sale. We define gross profit as the difference between total revenues and cost of revenues.
Selling, General and Administrative Expense
Our SG&A includes all costs associated with our selling efforts, including marketing costs, marketing salaries and benefits, as well as the salary, benefits, and commissions of sales personnel. SG&A also includes the leasing of facilities we occupy, professional fees and information systems, our overhead costs, such as salaries and other employee costs of management, administrative and corporate personnel, and integration costs associated with acquisitions and business combinations. Finally, SG&A incorporates the allowance for credit losses and costs incurred to pursue recovery of defaulted receivables.
Other Depreciation and Amortization
Other depreciation and amortization includes depreciation of our property, plant and equipment, as well as the amortization of our intangible assets.
Termination Fee
In 2024, we paid a $180.0 million fee to terminate a merger agreement.
ImpairmentLoss on Intangible Asset
In 2024, we executed a rebranding under the WillScot brand name, discontinued the use of the Mobile Mini brand name, and recognized an impairment charge of $132.5 million related to the Mobile Mini trade name.
Restructuring Costs
For the year ended December 31, 2025, restructuring costs consist primarily of non-cash accelerated depreciation of rental equipment incurred as part of the Network Optimization Plan. For the year ended December 31, 2024, restructuring costs include one-time termination benefits related to employee separation costs.
Currency Losses, Net
Currency losses, net includes unrealized and realized losses on monetary assets and liabilities denominated in foreign currencies other than our functional currency at the reporting date.
Other Expense (Income), Net
Other expense (income), net primarily consists of (gain) loss on disposal of non-operational property, plant and equipment, insurance proceeds, (gain) loss on investments, other financing-related costs, and other non-recurring charges.
Interest Expense, Net
Interest expense, net consists of the costs of external debt, including the Company’s ABL Facility, outstanding notes, and obligations under finance leases, as well as the impact of interest rate swap agreements and interest income from investments.
Loss on Extinguishment of Debt
In 2025, we amended our ABL Facility. We recorded a loss on extinguishment of debt of $3.4 million related to the ABL Facility amendment. During 2025, we also redeemed $50.0 million of the 2031 Secured Notes. The redemption resulted in a $2.0 million loss on extinguishment of debt.
Income Tax (Benefit) Expense
We are subject to income taxes in the US, Canada, Mexico, and India. Our overall effective tax rate is affected by a number of factors, such as the relative amounts of income we earn in differing tax jurisdictions, tax law changes, and certain non-deductible expenses such as compensation disallowance. The rate is also affected by discrete items that may occur in any given year, such as legislative enactments and tax credits. These discrete items may not be consistent from year to year. Income tax (benefit) expense, deferred tax assets and liabilities and liabilities for unrecognized tax benefits reflect our best estimate of current and future taxes to be paid.
Consolidated Results of Operations
Certain consolidated results of operations for the years ended December 31, 2025 and 2024 are presented below.
Years Ended December 31,
2025 vs. 2024 Change
(in thousands, except share data)
Revenues:
Leasing and services revenue:
Leasing
Delivery and installation
Sales revenue:
New units
Rental units
Total revenues
Costs:
Costs of leasing and services:
Leasing
Delivery and installation
Costs of sales:
New units
Rental units
Depreciation of rental equipment
Gross profit
Other operating expenses:
Selling, general and administrative
Other depreciation and amortization
Restructuring costs
Termination fee
Impairmentloss on intangible asset
Currency losses, net
Other expense (income), net
Operating income
Interest expense, net
Loss on extinguishment of debt
(Loss) income before income tax
Income tax (benefit) expense
Net (loss) income
(Loss) earnings per share - basic
(Loss) earnings per share - diluted
Weighted average shares - basic
Weighted average shares - diluted
Cash Flow Data:
Net cash from operating activities
Net cash from investing activities
Net cash from financing activities
Other Financial Data:
Adjusted EBITDA (a)
Capital expenditures for rental equipment
Net CAPEX (a)
Adjusted Free Cash Flow (a)
Balance Sheet Data (end of year):
Cash and cash equivalents
Rental equipment, net
Total assets
Long-term debt
Total shareholders’ equity
(a) We presen t Adjusted EBITDA, Net CAPEX, and Adjusted F ree Cash Flow, which are measures not calculated in accordance with GAAP and are defined and reconciled below in the section "Reconciliation of Non-GAAP Financial Measures," because they are key metrics used by management to assess financial performance. Our business is capital intensive, and these additional metrics allow management to further evaluate our operating performance.
Year Ended December 31,
Modular space units on rent (average during the period)
Average modular space utilization rate
Average modular space monthly rental rate
Portable storage units on rent (average during the period)
Average portable storage utilization rate
Average portable storage monthly rental rate
Approximately 87,000 of our modular space units, or 68%, and 99,000 of our portable storage units, or 56%, were on rent as of December 31, 2025. Note that ending utilization figures reflect the removal of approximately 53,000 units (approximately 31,000 portable storage units and 22,000 modular space units) identified as part of our Network Optimization Plan from the total fleet count, whereas average annual utilization rates in the table above only reflect the removal of these units in months subsequent to approval of the Network Optimization Plan to determine the average fleet count.
Comparison of Years Ended December 31, 2025 and 2024
Revenue: Total revenue decreased $114.3 million, or 4.8%, to $2,281.4 million for the year ended December 31, 2025 from $2,395.7 million for the year ended December 31, 2024. The decline in revenue was driven by a decrease in units on rent, two large installation projects in the prior year with revenue of approximately $26.0 million, and a $63.5 million increase in accounts receivable write-offs recorded as a reduction to revenue compared to the same period in 2024. The increased write-offs were primarily driven by aged receivables that we deemed uncollectible as our central operations team progresses our initiative to improve our order-to-cash process and reduce our days sales outstanding. However, write-offs to receivables recorded as a reduction to revenue result in a corresponding reduction to the provision for credit losses recorded in SG&A to the extent that the related receivables were already reserved.
Leasing revenue decreased $90.9 million, or 4.9%, as compared to 2024 driven by a decrease in total average units on rent of 24,903, or 11.3%, and an increase in accounts receivable write-offs, which drove $48.7 million of the decrease. Increases in average monthly rental rates offset some of these decreases. Lower demand was driven by reductions in non-residential construction project start activity over the past three years as a result of higher interest rates. Total VAPS revenue, which is included in leasing revenue, decreased $0.1 million to $397.5 million for the year ended December 31, 2025 from $397.6 million for the year ended December 31, 2024.
Delivery and installation revenue decreased $30.0 million, or 7.2%, driven by fewer deliveries, as well as two large projects in the prior year with revenue of approximately $26.0 million and a $10.7 million increase in accounts receivable write-offs in 2025, partially offset by increased delivery and installation revenue driven by favorable product mix from large complex installations. New unit sales revenue increased $3.4 million, or 4.6%, and rental unit sales revenue increased $3.1 million, or 5.0%.
Total average units on rent for the years ended December 31, 2025 and 2024 were 196,332 and 221,235, respectively. Lower demand was driven by reduced non-residential construction project starts due to higher interest rates and increased economic uncertainty.
Modular space average units on rent decreased 5,232 units, or 5.5%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024. The average modular space unit utilization rate during the year ended December 31, 2025 was 59.9%, as compared to 61.9% during 2024. The decline in modular space units on rent was primarily driven by weaker non-residential construction starts.
Portable storage average units on rent decreased 19,671 units, or 15.6%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024. The average portable storage unit utilization rate during the year ended December 31, 2025 was 51.5%, as compared to 60.0% during 2024. The decline in portable storage units on rent was driven
by weaker non-residential construction starts, as well as lower orders related to seasonal retail business that typically occurs in the third and fourth quarters.
Modular space average monthly rental rates increased $58, or 4.9%, to $1,243 for the year ended December 31, 2025 driven by our long-term price optimization strategies and VAPS penetration opportunities. Average portable storage monthly rental rates of $286 represented an increase of $20, or 7.5%, compared to the year ended December 31, 2024, as a result of the mix effects from higher rates on climate-controlled containers and trailers.
Gross Profit: Gross profit decreased $138.3 million, or 10.6%, to $1,163.6 million for the year ended December 31, 2025 from $1,301.8 million for the year ended December 31, 2024. The decrease in gross profit was a result of a $77.4 million decrease in leasing gross profit, a $31.8 million increase in depreciation of rental equipment, a $24.5 million decrease in delivery and installation gross profit, and decreased new and rental unit sales gross profit of $4.5 million. This decrease in leasing gross profit was primarily driven by lower demand in 2025 and increased accounts receivable write-offs. The decrease in delivery and installation gross profit was driven by driven by reduced delivery and return volumes. The increase in depreciation of rental equipment was driven by incremental depreciation of $41.0 million recorded for rental equipment identified for disposal related to the exit of certain real estate positions prior to the approval of the Network Optimization Plan in December 2025.
Costs of leasing and services decreased by $19.0 million, or 2.7%, for the year ended December 31, 2025 compared to the year ended December 31, 2024, driven by an $18.3 million, or 7.4%, decrease in subcontractor costs, a $4.3 million, or 4.6%, decrease in materials costs, and a $1.2 million, or 0.4%, decrease in labor costs as we continued our insourcing initiatives and reduced variable costs to match demand.
Costs of sales increased by $11.1 million, or 14.3%, to $88.9 million, which aligns with increased sales revenue of $6.6 million, or 4.8%, for the year ended December 31, 2025.
Our gross profit percentage was 51.0% and 54.3% for the years ended December 31, 2025 and 2024, respectively.
SG&A: SG&A decreased $48.9 million, or 7.8%, to $581.8 million for the year ended December 31, 2025, as compared to $630.7 million for the year ended December 31, 2024. The decrease was primarily driven by a $54.2 million, or 289.3%, decrease in the provision for credit losses, net of write offs. Expenses for certain one-time projects, primarily legal and professional fees related to transaction costs from terminated acquisitions, decreased $40.8 million.
These decreases were partially offset by increased employee costs of $23.1 million, or 9.3%, primarily relating to variable compensation, higher employee insurance costs, and an increase in sales headcount. Real estate and occupancy costs increased $8.4 million, or 8.3%, travel costs increased $7.2 million, or 38.0%, service agreements and professional fees increased $4.1 million, or 5.5%, and stock compensation expense increased $2.5 million.
Adjusted EBITDA: Adjusted EBITDA decreased $92.1 million, or 8.7%, to $971.0 million for the year ended December 31, 2025, from $1,063.2 million for the year ended December 31, 2024. The decrease was driven by lower gross profit primarily resulting from lower demand for leasing products, reduced delivery and return volumes, and an increase in write offs recorded as a reduction to revenue. In addition, SG&A increased primarily as a result of higher employee costs, real estate and occupancy costs, travel costs, and service agreements and professional fees. The increase in SG&A was more than offset by a decrease in the provision for credit losses.
Other Depreciation and Amortization: Other depreciation and amortization increased $13.2 million, or 16.0%, to $96.1 million for the year ended December 31, 2025, as compared to $82.8 million for the year ended December 31, 2024, primarily related to the amortization of the Mobile Mini trade name beginning in the third quarter of 2024.
Restructuring Costs: Restructuring costs of $302.2 million for the year ended December 31, 2025 were primarily due to accelerated depreciation of rental equipment identified for abandonment as part of the Company's Network Optimization Plan to reduce the Company's real estate costs through strategic real estate exits. Restructuring costs for the year ended December 31, 2024 were primarily due to employee termination costs as a result of a cost-reduction plan implemented in June 2024 for certain centralized and redundant resources related to task localization and the unification of our go-to market structure.
Termination Fee: We paid a termination fee of $180.0 million related to the termination of a merger agreement during the year ended December 31, 2024. This fee was treated as an operating expense.
ImpairmentLoss on Intangible Asset: Impairmentloss on intangible asset was $132.5 million for the year ended December 31, 2024 related to the impairment of the Mobile Mini trade name based on the Company's plan to rebrand under a single WillScot brand name and discontinue the use of the Mobile Mini trade name.
Currency Losses, Net: Currency losses, net decreased by $0.4 million to $0.2 million for the year ended December 31, 2025 as compared to $0.6 million for the year ended December 31, 2024.
Other Expense, Net: Other expense, net was $1.9 million for the year ended December 31, 2025 compared to $2.7 million for the year ended December 31, 2024.
Interest Expense, Net: Interest expense, net increased $4.2 million, or 1.8%, to $231.5 million for the year ended December 31, 2025 from $227.3 million for the year ended December 31, 2024. The increase in interest expense was driven
by a decrease in amounts received from the Company's interest rate swap agreements as a result of decreased interest rates and higher overall weighted average interest rates on the Company's senior secured notes. See Note 11 to the consolidated financial statements for further discussion of our debt.
Loss on Extinguishment of Debt: In 2025, we recorded loss on extinguishment of debt of $3.4 million and $2.0 million related to the amendment of our ABL Facility and the redemption of $50.0 million of the 2031 Secured Notes, respectively.
Income Tax (Benefit) Expense: Income tax (benefit) expense decreased $10.9 million to a $2.4 million income tax benefit for the year ended December 31, 2025 as compared to $8.5 million income tax expense for the year ended December 31, 2024. The decrease in income tax expense was driven by a decrease in income before income tax for the year ended December 31, 2025 as compared to the year ended December 31, 2024.
Capital Expenditures for Rental Equipment: Capital expenditures for rental equipment increased $36.8 million, or 13.1%, to $317.7 million for the year ended December 31, 2025, from $280.9 million for the year ended December 31, 2024 as a result of increased investments in VAPS, new fleet purchases, and modular refurbishment spending. Net CAPEX increased $39.8 million, or 17.0%, to $273.2 million for the year ended December 31, 2025 from $233.4 million for the year ended December 31, 2024, driven by increased capital expenditures for rental equipment.
Reconciliation of Non-GAAP Financial Measures
In addition to using GAAP financial measures, we use certain non-GAAP financial measures to evaluate our operating results. As such, we include in this Annual Report on Form 10-K reconciliations of non-GAAP financial measures to their most directly comparable GAAP financial measures. Set forth below are definitions and reconciliations to the most directly comparable GAAP measures of certain non-GAAP financial measures used in this Annual Report on Form 10-K along with descriptions of why we believe these measures provide useful information to investors as well as a description of the limitations of these measures. Each of these non-GAAP financial measures has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for analysis of, results reported under GAAP. Our measurements of these metrics may not be comparable to similarly titled measures of other companies.
Adjusted EBITDA
We define EBITDA as net income (loss) plus interest (income) expense, income tax expense (benefit), depreciation and amortization. Our adjusted EBITDA ("Adjusted EBITDA") reflects the following further adjustments to EBITDA to exclude certain non-cash items and the effect of what we consider transactions or events not related to our core business operations:
• Currency (gains) losses, net on monetary assets and liabilities denominated in foreign currencies other than the subsidiaries’ functional currency.
• Goodwill and other impairment charges related to non-cash costs associated with impairment charges to goodwill, other intangibles, rental fleet and property, plant and equipment.
• Restructuring costs, lease impairment expense, and other related charges associated with restructuring plans designed to streamline operations and reduce costs including employee and lease termination costs.
• Transaction costs including legal and professional fees and other transaction specific related costs.
• Costs to integrate acquired companies, including outside professional fees, non-capitalized costs associated with system integrations, non-lease branch and fleet relocation expenses, employee relocation and training costs, and other costs required to realize cost or revenue synergies.
• Non-cash charges for stock compensation plans.
• Other expense, including consulting expenses related to certain one-time projects, financing costs not classified as interest expense, gains and losses on disposals of property, plant, and equipment, unrealized gains and losses on investments, costs to implement the Company's real estate exit initiatives prior to approval of the Network Optimization Plan, and non-equity executive transition costs.
Our Chief Operating Decision Maker ("CODM") evaluates business performance utilizing Adjusted EBITDA as shown in the reconciliation of the Company’s consolidated net (loss) income to Adjusted EBITDA below. Management believes that evaluating performance excluding such items is meaningful because it provides insight with respect to the intrinsic and ongoing operating results of the Company and captures the business performance, inclusive of indirect costs.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider the measure in isolation or as a substitute for net income (loss), cash flow from operations or other methods of analyzing our results as reported under GAAP. Some of these limitations are:
• Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
• Adjusted EBITDA does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness;
• Adjusted EBITDA does not reflect our tax expense or the cash requirements to pay our taxes;
• Adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;
• Adjusted EBITDA does not reflect the impact on earnings or changes resulting from matters that we consider not to be indicative of our future operations;
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements; and
• Other companies in our industry may calculate Adjusted EBITDA differently, limiting its usefulness as a comparative measure.
Because of these limitations, Adjusted EBITDA should not be considered as discretionary cash available to reinvest in the growth of our business or as a measure of cash that will be available to meet our obligations.
The following table provides reconciliations of Net (loss) income to Adjusted EBITDA:
Year Ended December 31,
(in thousands)
Net (loss) income
Income tax (benefit) expense
(Loss) income before income tax
Depreciation and amortization
Restructuring costs, lease impairment expense and other related charges
Interest expense, net
Loss on extinguishment of debt
Stock compensation expense
Integration and transaction costs
Currency losses, net
Termination fee
Impairmentloss on intangible asset
Impairmentloss on long-lived asset
Other (a)
Adjusted EBITDA
(a) For the year ended December 31, 2025, other included $5.1 million in non-equity executive transition costs and $3.8 million in costs to implement the Company's real estate exit initiatives prior to approval of the Network Optimization Plan. For the year ended December 31, 2024, other included $42.4 million in legal and professional fees related to the terminated merger with McGrath.
Net CAPEX
We define N et CAPEX as purchases of rental equipment and refurbishments and purchases of property, plant and equipment (collectively, "Total Capital Expenditures"), less proceeds from the sale of rental equipment and proceeds from the sale of property, plant and equipment (collectively, "Total Proceeds"), which are all included in cash flows from investing activities. Management believes that the presentation of Net CAPEX provides useful information regarding the net capital invested in our rental fleet and property, plant and equipment each year to assist in analyzing the performance of our business. The following table provides reconciliations of Net CAPEX:
Year Ended December 31,
(in thousands)
Purchase of rental equipment and refurbishments
Proceeds from sale of rental equipment
Net CAPEX for Rental Equipment
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Net CAPEX
Adjusted Free Cash Flow
We define Adjusted Free Cash Flow as net cash provided by operating activities less purchases of rental equipment and property, plant and equipment plus proceeds from sale of rental equipment and property, plant and equipment, which are all included in cash flows from investing activities; excluding one-time, nonrecurring payments for the termination fee and transaction costs from terminated acquisitions. Management believes that the presentation of Adjusted Free Cash Flow provides useful additional information concerning cash flow available to fund our capital allocation priorities.
The following table provides reconciliations of net cash provided by operating activities to Adjusted Free Cash Flow:
Year Ended December 31,
(in thousands)
Net cash provided by operating activities
Purchase of rental equipment and refurbishments
Proceeds from sale of rental equipment
Purchase of property, plant and equipment
Proceeds from the sale of property, plant and equipment
Cash paid for termination fee
Cash paid for transaction costs from terminated acquisitions
Adjusted Free Cash Flow
Liquidity and Capital Resources
Overview
We are a holding company that derives our operating cash flow from our operating subsidiaries. Our principal sources of liquidity include cash flows generated from operating activities of our subsidiaries, borrowings under our ABL Facility, and sales of debt securities. We have consistently accessed the debt and equity capital markets both opportunistically and as necessary to support the growth of our business, desired leverage levels, and other capital allocation priorities. We believe we have ample liquidity in the ABL Facility and are generating substantial Adjusted Free Cash Flow, which together support both organic operations and other capital allocation priorities. We believe that our liquidity sources are sufficient to satisfy our anticipated operating, debt service, and capital cash requirements over the next twelve months and thereafter for the foreseeable future.
We regularly review available acquisition opportunities with the awareness that any such acquisition may require us to incur additional debt to finance the acquisition and/or to issue shares of our Common Stock or other equity securities as acquisition consideration or as part of an overall financing plan. In addition, we continue to evaluate alternatives to optimize our capital structure, which could include the issuance or repurchase of additional unsecured and secured debt, equity securities and/or equity-linked securities. There can be no assurance as to the timing of any such issuance or repurchase. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. Availability of financing and the associated terms are inherently dependent on the debt and equity capital markets and subject to change. From time to time, we may also seek to streamline our capital structure and improve our financial position through refinancing or restructuring our existing debt or retiring certain of our securities for cash or other consideration.
Borrowing availability under the ABL Facility is equal to the lesser of $3.0 billion and the applicable borrowing bases. The borrowing bases are a function of, among other considerations, the value of the assets in the relevan t collateral pool, of which our rental equipment represents the largest component. At December 31, 2025, we had $1.4 billion of available borrowing capacity und er the ABL Facility.
Cash Flows
The following summarizes our change in cash and cash equivalents for the periods presented:
Year Ended December 31,
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Comparison of the Years Ended December 31, 2025 and 2024
Cash flows from operating activities
Net cash provided by operating activities for the year ended December 31, 2025 was $762.0 million as compared to $561.6 million for the year ended December 31, 2024, an increase of $200.3 million. The increase in net cash provided by operating activities was primarily due to the payment of $225.7 million for the termination fee paid in connection with the proposed McGrath merger and transaction costs from terminated acquisitions during the year ended December 31, 2024.
Cash flows from investing activities
Net cash used in investing activities for the year ended December 31, 2025 was $417.5 million as compared to $362.3 million for the year ended December 31, 2024, an increase of $55.1 million. The increase in net cash used in investing activities primarily resulted from an increase in the purchase of VAPS, rental equipment, and refurbishments of $36.8 million to support strong activity in large project demand and an increase in cash used in acquisitions, net of cash acquired of $23.5 million during the year ended December 31, 2025.
Cash flows from financing activities
Net cash used in financing activities for the year ended December 31, 2025 was $340.5 million as compared to $200.1 million for the year ended December 31, 2024, an increase of $140.4 million. The increase was primarily due to an increase in repayments of borrowings, net of receipts from borrowings, of $267.2 million and a $51.1 million increase in dividends paid during the year ended December 31, 2025. The increase in net cash used in financing activities was partially offset by a decrease of $178.4 million in cash used for the repurchase of common stock and a $10.0 million increase in receipts from issuance of common stock from the exercise of options in the year ended December 31, 2025.
Material cash requirements
The Company’s material cash requirements include the following contractual and other obligations:
Debt
The Company has outstanding debt related to its ABL Facility, 2028 Secured Notes, 2029 Secured Notes, 2030 Secured Notes, 2031 Secured Notes, and finance leases, totaling $3.6 billion as of December 31, 2025, $31.1 million of which is obligated to be repaid within the next twelve months. The Company has no maturities of debt until 2028 other than for finance leases. Refer to Note 11 for further information regarding outstanding debt.
Operating leases
The Company has commitments for future minimum rental payments relating to operating leases, which are primarily for real estate. As of December 31, 2025, the Company had lease obligations of $375.6 million, with $78.8 million payable within the next twelve months.
Other
In addition to the cash requirements described above, the Company has a dividend program subject to quarterly declaration by the Board of Directors as well as a share repurchase program authorized by the Board of Directors, which allows the Company to repurchase up to $1.0 billion of outstanding shares of Common Stock. As of December 31, 2025, $724.3 million of the authorization for future repurchases of our Common Stock remained available. These programs do not obligate the Company to pay dividends or repurchase shares.
Critical Accounting Estimates
The Company's discussion and analysis of its financial condition, results of operations, liquidity and capital resources is based on its consolidated financial statements, which have been prepared in accordance with GAAP. GAAP requires that management make estimates and judgments that affect the reported amount of assets, liabilities, revenue, expenses and the related disclosure of contingent assets and liabilities. The Company's management bases these estimates on historical experience and on various other assumptions that they consider reasonable under the circumstances and reevaluate their estimates and judgments as appropriate. The actual results exp erienced by the Company may differ materially and adversely from its estimates. The Company believes that the following critical accounting estimates involve a higher degree of judgment or complexity in the preparation of financial statements:
Revenue Recognition
Leasing Revenue
The Company's lease arrangements can include multiple lease and non-lease components. Examples of lease components include the lease of modular space and portable storage units and VAPS. Examples of non-lease components include the delivery, install ation, and removal services commonly provided in a bundled transaction with the lease components. Arrangement consideration is allocated between lease components and non-lease components based on the relative estimated selling (leasing) price of each deliverable. Selling (leasing) price of the lease component is estimated using an adjusted market approach whereby the Company estimates the price that customers in the market would be willing to pay.
Services Revenue
The Company generally has three non-lease service-related performance obligations in its contracts with customers:
• Delivery and installation of the modular or portable storage unit;
• Other ad hoc services performed during the lease term; and
• Removal services that occur at the end of the lease term.
Consideration is allocated to each of these performance obligations within the contract based upon their estimated relative standalone selling prices using an adjusted market approach.
Purchase Accounting
The Company records assets acquired and liabilities assumed at their respective estimated fair values on the date of acquisition. Goodwill is measured as the excess of the fair value of the consideration transferred over the fair value of the identifiable net assets and is assigned to the Company's reporting units that are expected to benefit from the acquisition.
The Company exercises judgment in the determination of the estimated fair value of intangible assets acquired and their estimated useful lives. The estimated fair value and useful lives of customer relationships is determined based on estimates and judgments regarding discounted future after-tax earnings and cash flows arising from customer relationships. The fair value of trade name intangible assets is determined utilizing the relief-from-royalty method. A royalty rate based on observed market royalties is applied to projected revenue supporting the trade name and discounted to present value.
Actual results may vary from these estimates which may result in adjustments to the fair value of assets acquired and liabilities assumed, including intangibles. The Company may record adjustments to the fair values and corresponding adjustment to goodwill during the measurement period, not to exceed one year from the date of acquisition if new information is obtained related to facts and circumstances that existed as of the acquisition date. After the measurement period, any subsequent adjustments are reflected in the consolidated statements of operations. Refer to Note 3 for further discussion regarding business combinations and any fair value adjustments to amounts previously reported.
Evaluation of Goodwill Impairment
The Company performs its assessment of goodwill utilizing either a qualitative or quantitative impairment test. The qualitative impairment test assesses company-specific, industry, market and general economic factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the Company concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or elects not to use the qualitative impairment test, a quantitative impairment test is performed. The quantitative impairment test involves a comparison of the estimated fair value of a reporting unit to its carrying amount. The Company estimates the fair value of a reporting unit by using a combination of the income approach and the market approach. Under the income approach, the Company uses a discounted cash flow model that calculates fair value as the present value of expected cash flows of the reporting units. Under the market approach, fair value is calculated using the average EBITDA multiples of comparable guideline companies whose securities are actively traded in public markets.
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, the value of net operating losses, future economic and market conditions, and the determination of appropriate comparable companies. Management bases fair value estimates on assumptions it believes to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from these estimates and the estimate is inherently sensitive to any material changes to the inputs noted above; these changes could potentially impact the fair value of reporting units.
If the carrying amount of the reporting unit exceeds the calculated fair value of the reporting unit, an impairment charge would be recognized for the excess of carrying value over fair value, not to exceed the amount of goodwill attributable to that reporting unit.
Indefinite-lived Intangible Assets
Intangible assets that are acquired by the Company and determined to have an indefinite useful life are not amortized but are tested for impairment at least annually. The Company performs its assessment of indefinite-lived intangible assets utilizing either a qualitative or quantitative impairment test. When utilizing a quantitative impairment test, the Company calculates fair value using a relief-from-royalty method. This method is used to estimate the cost savings that accrue to the owner of an intangible asset who would otherwise have to pay royalties or license fees on revenues earned through the use of the asset. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment charge would be recorded to the extent the carrying value of the indefinite-lived intangible asset exceeds the fair value. The relief-from-royalty method requires the Company to make assumptions regarding future revenue and the appropriate selection of royalty and discount rates. Any material deviation in actual results could affect the calculated fair value of the intangible asset.
Rental Equipment
Rental equipment is comprised of modular space and portable storage units held for rent or on rent to customers and VAPS that are in use or available to be used by customers. Rental equipment is measured at cost less accumulated depreciation. Cost includes expenditures that are directly attributable to the acquisition of the asset. Costs of improvements
and conversions of rental equipment are capitalized when such costs extend the useful life of the equipment. Judgment is involved as to when these costs should be capitalized. Costs incurred for equipment to meet a particular customer specification are either capitalized and depreciated over the lease term taking into consideration the residual value of the asset or charged to the customer at the beginning of the lease and expensed as incurred. Maintenance and repair costs are expensed as incurred.
Depreciation is computed using the straight-line method over estimated useful lives. The estimated useful lives and estimated residual values of our rental equipment are subject to periodic review. These lives are based on our historical experience and publicly available information of other companies with similar rental products.
Allowance for Credit Losses
The Company is exposed to credit losses from trade receivables. The Company assesses each customer’s ability to pay for the products it leases or sells and the services it provides by conducting a credit review. The credit review considers expected billing exposure and timing for payment and the customer’s established credit rating. The Company performs its credit review of new customers at inception of the customer relationship and for existing customers when the customer transacts after a defined period of dormancy. The Company also considers contract terms and conditions, country risk and business strategy in the evaluation.
The Company monitors ongoing credit exposure through an active review of customer balances against established credit limits, contract terms, and due dates. The Company may employ collection agencies and legal counsel to pursue recovery of defaulted receivables. The allowance for credit losses reflects the estimate of the amount of receivables that the Company will be unable to collect based on historical credit loss experience and, as applicable, current conditions to the extent that historical information does not reflect current conditions that affect collectability. This estimate is sensitive to changing circumstances. Accordingly, the Company may be required to increase or decrease its allowance in future periods in response to changing circumstances, including changes in the economy or in the particular circumstances of individual customers. The Company has elected the practical expedient to assume that current conditions as of the balance sheet date do not change for the remaining life of the asset. Specifically identifiable lease revenue receivables and sales receivables not deemed probable of collection are recorded as a reduction of revenue. The remaining provision for credit losses is recorded as SG&A.
Changes in estimates are reflected in the period they become known. If circumstances change in a way that require a change in estimates, such as a change in financial condition of customers or unanticipated changes in the economy, we may accrue additional allowances. R efer to Note 1 for a summary of activity in the allowance for credit losses.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records deferred tax assets to the extent it believes that it is more likely than not that these assets will be realized. In making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent results of operations. Valuation allowances are recorded to reduce the deferred tax assets to an amount that will more likely than not be realized.
When a valuation allowance is established or there is an increase in an allowance in a reporting period, tax expense is generally recorded in the Company’s consolidated statement of operations. Conversely, to the extent circumstances indicate that a valuation allowance is no longer necessary, that portion of the valuation allowance is reversed, which generally reduces the Company’s income tax expense.
Deferred tax liabilities are recognized for the income taxes on the undistributed earnings of wholly-owned foreign subsidiaries unless such earnings are indefinitely reinvested, or will only be repatriated when possible to do so at minimal additional tax cost. Income tax relating to items recognized directly in equity is recognized in equity and not in profit (loss) for the year.
In accordance with applicable authoritative guidance, the Company accounts for uncertain income tax positions using a benefit recognition model with a two-step approach; a more-likely-than-not recognition criterion; and a measurement approach that measures the position as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. If it is not more-likely-than-not that the benefit of the tax position will be sustained on its technical merits, no benefit is recorded. Uncertain tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold. The Company classifies interest on tax deficiencies and income tax penalties within income tax expense. The evaluation of uncertain tax positions involves judgment in the application of GAAP and complex tax laws.
None of the critical accounting estimates or assumptions noted above have changed materially since the prior year.
