Willscot Holdings Corp annual report, FY2020

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WillScot Mobile Mini Holdings Corp. — FY2020 Form 10-K

Business context and reporting period. The filing covers the fiscal year ended December 31, 2020. WillScot Mobile Mini leases modular workspace, portable storage, and specialty tank-and-pump equipment across North America and the UK. The July 1, 2020 stock-for-stock merger with Mobile Mini expanded the company to four reporting segments: NA Modular, NA Storage, UK Storage, and Tank and Pump. Because Mobile Mini’s results are included in reported results only from the merger date, reported year-over-year comparisons are not like-for-like; management also presents unaudited pro forma results as if the merger had occurred January 1, 2019.

Key financial results and metrics

  • Revenue: Reported revenue was $1.368 billion, up 28.6% from $1.064 billion in 2019, primarily reflecting six months of Mobile Mini results. Leasing revenue was $1.001 billion; delivery and installation revenue was $274.2 million. On a pro forma basis, revenue was $1.652 billion versus $1.684 billion in 2019, down 1.9%.
  • Profit and margins: GAAP gross profit was $660.0 million, or 48.3% of revenue, versus $413.3 million and 38.9% in 2019. Net income was $71.9 million, compared with a net loss of $11.5 million. Diluted EPS was $0.41. Pro forma net income was $120.4 million versus $81.3 million in 2019. Adjusted EBITDA, a non-GAAP measure, was $530.3 million reported; pro forma Adjusted EBITDA was $646.5 million, up 7.3% year over year.
  • Cash flow and capital spending: Operating cash flow was $304.8 million, up from $172.6 million. Free cash flow, as defined by the company, was $162.3 million versus $20.0 million. Net CAPEX was $142.5 million, compared with $152.6 million. The company said free cash flow excluding $64.1 million of merger transaction costs was $226.3 million.
  • Debt and liquidity: Year-end total indebtedness was approximately $2.455 billion, excluding deferred financing fees and finance leases; the balance sheet reported debt of $2.470 billion including finance leases and related carrying-value adjustments. Cash was $24.9 million. The $2.4 billion ABL facility had approximately $1.1 billion of available borrowing capacity. The company reported compliance with debt covenants.
  • Operating indicators: Average modular units on rent were 99,526, with 70.2% utilization and a $658 monthly rental rate. Average portable storage units on rent were 84,148, with 75.9% utilization and a $132 monthly rate. Tank-and-pump utilization was 61.7% based on original equipment cost.

Material changes versus the prior comparable period

  • The merger drove most of the reported revenue increase and added substantial rental equipment, goodwill, and intangible assets. Year-end rental equipment net book value rose to $2.934 billion from $1.944 billion; goodwill rose to $1.171 billion.
  • On a pro forma basis, Adjusted EBITDA increased 7.3% despite revenue declining 1.9%. Pro forma segment Adjusted EBITDA rose in NA Modular, NA Storage, and UK Storage, while Tank and Pump declined 31.8% to $36.0 million.
  • COVID-19 reduced demand and deliveries, especially in the second and third quarters. Pro forma deliveries were down 25% year over year in Q2 and 13% in Q3, then up 2% year over year in Q4. Lower lease terminations helped stabilize units on rent.
  • Reported net income included a $51.5 million income tax benefit, primarily related to reversal of valuation allowances, and a $42.4 million loss on debt extinguishment. It also included $64.1 million of merger transaction costs, $18.3 million of integration costs, and $11.4 million of restructuring, lease impairment, and related charges.

Outlook, management commentary, and risks

  • Management expected a modest market recovery in 2021 and cited forecasts for 2–3% growth in U.S. GDP and non-residential construction starts. These are management expectations, not formal earnings guidance.
  • The company anticipated approximately $50 million in annual Mobile Mini merger cost savings, with about 80% expected in the run rate by the end of 2022. It expected approximately $75 million of one-time cash integration, capital investment, restructuring, and related charges during the first two post-merger years; achievement and timing of savings are not assured.
  • Integration priorities included conversion to Mobile Mini’s SAP ERP system, expected in the first half of 2021. Management cautioned that implementation delays or deficiencies could disrupt order processing, delivery, billing, collections, and operations.
  • Principal risks include continued pandemic-related demand and customer-payment disruption; economic and construction-market weakness; integration and synergy execution; high leverage and variable-rate debt exposure; competition and pricing pressure; input, labor, fuel, and tariff costs; and potential impairment of goodwill or acquired intangible assets. The company also disclosed foreign-exchange exposure and uncertainty around the transition from LIBOR.
  • Tank and Pump faced weaker industrial and oil-related demand: pro forma revenue fell 18.9% and utilization declined to 62.6% from 71.1%, although quarterly utilization improved in Q4. The filing reported no material pending legal proceedings and no environmental matter material to operations.
  • Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. However, management and the auditor excluded Mobile Mini’s internal controls from the 2020 ICFR assessment; that business represented 26% of year-end assets and 23% of 2020 revenue.
  • After year-end, the company announced that its President and COO would leave on July 31, 2021, subject to a transition and separation agreement.

Important facts for investors to verify

  • Compare reported results with the filing’s pro forma results, and distinguish GAAP results from non-GAAP Adjusted EBITDA and free cash flow.
  • Track merger integration costs, the SAP ERP transition, and delivery against the $50 million annual savings target and expected timing.
  • Assess debt service, ABL borrowing-base availability, interest-rate sensitivity, and the effect of refinancing and debt covenants on capital allocation.
  • Monitor utilization, rental rates, lease terminations, and demand by segment, particularly the recovery or further deterioration in Tank and Pump.
  • Review the assumptions underlying the Mobile Mini purchase-price allocation and acquired intangible-asset valuations, which the filing described as preliminary, as well as future impairment testing.
  • Consider the impact of the $51.5 million tax benefit and the merger-related costs when assessing the sustainability of reported earnings and cash generation.