Mobile Mini, Inc. (NASDAQ GS: MINI) (the “Company” or “Mobile Mini”), the world’s leading supplier of portable storage solutions and a leading provider of tank and pump solutions in the United States, today reported actual and adjusted financial results for the quarter ended December 31, 2017. Total revenues were $146.7 million and rental revenues were $138.5 million, as compared to $130.4 million and $124.2 million, respectively, for the same period last year.

Rental revenues for the Storage Solutions and Tank & Pump Solutions businesses for the current quarter were $112.8 million and $25.7 million, respectively.

The Company recorded net income of $92.1 million, or $2.07 per diluted share, in the fourth quarter of 2017, as compared to net income of $19.5 million, or $0.44 per diluted share, for the fourth quarter of 2016. On an adjusted basis, fourth quarter net income was $18.1 million, or $0.41 per diluted share, as compared to adjusted net income of $21.2 million, or $0.48 per diluted share, for the fourth quarter of 2016. Adjusted EBITDA was $55.6 million and adjusted EBITDA margin was 37.9% for the fourth quarter of 2017.

Dividend

The Company’s Board of Directors declared a cash dividend of 25.0 cents per share, which will be paid on March 14, 2018 to shareholders of record on February 28, 2018.

Fourth Quarter 2017 Highlights

  • Delivered a strong 11.0% year-over-year increase in Storage Solutions rental revenues, 9.8% when adjusted for favorable currency fluctuations.
  • Achieved a 14.2% increase in year-over-year Tank & Pump Solutions rental revenue growth.
  • Increased total Storage Solutions average units on rent by 5.3% year-over-year, with average utilization of 75.7% and utilization of 74.1% at December 31, 2017.
  • Raised Storage Solutions rental rates by 4.2% year-over-year, with rates on new rentals up 5.1%.
  • Improved OEC utilization for Tank & Pump Solutions, averaging 73.0% for the quarter, compared to 62.3% in the prior-year quarter, and ending the year at 71.2%.
  • Achieved adjusted EBITDA of $55.6 million, with an adjusted EBITDA margin of 37.9%, despite year-over-year headwinds of $5.9 million in increased variable compensation expense.
  • Generated net cash from operating activities of $39.8 million and strong free cash flow of $18.2 million.

CEO Comments

Erik Olsson, Mobile Mini’s President and Chief Executive Officer, remarked, “The fourth quarter of 2017 was exceptional for both of our business segments. In addition to the wide-spread pick up across our Tank & Pump segment, our downstream customers began the turnaround and maintenance activities that had been previously deferred, resulting in a 14.2% year-over-year increase in Tank & Pump Solutions fourth quarter rental revenue. Within Storage Solutions, we saw record-high seasonal rentals, as well as healthy growth in our core business. As expected, variable compensation expense mitigated the fourth quarter profit flow-through; however, our underlying margins are strong and improving quarter by quarter. Excluding the effect of the variable compensation, the adjusted EBITDA margin increased approximately 70 basis points compared to the fourth quarter of 2016.”

Mr. Olsson continued, “Mobile Mini is very well positioned to leverage our infrastructure, including the unique suite of digital solutions we introduced in 2017, to further capitalize on the current momentum. In 2017, Tank & Pump Solutions reached an inflection point, with increased sequential revenue throughout the year, and the business is poised to take advantage of the increasingly strong demand from our customers. Additionally, our core North American Storage Solutions business is strong entering 2018, with pending orders considerably in excess of this time in the prior year. As a result, we expect healthy top line and adjusted EBITDA growth, expanded margins and increased free cash flow in 2018.”

United States Tax Reform

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (“the Tax Act”), which, among other things, reduces the federal income tax rate from 35% to 21% effective January 1, 2018, and requires mandatory repatriation of foreign earnings. As a result of the Tax Act, we remeasured our net deferred tax liabilities and recognized a net benefit of $77.6 million. In addition, we recorded a provisional income tax expense of $3.1 million related to the repatriation of foreign earnings. We estimate that our 2018 consolidated effective tax rate will be between 24% and 26%. We do not expect a significant near-term impact on cash paid for taxes.

Conference Call

Mobile Mini will host a conference call today, Friday, February 2 at 12 noon ET to review these results. To listen to the call live, dial (201) 493-6739 and ask for the Mobile Mini Conference Call or go to www.mobilemini.com and click on the Investors section. Additionally, a slide presentation that will accompany the call will be posted at www.mobilemini.com on the Investor Relations section and will be available in advance and after the call. Please go to the website 15 minutes early to download and install any necessary audio software. If you are unable to listen live, a replay of the call can be accessed for approximately 14 days after the call at Mobile Mini’s website.

About Mobile Mini, Inc.

Mobile Mini, Inc. is the world’s leading provider of portable storage solutions through its total rental fleet of approximately 215,000 storage solutions containers and office units and a leading provider of tank and pump solutions in the U.S., with a rental fleet of approximately 12,100 units. Mobile Mini’s network is comprised of 154 locations in the U.S., U.K., and Canada. Mobile Mini is included on the Russell 2000® and 3000® Indexes and the S&P Small Cap Index.

Forward-Looking Statements

This news release contains forward-looking statements, including, but not limited to, our approach being able to leverage our infrastructure and capitalize on our momentum, as well as our ability to drive healthy top line and adjusted EBITDA growth, expanded margins and increased free cash flow in 2018, which involve risks and uncertainties that could cause actual results to differ materially from those currently anticipated. Risks and uncertainties that may affect future results include those that are described from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”). These forward-looking statements represent the judgment of the Company, as of the date of this release, and Mobile Mini disclaims any intent or obligation to update forward-looking statements.

(See accompanying tables)

                         
Mobile Mini, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except percentages and per share data)
 
Three Months Ended December 31, 2017 Three Months Ended December 31, 2016
Actual Adjustments Adjusted (1) Actual Adjustments Adjusted (2)
 
Revenues:
Rental $ 138,537 $ — $ 138,537 $ 124,170 $ — $ 124,170
Sales 7,623 — 7,623 6,656 — 6,656
Other   536   —   536   (439 )   1,146   707
Total revenues   146,696   —   146,696   130,387   1,146   131,533
 
Costs and expenses:
Rental, selling and general expenses 87,484 — 87,484 74,498 (807 ) 73,691
Cost of sales 4,962 — 4,962 4,285 — 4,285
Restructuring expenses 824 (824 ) — 800 (800 ) —
Depreciation and amortization   16,431   —   16,431   16,104   —   16,104
Total costs and expenses   109,701   (824 )   108,877   95,687   (1,607 )   94,080
 
Income from operations 36,995 824 37,819 34,700 2,753 37,453
 
Other income (expense):
Interest income 5 — 5 2 — 2
Interest expense (9,316 ) — (9,316 ) (8,193 ) — (8,193 )
Foreign currency exchange   4   —   4   (9 )   —   (9 )
 
Income before income tax (benefit) provision 27,688 824 28,512 26,500 2,753 29,253
 
Income tax (benefit) provision (64,383 ) 74,827 10,444 7,031 1,040 8,071
                       
Net income $ 92,071 $ (74,003 ) $ 18,068 $ 19,469 $ 1,713 $ 21,182
 
EBITDA/Adjusted EBITDA $ 53,435 $ 55,624 $ 50,797 $ 54,154

EBITDA/Adjusted EBITDA as a percentage of

total revenues

36.4 % 37.9 % 39.0 % 41.2 %
 
Earnings per share:
Basic $ 2.09 $ 0.41 $ 0.44 $ 0.48
Diluted 2.07 0.41 0.44 0.48
 

Weighted average number of common and

common share equivalents outstanding:

Basic 44,128 44,128 44,073 44,073
Diluted 44,444 44,444 44,269 44,269
 
(1)   Adjusted column for the three months ended December 31, 2017 excludes certain transactions that management believes are not indicative of our business. Adjusted figures are a non-GAAP (defined herein) presentation. See the non-GAAP reconciliations herein and the additional information regarding non-GAAP financial information following in this earnings release. The adjustments for the three-month period ended December 31, 2017 include the following:

• Exclusion of costs of $0.8 million related to the restructuring of our business operations, along with the related tax effects.

• Exclusion of $74.5 million in income tax benefit resulting from the Tax Act.

 
(2) Adjusted column for the three months ended December 31, 2016 excludes certain transactions that management believes are not indicative of our business. Adjusted figures are a non-GAAP presentation. See the non-GAAP reconciliations herein and the additional information regarding non-GAAP financial information following in this earnings release. The adjustments for the three-month period ended December 31, 2016 include the following, along with the related tax effects:

• Increase of other revenue by $1.1 million to exclude reversed revenue related to a sales tax remittance.

• Reduction of $0.3 million in rental, selling and general expenses to exclude fees and penalties associated with the sales tax remittance.

• Reduction of $0.1 million in rental, selling and general expenses to exclude acquisition-related expenses.

• Reduction of $0.5 million in rental, selling and general expenses to exclude costs related to severance in conjunction with the departure of an executive.

• Exclusion of costs of $0.8 million related to the restructuring of our business operations.

 
                         
Mobile Mini, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except percentages and per share data)
 
Twelve Months Ended December 31, 2017 Twelve Months Ended December 31, 2016
Actual Adjustments Adjusted (1) Actual Adjustments Adjusted (2)
 
Revenues:
Rental $ 498,825 $ — $ 498,825 $ 480,083 $ — $ 480,083
Sales 32,440 — 32,440 26,499 — 26,499
Other   2,284   —   2,284   2,040   (219 )   1,821
Total revenues   533,549   —   533,549   508,622   (219 )   508,403
 
Costs and expenses:
Rental, selling and general expenses 336,438 (2,623 ) 333,815 309,294 (807 ) 308,487
Cost of sales 21,001 — 21,001 16,471 — 16,471
Restructuring expenses 2,886 (2,886 ) — 6,020 (6,020 ) —
Depreciation and amortization   63,372   —   63,372   63,734   —   63,734
Total costs and expenses   423,697   (5,509 )   418,188   395,519   (6,827 )   388,692
 
Income from operations 109,852 5,509 115,361 113,103 6,608 119,711
 
Other income (expense):
Interest income 25 — 25 2 — 2
Interest expense (35,728 ) — (35,728 ) (32,726 ) — (32,726 )
Debt extinguishment expense — — — (9,192 ) 9,192 —
Deferred financing costs write-off — — — (2,271 ) 2,271 —
Foreign currency exchange   (25 )   —   (25 )   (18 )   —   (18 )
 
Income before income tax (benefit) provision 74,124 5,509 79,633 68,898 18,071 86,969
 
Income tax (benefit) provision (48,104 ) 76,604 28,500 21,650 6,932 28,582
                       
Net income $ 122,228 $ (71,095 ) $ 51,133 $ 47,248 $ 11,139 $ 58,387
 
EBITDA/Adjusted EBITDA $ 173,224 $ 184,803 $ 176,821 $ 190,376

EBITDA/Adjusted EBITDA as a percentage of

total revenues

32.5 % 34.6 % 34.8 % 37.4 %
 
Earnings per share:
Basic $ 2.77 $ 1.16 $ 1.07 $ 1.32
Diluted 2.76 1.16 1.06 1.32
 

Weighted average number of common and

common share equivalents outstanding:

Basic 44,055 44,055 44,145 44,145
Diluted 44,254 44,254 44,390 44,390
 
(1)   Adjusted column for the twelve months ended December 31, 2017 excludes certain transactions that management believes are not indicative of our business. Adjusted figures are a non-GAAP presentation. See the non-GAAP reconciliations herein and the additional information regarding non-GAAP financial information following in this earnings release. The adjustments for the twelve-month period ended December 31, 2017 include the following:

• Reduction of $0.1 million in rental, selling and general expenses for acquisition-related expenses, along with the related tax effects.

• Reduction of $2.5 million in rental, selling and general expenses to exclude costs related to severance and transition in conjunction with the departure of executives, along with the related tax effects.

• Exclusion of $2.9 million in costs related to the restructuring of our business operations, along with the related tax effects.

• Exclusion of $74.5 million in income tax benefit resulting from the Tax Act.

 
(2) Adjusted column for the twelve months ended December 31, 2016 excludes certain transactions that management believes are not indicative of our business. Adjusted figures are a non-GAAP presentation. See the non-GAAP reconciliations herein and the additional information regarding non-GAAP financial information following in this earnings release. The adjustments for the twelve-month period ended December 31, 2016 include the following, along with the related tax effects:

• Reduction of other revenue by $1.4 million to exclude revenue associated with a sales tax refund, net of a $1.1 million increase to other revenue to exclude reversed revenue related to a sales tax remittance.

• Reduction of $0.3 million in rental, selling and general to exclude fees and penalties associated with the sales tax remittance.

• Reduction of $0.1 million in rental, selling and general expenses for acquisition-related expenses.

• Reduction of $0.5 million in rental, selling and general expenses to exclude costs related to severance in conjunction with the departure of an executive.

• Exclusion of costs of $6.0 million related to the restructuring of our business operations.

• Exclusion of $9.2 million of debt extinguishment costs to redeem $200 million aggregate principal amount of our outstanding 7.875% senior notes due December 2020 (the “2020 Senior Notes”)

• Exclusion of $2.3 million of deferred financing costs that were written off in conjunction with the redemption of the 2020 Senior Notes.

 
             
Mobile Mini, Inc.
Operating Data
(Unaudited)
 
 
2017 2016
As of December 31:
Stand-alone Storage Solutions locations 121 125
Stand-alone Tank & Pump Solutions locations 17 19
Combined Storage Solutions and Tank & Pump Solutions locations 16 14
Storage Solutions rental fleet units 215,000 211,300
Tank & Pump Solutions rental fleet units 12,100 12,100
 
Average utilization - Three months ended December 31:
Storage Solutions - utilization based on number of units 75.7 % 75.2 %
Tank & Pump Solutions - utilization based on original equipment cost 73.0 % 62.3 %
 
Average utilization - Year ended December 31:
Storage Solutions - utilization based on number of units 71.5 % 70.6 %
Tank & Pump Solutions - utilization based on original equipment cost (1) 66.5 % n/a
 
(1)   Utilization for Tank & Pump Solutions is calculated as the average original cost of equipment on rent, excluding re-rented equipment, divided by the average original cost of equipment in the fleet. This statistic has been calculated since the three-month period ending June 30, 2016; no comparable statistic is available for the prior-year period.
 
                         
Mobile Mini, Inc.
Business Segment Information - Adjusted (1)
(Unaudited)
(in thousands, except percentages)
 
Three Months Ended December 31, 2017 Three Months Ended December 31, 2016

Storage
Solutions

Tank & Pump
Solutions

Total

Storage
Solutions

Tank & Pump
Solutions

Total
 
Revenues:
Rental $ 112,810 $ 25,727 $ 138,537 $ 101,637 $ 22,533 $ 124,170
Sales 6,226 1,397 7,623 5,842 814 6,656
Other   457   79   536   737   (30 )   707
Total revenues   119,493   27,203   146,696   108,216   23,317   131,533
 
Costs and expenses:
Rental, selling and general expenses 69,462 18,022 87,484 56,937 16,754 73,691
Cost of sales 4,122 840 4,962 3,751 534 4,285
Depreciation and amortization   10,296   6,135   16,431   9,293   6,811   16,104
Total costs and expenses   83,880   24,997   108,877   69,981   24,099   94,080
 
Income (loss) from operations $ 35,613 $ 2,206 $ 37,819 $ 38,235 $ (782 ) $ 37,453
 
Adjusted EBITDA $ 47,227 $ 8,397 $ 55,624 $ 48,081 $ 6,073 $ 54,154
Adjusted EBITDA Margin 39.5 % 30.9 % 37.9 % 44.4 % 26.0 % 41.2 %
 
 
 
Twelve Months Ended December 31, 2017 Twelve Months Ended December 31, 2016

Storage
Solutions

Tank & Pump
Solutions

Total

Storage
Solutions

Tank & Pump
Solutions

Total
 
Revenues:
Rental $ 406,590 $ 92,235 $ 498,825 $ 387,145 $ 92,938 $ 480,083
Sales 26,989 5,451 32,440 21,576 4,923 26,499
Other   1,875   409   2,284   1,621   200   1,821
Total revenues   435,454   98,095   533,549   410,342   98,061   508,403
 
Costs and expenses:
Rental, selling and general expenses 265,390 68,425 333,815 244,729 63,758 308,487
Cost of sales 17,930 3,071 21,001 13,319 3,152 16,471
Depreciation and amortization   38,792   24,580   63,372   35,509   28,225   63,734
Total costs and expenses   322,112   96,076   418,188   293,557   95,135   388,692
 
Income from operations $ 113,342 $ 2,019 $ 115,361 $ 116,785 $ 2,926 $ 119,711
 
Adjusted EBITDA $ 157,960 $ 26,843 $ 184,803 $ 158,981 $ 31,395 $ 190,376
Adjusted EBITDA Margin 36.3 % 27.4 % 34.6 % 38.7 % 32.0 % 37.4 %
 
(1)   These tables present results by major business segment adjusted to exclude certain transactions that management believes are not indicative of our business. See additional information regarding non-GAAP financial information following in this earnings release.
 
         
Mobile Mini, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
 
 
December 31, December 31,
2017 2016
(unaudited) (audited)
ASSETS
Cash and cash equivalents $ 13,451 $ 4,137
Receivables, net 111,562 99,175
Inventories 15,671 15,412
Rental fleet, net 989,154 950,065
Property, plant and equipment, net 157,304 149,197
Other assets 15,334 14,930
Intangibles, net 62,024 68,420
Goodwill   708,907   703,558
Total assets $ 2,073,407 $ 2,004,894
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 26,955 $ 27,388
Accrued liabilities 78,084 64,126
Lines of credit 634,285 641,160
Obligations under capital leases 52,791 50,704
Senior notes, net 245,850 245,212
Deferred income taxes   173,754   240,690
Total liabilities   1,211,719   1,269,280
 
Stockholders' equity:
Common stock 497 493
Additional paid-in capital 605,369 592,071
Retained earnings 463,322 362,896
Accumulated other comprehensive loss (60,334 ) (81,047 )
Treasury stock   (147,166 )   (138,799 )
Total stockholders' equity   861,688   735,614
Total liabilities and stockholders' equity $ 2,073,407 $ 2,004,894
 
         
Mobile Mini, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Twelve Months Ended
December 31,
2017 2016
Cash flows from operating activities:
Net income $ 122,228 $ 47,248

Adjustments to reconcile net income to net cash

provided by operating activities:

Debt extinguishment expense — 9,192
Deferred financing costs write-off — 2,271
Provision for doubtful accounts 5,037 6,162
Amortization of deferred financing costs 2,060 1,976
Amortization of long-term liabilities 130 116
Share-based compensation expense 7,373 7,399
Depreciation and amortization 63,372 63,734
Gain on sale of rental fleet (5,657 ) (5,472 )
Loss on disposal of property, plant and equipment 517 1,285
Deferred income taxes (49,980 ) 21,634
Tax shortfall on equity award transactions — (242 )
Foreign currency exchange 25 18

Changes in certain assets and liabilities, net of

effect of businesses acquired

  (9,459 )   (19,077 )
Net cash provided by operating activities   135,646   136,244
 
Cash flows from investing activities:
Cash paid for businesses acquired, net of cash acquired — (16,565 )
Additions to rental fleet, excluding acquisitions (63,688 ) (57,372 )
Proceeds from sale of rental fleet 12,953 13,679
Additions to property, plant and equipment, excluding acquisitions (20,122 ) (30,659 )
Proceeds from sale of property, plant and equipment   851   2,764
Net cash used in investing activities   (70,006 )   (88,153 )
 
Cash flows from financing activities:
Net repayments under lines of credit (6,875 ) (26,548 )
Proceeds from issuance of 5.875% senior notes due 2024 — 250,000
Redemption of 7.875% senior notes due 2020 — (200,000 )
Debt extinguishment expense — (9,192 )
Deferred financing costs (12 ) (5,369 )
Principal payments on capital lease obligations (7,418 ) (6,520 )
Issuance of common stock 5,800 468
Dividend payments (40,171 ) (36,402 )
Purchase of treasury stock   (8,367 )   (11,290 )
Net cash used in financing activities   (57,043 )   (44,853 )
 
Effect of exchange rate changes on cash   717   (714 )
 
Net change in cash 9,314 2,524
 
Cash and cash equivalents at beginning of period   4,137   1,613
Cash and cash equivalents at end of period $ 13,451 $ 4,137
 
Equipment and other acquired through capital lease obligations $ 9,501 $ 18,951
Capital expenditures accrued or payable 7,270 3,230
 

Non-GAAP Financial Information

In addition to disclosing financial results that are determined in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company also discloses in this press release certain non-GAAP financial information. These financial measures are not recognized measures under GAAP and they are not intended to be and should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Adjusted net income, adjusted diluted earnings per share, EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin and free cash flow are non-GAAP financial measures as defined by SEC rules. This non-GAAP financial information may be determined or calculated differently by other companies. Reconciliations of these non-GAAP measurements to the most directly comparable GAAP financial measurements are furnished earlier in this release and as follows:

                 
Mobile Mini, Inc.
Adjusted EBITDA GAAP Reconciliations
(Unaudited)
(in thousands)
 
Three Months Ended

December 31,

Twelve Months Ended

December 31,

2017 2016 2017 2016
Net income $ 92,071 $ 19,469 $ 122,228 $ 47,248
Interest expense 9,316 8,193 35,728 32,726
Income tax (benefit) provision (64,383 ) 7,031 (48,104 ) 21,650
Depreciation and amortization 16,431 16,104 63,372 63,734
Debt extinguishment expense — — — 9,192
Deferred financing costs write-off   —   —   —   2,271
EBITDA 53,435 50,797 173,224 176,821
 
Share-based compensation expense 1,365 604 6,070 6,947
Restructuring expenses 824 800 2,886 6,020
Acquisition-related expenses — 100 123 100
Sales tax refund and remittance, net — 1,146 — (219 )
Other   —   707   2,500   707
Adjusted EBITDA $ 55,624 $ 54,154 $ 184,803 $ 190,376
 
 
Three Months Ended

December 31,

Twelve Months Ended

December 31,

2017 2016 2017 2016
Net cash provided by operating activities $ 39,814 $ 40,223 $ 135,646 $ 136,244
Interest paid 4,650 3,666 35,029 21,546
Income and franchise taxes paid 1,294 392 2,607 1,772

Share-based compensation expense,

including restructuring expense

(1,483 ) (878 ) (7,373 ) (7,399 )
Gain on sale of rental fleet 1,384 1,244 5,657 5,472

Loss on disposal of property, plant and

equipment

(45 ) (196 ) (517 ) (1,285 )

Changes in certain assets and liabilities, net of

effect of businesses acquired

  7,821   6,346   2,175   20,471
EBITDA $ 53,435 $ 50,797 $ 173,224 $ 176,821
 
                 
Mobile Mini, Inc.
Free Cash Flow GAAP Reconciliation
(Unaudited)
(in thousands)
 
Three Months Ended

December 31,

Twelve Months Ended

December 31,

2017 2016 2017 2016

Net cash provided by operating activities

$ 39,814 $ 40,223 $ 135,646 $ 136,244
 
Additions to rental fleet, excluding acquisitions (17,743 ) (10,892 ) (63,688 ) (57,372 )
Proceeds from sale of rental fleet 3,351 2,909 12,953 13,679

Additions to property, plant and equipment,

excluding acquisitions

(7,306 ) (4,909 ) (20,122 ) (30,659 )

Proceeds from sale of property, plant and

equipment

  71   395   851   2,764
Net capital expenditures, excluding acquisitions (21,627 ) (12,497 ) (70,006 ) (71,588 )
               
Free cash flow $ 18,187 $ 27,726 $ 65,640 $ 64,656
 

Adjusted net income and adjusted diluted earnings per share. Adjusted net income and related earnings per share information exclude certain transactions that management believes are not indicative of our business. We believe that the inclusion of this non-GAAP presentation makes it easier to compare our financial performance across reporting periods on a consistent basis.

EBITDA and adjusted EBITDA. EBITDA is defined as net income before discontinued operations, net of tax (if applicable), interest expense, income taxes, depreciation and amortization, and debt restructuring or extinguishment expense (if applicable), including any write-off of deferred financing costs. Adjusted EBITDA further excludes certain non-cash expenses, including share-based compensation, as well as transactions that management believes are not indicative of our business. Because EBITDA and adjusted EBITDA, as defined, exclude some but not all items that affect our cash flow from operating activities, they may not be comparable to similarly titled performance measures presented by other companies.

We present EBITDA and adjusted EBITDA because we believe they provide useful information regarding our ability to meet our future debt payment requirements, capital expenditures and working capital requirements and an overall evaluation of our financial condition. EBITDA and adjusted EBITDA have certain limitations as analytical tools and should not be used as substitutes for net income, cash flows from operations, or other consolidated income or cash flow data prepared in accordance with GAAP.

EBITDA and adjusted EBITDA margins are calculated as EBITDA and adjusted EBITDA, respectively, divided by total revenues expressed as a percentage.

Free Cash Flow. Free cash flow is defined as net cash provided by operating activities, minus or plus, net cash used in or provided by investing activities, excluding acquisitions and certain transactions. Free cash flow is a non-GAAP financial measure and is not intended to replace net cash provided by operating activities, the most directly comparable financial measure prepared in accordance with GAAP. We present free cash flow because we believe it provides useful information regarding our liquidity and ability to meet our short-term obligations. In particular, free cash flow indicates the amount of cash available after capital expenditures for, among other things, investments in our existing business, debt service obligations, payment of authorized quarterly dividends, repurchase of our common stock and strategic small acquisitions.

Constant Currency. We calculate the effect of currency fluctuations on current periods by translating the results for our business in the U.K. during the current period using the average exchange rates from the comparative period. We present constant currency information to provide useful information to assess our underlying business excluding the effect of material foreign currency rate fluctuations. Calculated in constant currency, our rental revenues for the three months ended December 31, 2017 were $1.3 million lower than when calculated in accordance with GAAP.