Apparently lots of businesses and consumers do, and Tempe-based Mobile Mini has made a fortune leasing them containers to store it.
After reporting record earnings for 2004, the company has continued its winning streak with record earnings in the first and second quarters of this year.
Wall Street has rewarded Mobile Mini for its performance by pushing its Nasdaq-traded stock up from about $10 a share in late 2002 to around $40 a share today.
"If you look at their revenue over the last four or five years, you’ll see that it’s grown probably an average of 35 percent a year and it’s driven by folks having too much stuff," said Joe Blankenship, an account manager at Source Capital Group in Scottsdale. "They’ll rent construction trailers, they’ll rent to retailers to handle bulging inventory at Christmas, and they’ll rent to consumers who want to store their stuff if they’re in the process of moving, or just to store their stuff until they determine what they can do with it later."
The company has grown from a small, private operation in the Valley, to a national company with 49 offices in 29 states and one in Canada. Its work force has grown from 370 employees to more than 1,500 employees.
And its storage units are all over the place, said Steven Bunger, Mobile Mini’s chairman, president and CEO.
"I went to San Diego recently with my family, and when we left there was a container at the airport here," he said. "When we landed there was a container at the airport there, and when we drove over to Hertz they had a container at the counter. There was a container at the hotel, down the street they had containers behind the food store and when we went out to the beach they were renting boogie boards out of a container."
Bunger even saw a Mobile Mini container on board a battleship.
"Somehow we got in front of that customer and we supplied a need for some kind of a storage problem they had and it’s secure," he said. "It’s not a pretty business, but it’s not ugly either."
RECIPE FOR SUCCESS
Mobile Mini started out in 1983 as a company that manufactured and sold portable storage units and offices, including telecommunication shelters and classrooms. It wasn’t until 1996 when the company switched to leasing storage units that business took off, Bunger said.
The company went public in 1994.
"Back in 1996, our sales were probably 70 percent of our revenue, and today leasing is like 96 percent of our revenue," Bunger said. "The reason is when we sold a container, we realized that we were selling them for maybe 15 percent to 20 percent margin, whereas when we lease a container it was a 60 percent margin. So it’s pretty obvious and we completely reinvented the business over the course of 12 months."
Both Blankenship and Stephen Barnes, the portfolio manager at Valley-based Barnes Investment Advisory, attribute Mobile Mini’s success to the change in business strategy.
"The rental rates that you see for these containers is a pretty negligible amount of money, so these are the kinds of things where you stuff them full of things and then literally you can forget that they’re there," Barnes said. "It becomes an ongoing expense that just isn’t meaningful enough to ever be part of an austerity program."
Mobile Mini buys old shipping containers from shipping and leasing companies, cuts them into smaller sizes, installs doors and locking systems, and rents them out for $75 to $100 a month.
"It’s primarily businesses that rent our containers," Bunger said. "They put them behind their businesses. Usually it’s like an add-on space to their warehouse space or office space. Most of our customers don’t rent a bunch of containers. They use around one container, it’s behind their business and it’s there for a long time."
Unlike U-Haul, Mobile Mini doesn’t need a lot of property to house its storage units because they bring the units to their customers.
Mobile Mini doesn’t really have any national competitors and it usually is competing with local or regional companies, he said. It usually enters new markets by acquiring smaller storage providers, Bunger said.
The company has been growing about 20 percent each year, but growth slowed to about 7.5 percent during the post-9/11 recession, Bunger said. Annual growth has now resumed to above 20 percent.
Overall, the company didn’t suffer from the recession, Bunger said. In fact, it leased more of its units to businesses that decided to rent a unit rather than risk expanding, he said.
"When the economy is picking up, now they’re growing really fast and they need more inventory space, and they’ll put a container behind their business," Bunger said.
DEBT NOT PROBLEMATIC
Heavy debt can be a sign of weakness in some business sectors, but apparently not in the storage rental business. Mobile Mini has about $250 million in debt, but it isn’t a concern to analysts and investors.
"It is a leasing business now, not a manufacturing business," Barnes said. "I’m not particularly disturbed by the amount of leverage that they carry. That’s what you’ve got to do to run a leasing business. This is well within the norm for the kind of capital structure you see for a leasing business."
The leasing business means a slow return on your investment, so you have to put a lot of money into the business to grow it before the returns starts coming in in rental payments, Bunger said.
Mobile Mini eventually grew large enough to be eligible for greater capitalization from the banking community, he said.
"These containers have recurring revenue and they’re not really going to wear out, so it makes sense to leverage that so you can use a little bit of equity to generate as much earnings as possible," he said. "We’ve actually been in the process where we’re adding debt on an absolute basis, but actually deleveraging our ratios. Because we’ve got enough size now, our cash flow is growing faster than our absolute debt, so as a percentage of our balance sheet it’s less. It’s something that’s been exciting to watch."
Mobile Mini probably has access to much more capital should its leadership decide to grow the company at a faster pace, Blankenship said.
"The debt right now is very desirable in the sense that it leverages the shareholder returns and lets them buy more containers than they would otherwise," he said.
Currently, the company’s annual earnings before interest, taxes, depreciation and amortization, or EBITDA, is above $65 million, and investors would start to worry if the debt grew to five times EBITDA, or above $300 million, Bunger said.
A WILD RIDE
Investors lucky enough to invest in Mobile Mini last year have reaped quite a reward, but the upward momentum can’t continue indefinitely, Barnes said.
"The stock has increased about 60 percent since October and the earnings haven’t increased 60 percent," he said. "You’re not going to continue to see the stock go up two or three times the rate of earnings increase."
Mobile Mini was the first stock Blankenship started covering when he came to Arizona in 1998. Back then, it was trading around $7 a share and climbed to around $40 before falling back down to around $10 in 2002, he said.
"It was problems of their missing their estimates essentially on the cost side that created the decline," he said. "Revenue continued to increase, however, costs increased a lot more rapidly. What happened in 2003 is they finally got a handle on those and you see the stock now back at the level it was in early 2002."
Blankenship believes there’s still some room for growth in the stock.
For investors, there’s always extra risk associated with stocks priced "for the rosiest of scenarios," Barnes said.
"They hit a tough stretch and it’s very common for them to get shellacked and to languish for awhile at that lower valuation," he said. "We’re back up where that risk is prevalent again."