Business context and reporting period
WillScot Corporation’s unaudited Form 10-Q covers the quarter and six months ended June 30, 2020. The company provides modular space and portable storage solutions in the U.S., Canada and Mexico. The results are for WillScot before its July 1, 2020 merger with Mobile Mini; the combined company was renamed WillScot Mobile Mini Holdings Corp.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $256.9 million | $263.7 million | $512.7 million | $517.4 million |
| Gross profit / margin | $110.0 million / 42.8% | $101.5 million / 38.5% | $216.2 million / 42.2% | $204.8 million / 39.6% |
| Operating income | $41.1 million | $26.3 million | $66.4 million | $47.8 million |
| Net income (loss) attributable to WillScot | $11.5 million | $(10.6) million | $7.9 million | $(19.9) million |
| Diluted EPS | $0.10 | $(0.10) | $0.07 | $(0.18) |
| Adjusted EBITDA (non-GAAP) | $97.5 million | $87.6 million | $187.1 million | $170.9 million |
Q2 operating margin was approximately 16.0%, versus 10.0% a year earlier. Six-month operating margin was approximately 13.0%, versus 9.2%. Adjusted EBITDA margin was 38.0% in Q2, up 480 basis points year over year. Adjusted EBITDA is a non-GAAP measure and is not a substitute for GAAP earnings or cash flow.
- Cash flow: Six-month operating cash flow was $113.7 million, versus $60.1 million; investing cash outflow was $66.9 million, versus $85.0 million. Free cash flow, a non-GAAP measure, was $46.8 million versus an outflow of $25.0 million. Q2 free cash flow was $39.0 million.
- Liquidity: At June 30, cash and cash equivalents were $9.1 million and restricted cash was $655.1 million, largely merger-financing proceeds held in escrow—not unrestricted operating cash. Availability under the pre-merger ABL facility was $540.5 million.
- Debt: June 30 carrying debt was $2.236 billion, including $265.4 million classified as current. The company reported compliance with its debt covenants. After the merger and refinancing, management reported approximately $2.684 billion of gross debt and finance leases and over $915 million of New ABL availability.
- Other: Total assets were $3.502 billion and equity was $705.1 million at June 30. Interest expense was $28.5 million in Q2 and $56.8 million for the six-month period.
Material changes versus prior periods
- Q2 revenue declined 2.6%; six-month revenue declined 0.9%. Leasing revenue grew, but weaker delivery and installation activity and lower new- and rental-unit sales weighed on total revenue.
- Q2 modular leasing revenue rose 2.3%, while average modular-space monthly rent increased 9.5% to $669. However, average modular units on rent fell 5.6%, and utilization declined to 68.5% from 71.9%.
- Gross profit and Adjusted EBITDA rose in both comparison periods, supported by pricing, value-added products and services, lower variable costs, and integration savings. Lower deliveries, sales activity and utilization remain countervailing trends.
- Q2 net income improved from a loss to profit; six-month net income also improved. Comparability benefited from the absence of the $7.2 million 2019 debt-extinguishment loss and lower integration and impairment costs.
- Six-month rental-equipment purchases and refurbishments fell to $79.7 million from $113.1 million, reflecting lower demand, reduced utilization and deferred spending.
Outlook, commentary, risks and unusual items
- Management said COVID-19 caused project cancellations and delays; modular deliveries were down 19% year over year in Q2. It expected results could remain adversely affected, with the extent depending on the duration of restrictions and the pace of economic recovery. No quantified earnings or revenue guidance was provided.
- The company was considered an essential business and continued operating with added safety measures. Management cited recurring lease revenue and long lease duration as sources of cash-flow visibility, and described cost reductions and lower capital spending as responses to softer demand.
- The Mobile Mini merger closed July 1, after quarter-end. The company issued approximately 106.4 million shares to Mobile Mini shareholders. It expected approximately $51 million of merger transaction expenses in Q3, in addition to $11.0 million expensed in the first half.
- The $650 million 6.125% secured notes issued in June were held in escrow at quarter-end and released upon merger closing. Proceeds helped repay the 2022 secured notes and Mobile Mini debt and fund transaction costs. The 2022 notes were repaid July 1, with a $10.6 million make-whole premium.
- After quarter-end, the company announced redemption of $49 million of 2023 notes, scheduled for August 11 at 103% plus accrued interest. The board also authorized up to $250 million of share repurchases; the authorization has no expiration date and does not require purchases.
- Key risks include pandemic-related demand and customer credit deterioration, merger integration and realization of synergies, utilization and fleet-management execution, interest and foreign-exchange exposure, and fuel and transportation costs. Management reported no material pending legal proceedings and effective disclosure controls at June 30.
Important facts for investors to verify
- How the combined company’s revenue, utilization and pricing trends developed after the merger, particularly amid continued COVID-19 disruption.
- Final purchase accounting, merger-related costs, realized synergies and the combined company’s post-merger segment results.
- Post-merger debt balances, refinancing costs, ABL borrowing availability, covenant headroom and cash available for operations versus restricted or escrowed funds.
- Whether the announced 2023-note redemption and share repurchase program were completed, and their effects on leverage, interest expense and liquidity.
- Credit-loss allowances and customer collections as economic conditions affect customers across construction, commercial, energy and other end markets.