WillScot Mobile Mini Holdings Corp. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The company provides modular space, portable storage, and tank and pump solutions across the U.S., Canada, Mexico, and the U.K. Mobile Mini was acquired on July 1, 2020; therefore, reported year-over-year comparisons include Mobile Mini in 2021 but not in 2020, unless otherwise noted.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $461.1 million | $256.9 million | $886.4 million | $512.7 million |
| Operating income | $70.6 million | $41.1 million | $145.9 million | $66.4 million |
| Net income (loss) | $20.4 million | $(14.1) million | $24.8 million | $77.5 million |
| Adjusted EBITDA | $175.5 million | $97.5 million | $339.1 million | $187.1 million |
| Gross profit margin | 48.3% | 42.8% | 49.2% | 42.2% |
| Adjusted EBITDA margin | 38.1% | 38.0% | 38.3% | 36.5% |
For Q2, leasing revenue was $343.2 million and delivery and installation revenue was $91.7 million. Management reported that the Mobile Mini acquisition drove $171.7 million of the $204.2 million reported revenue increase. In a supplemental pro forma comparison that includes Mobile Mini in both periods, Q2 revenue increased 18.1% and Adjusted EBITDA increased 14.1% year over year.
Six-month GAAP net income fell despite higher operating income. Results included a $26.6 million fair-value loss on warrant liabilities, compared with a $68.4 million gain in the prior-year period, and materially higher income tax expense. The company reported a 54.2% effective tax rate for the six months.
Cash flow, debt, and liquidity
- Six-month operating cash flow was $261.6 million, versus $113.7 million a year earlier. Free cash flow, a non-GAAP measure, was $173.2 million, versus $46.8 million. Q2 free cash flow was $82.1 million.
- Six-month net cash used in investing was $88.4 million, including $117.8 million of rental-equipment purchases and refurbishments. Cash and cash equivalents were $15.4 million at June 30, down from $24.9 million at year-end.
- Total debt carrying value, including finance leases, was $2.523 billion, compared with $2.470 billion at December 31, 2020. Long-term debt was $2.506 billion. The company had $1.5 billion of principal outstanding under its ABL facility and $917.4 million of available ABL borrowing capacity.
- The company redeemed $123.5 million of 2025 notes during the half, using cash and lower-cost ABL borrowings; it recorded $6.0 million of debt-extinguishment losses. Management stated the company was in compliance with debt covenants.
- The company repurchased shares and warrants for a reported $216.3 million during the first half. At June 30, $249.2 million remained under its $500 million repurchase authorization.
Material changes and management commentary
- Management cited recovery in demand and growth in pricing and utilization. Q2 average modular-space rental rates rose 10.0% company-wide; portable-storage rates rose 15.8%. Modular utilization was 70.3%, and portable-storage utilization was 77.7%.
- On a pro forma basis, Q2 Adjusted EBITDA grew across all four segments. NA Modular Adjusted EBITDA increased 6.2%; management attributed growth chiefly to leasing pricing and value-added products and services. Its average modular units on rent remained below the prior year.
- Q2 Adjusted EBITDA included adjustments for integration, restructuring, stock compensation, and other items. The company recorded $7.6 million of integration costs and $7.0 million of restructuring costs in the quarter; restructuring was primarily related to merger-driven employee separations.
- The company completed conversion of the legacy WillScot business to Mobile Mini’s ERP system in Q2. Management said integration work was ongoing and expected the merger to provide operating and financial benefits.
- Management said liquidity and operating cash flow were expected to meet operating, debt-service, and capital needs over the next 12 months. The filing provides no quantified financial guidance. It describes economic recovery and demand trends but cautions that actual results may differ.
Risks, contingencies, and unusual items
- Risks highlighted include COVID-19 and end-market demand, merger integration and ERP execution, rising labor and raw-material costs, interest-rate and foreign-exchange exposure, customer credit and collections, supplier reliance, and the ability to manage and redeploy rental equipment. A 100-basis-point increase in ABL rates was estimated to increase quarterly interest expense by approximately $2.8 million, after swaps.
- The company reported $14.8 million of estimated potential long-term tax liabilities, including interest and penalties; settlement timing could not be estimated. It also disclosed ordinary-course legal matters, with no material adverse effect considered probable based on information available, while noting outcomes are uncertain.
- A previously reported material weakness in warrant-accounting controls was remediated, and management concluded disclosure controls were effective at June 30, 2021. The company had restated prior-year financial statements in its 2020 Form 10-K/A. The ERP conversion also involved changes to certain financial-reporting controls.
- Warrant fair-value movements materially affected reported earnings. No 2015 private warrants remained outstanding at quarter-end; 2018 warrants remained outstanding but were classified as equity.
Important facts for investors to verify
- Separate acquisition-driven growth from underlying growth using the company’s pro forma comparisons, and assess whether integration benefits and cost synergies are being realized.
- Track unit-on-rent trends, utilization, rental rates, and delivery costs, particularly in NA Modular and the recovering storage markets.
- Reconcile non-GAAP Adjusted EBITDA and free cash flow to GAAP results, including excluded integration, restructuring, stock-compensation, and capital-spending items.
- Monitor ABL borrowings, available capacity, debt maturities, interest-rate exposure, and the cash impact of continued share repurchases.
- Review tax-rate drivers, uncertain tax positions, warrant accounting, and the effectiveness of controls following the ERP conversion.