WillScot Mobile Mini Holdings Corp. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. The company completed its Mobile Mini merger on July 1, 2020; reported results include Mobile Mini only from that date, so reported year-over-year comparisons are not like-for-like. Unless noted, amounts below are in millions of dollars.
Business context
The combined company provides modular space, portable storage, and specialty containment solutions across the U.S., Canada, U.K., and Mexico. At quarter-end it reported approximately 275 branches, 85,000 customers, more than 157,000 modular units, and more than 196,000 portable storage units. Leasing is its core business.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $417.3 | $268.2 | $930.0 | $785.6 |
| Gross profit / margin | $209.6 / 50.2% | $99.3 / 37.0% | $425.7 / 45.8% | $304.1 / 38.7% |
| Operating income | $25.0 | $29.8 | $91.5 | $77.5 |
| Net income (loss) attributable to WillScot Mobile Mini | $16.3 | $0.7 | $24.2 | $(19.2) |
| Adjusted EBITDA (non-GAAP) | $163.6 | $87.4 | $350.6 | $258.3 |
| Cash from operating activities | $61.4 | $39.0 | $175.1 | $99.1 |
| Free cash flow (non-GAAP) | $28.0 | $1.3 | $74.8 | $(23.7) |
- Q3 reported revenue rose 55.6%, primarily because the merger added $149.4 million of revenue. On a pro forma basis, which includes Mobile Mini in both periods, Q3 revenue was down 1.5% year over year, while adjusted EBITDA rose 9.7% to $163.6 million and pro forma net income increased 37.9% to $37.9 million.
- Q3 adjusted EBITDA margin was 39.2%, up from 32.6% reported in the prior-year quarter. Management attributed improvement to legacy WillScot pricing, cost actions, and the addition of higher-margin Mobile Mini operations.
- Q3 net income included a $42.4 million debt-extinguishment loss and $64.1 million of merger, integration, restructuring, and related costs, partly offset by a $66.7 million income tax benefit. The tax benefit mainly reflected a $54.6 million valuation-allowance reversal and a reduction in uncertain-tax-position reserves.
- Nine-month operating cash flow was $175.1 million; investing cash outflow was $83.1 million and financing cash outflow was $75.6 million. Q3 free cash flow excluding $63.2 million of merger transaction costs paid was $91.3 million, according to management.
Debt and liquidity
- Total debt, including finance leases, was $2.515 billion at September 30, 2020, compared with $1.633 billion at December 31, 2019. Cash was $20.0 million. The increase largely reflects the Mobile Mini acquisition and associated financing.
- The company reported $1.307 billion outstanding under its ABL facility and $1.04 billion of available borrowing capacity under the $2.4 billion 2020 ABL facility. The facility matures July 2025; reported weighted-average ABL borrowing cost was 2.05% before swap effects.
- During the merger-related refinancing, the company issued $650 million of 6.125% notes due 2025 and $500 million of 4.625% notes due 2028, redeemed its 2022 notes, and repaid the remaining 2023 notes. It recorded $42.4 million of extinguishment losses. The company said it was in compliance with debt covenants at quarter-end.
- Current assets of $414.1 million were below current liabilities of $451.2 million; management cited ABL availability and operating cash flows as key liquidity sources and believed resources were adequate for the next 12 months.
Material changes, outlook, and risks
- Merger and integration: The July 1 acquisition materially expanded the fleet, assets, and debt. Purchase accounting, including acquired goodwill and intangible-asset valuations, remained preliminary. Management expected conversion to a single enterprise resource planning system in the first half of 2021 and was pursuing integration and synergy opportunities.
- COVID-19: The company remained operational as an essential business but reported project cancellations and delays, reduced delivery activity, and lower demand in affected markets. Q3 deliveries were down 13% year over year in NA Modular and approximately 12% in NA Storage. Management reduced variable costs and capital spending; future demand remained dependent on the pandemic, restrictions, and macroeconomic conditions.
- Segment trends: In comparable pro forma Q3 results, Tank and Pump revenue fell 22.8% and adjusted EBITDA fell 28.6%, amid weak oil, gas, refining, and jet-fuel demand; utilization declined to 58.2%. NA Modular reported lower units on rent and utilization, partly offset by higher rental rates. Portable storage utilization benefited from the acquired fleet.
- Outlook: The filing provides no specific numerical earnings or revenue guidance. Management cited recurring lease revenue, cost reductions, and available credit as support for liquidity, while cautioning that COVID-19 effects and economic conditions could adversely affect results, credit losses, and asset valuations.
- Other items: The board authorized a $250 million share-repurchase program in August; no shares were repurchased in Q3. The filing reported no material pending legal proceedings and no off-balance-sheet arrangements with a material effect.
Important facts for investors to verify
- Track comparable combined-company results and realized merger synergies; reported Q3 growth is substantially acquisition-driven, and pro forma figures are illustrative rather than actual historical results.
- Review integration execution, preliminary purchase-price allocations, and potential changes to acquired goodwill, intangibles, depreciation, and amortization.
- Assess debt service, ABL borrowing-base availability, covenant headroom, and exposure to variable interest rates; a 100-basis-point rate increase was estimated to raise quarterly interest expense by approximately $1.4 million.
- Monitor COVID-related demand, utilization, rental rates, customer credit losses, and the continued weakness in Tank and Pump markets.
- Consider the one-time tax benefit and merger/refinancing charges when assessing reported earnings, and note that adjusted EBITDA and free cash flow are non-GAAP measures.
- Review governance and ownership risks: TDR Capital-affiliated Sapphire Holdings owned approximately 26% of shares, and a substantial portion of its shares was pledged under a margin loan.