WillScot Corporation — FY 2019 Form 10-K
Reporting period: Year ended December 31, 2019; includes fourth-quarter results. The filing’s registrant is WillScot Corporation, despite the request metadata naming WillScot Holdings Corp. Unless noted, amounts are U.S. dollars.
Business context
WillScot rents, sells, delivers and installs modular space and portable storage solutions, primarily in the United States, Canada and Mexico. Its fleet and branch network support a diversified customer base across construction, commercial and industrial, education, energy, government and other markets. The 2019 results include ModSpace only from its August 2018 acquisition date, so reported year-over-year growth is materially affected by the additional 8.5 months of ModSpace operations in 2019.
Financial and operating metrics
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $1,063.7 million | $751.4 million |
| Gross profit / gross margin | $413.3 million / 38.9% | $289.4 million / 38.5% |
| Operating income | $117.5 million | $6.3 million |
| Net loss | $11.5 million | $53.6 million |
| Net loss per share | $0.10 | $0.59 |
| Adjusted EBITDA (non-GAAP) | $356.5 million | $215.5 million |
| Operating cash flow | $172.6 million | $37.1 million |
| Free cash flow (non-GAAP) | $20.0 million | $(96.9) million |
- Revenue rose 41.6%; leasing and services revenue increased 43.3%. Modular leasing revenue was $744.2 million and delivery and installation revenue was $220.1 million.
- Adjusted gross profit was $588.0 million, or 55.3% of revenue (non-GAAP). Adjusted EBITDA margin was approximately 33.5%.
- Q4 revenue was $278.0 million, gross profit $109.2 million, operating income $40.0 million and net income $8.9 million. Q4 Adjusted EBITDA was $98.2 million.
- Average modular units on rent increased 30.5% to 91,682; average modular utilization was 72.0%, up 0.4 percentage point. The average monthly modular rental rate rose 11.2% to $614. Portable-storage utilization declined to 65.8% from 68.9%, while its average monthly rental rate was $120.
- Cash and cash equivalents were $3.0 million; current assets were $292.6 million and current liabilities $320.4 million. The company reported $509.1 million of available ABL borrowing capacity at year-end.
- Year-end debt was $1,632.6 million on the balance sheet, net of unamortized financing costs; stated principal debt was approximately $1,663 million. This included $903 million of ABL borrowings, $270 million of 7.875% secured notes due 2022 and $490 million of 6.875% secured notes due 2023. Debt maturities are concentrated in 2022 and 2023.
Changes versus prior period
- Reported revenue increased $312.3 million, but pro forma revenue including ModSpace for both years was essentially flat, down $0.4 million. Pro forma core modular leasing revenue grew 7.7%, while lower unit sales—partly due to a large $29 million 2018 hurricane-relief sale—offset that growth.
- On a pro forma basis, modular rental rates increased 13.7%; average modular units on rent fell 4.3% and utilization increased 0.3 percentage point. Management attributed pricing gains to optimization tools and greater penetration of value-added products and services.
- Adjusted EBITDA increased 65.4% as reported; pro forma Adjusted EBITDA increased 25.3% to $356.5 million. The reported comparison reflects acquisition timing as well as operating improvements and synergies.
- Operating cash flow improved by $135.4 million and free cash flow moved to positive $20.0 million. Net capital expenditures rose to $152.6 million from $134.1 million.
- Interest expense rose 24.5% to $122.5 million, partly reflecting a full year of ModSpace-related financing. The company redeemed $200 million of 10% unsecured notes in June and partially redeemed $30 million of 2022 secured notes in December; debt-extinguishment loss was $8.8 million.
Outlook, commentary and notable items
- Management described conditions in its largest end markets as stable and expected modest market growth over the next several years. It cited the U.S. economy, infrastructure spending and further VAPS penetration as demand supports; no specific financial guidance was provided.
- Management reported approximately $42.4 million of cumulative realized synergies from the Acton, Tyson and ModSpace acquisitions by year-end, and expected over $70 million of annual recurring savings when integration plans are fully executed. Remaining real-estate consolidation and fleet relocation were expected in the first half of 2020.
- On March 1, 2020, after year-end, WillScot agreed to acquire Mobile Mini in an all-stock merger. Each Mobile Mini share would convert into 2.405 WillScot Class A shares; the companies expected ownership of the combined company to be 54% WillScot and 46% Mobile Mini. Closing was expected in Q3 2020, subject to shareholder, regulatory and other conditions. A financing commitment was obtained to refinance specified existing facilities and Mobile Mini notes.
- Public warrant redemptions were completed in February 2020 after year-end. Some warrants were exercised for cash and others cashlessly; remaining public warrants were redeemed for $0.01 each. Private and 2018 warrants remained outstanding.
- FY 2019 included $26.6 million of acquisition integration costs, $8.7 million of lease impairment and related charges, $3.8 million of restructuring costs and $8.8 million of debt-extinguishment loss. The company adopted ASC 842 retrospectively to January 1, 2019; adoption added operating lease assets and liabilities and changed the presentation of certain collectibility charges.
- Principal risks include leverage and variable interest rates, cyclical end-market demand, integration and synergy execution, fleet utilization and condition, cost inflation and tariffs, customer credit and collections, foreign exchange, regulatory requirements, and the pending Mobile Mini merger and integration. The filing also identifies substantial tax attributes whose use may be limited, and an audit focus on Canadian goodwill valuation and deferred tax asset realizability.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. No material pending legal proceedings were reported; management said it was in compliance with debt covenants at year-end.
Most important facts for investors to verify
- Whether pro forma leasing growth, pricing and utilization trends continue, particularly given essentially flat pro forma total revenue and lower units on rent.
- Whether the remaining acquisition integration work delivers the expected recurring savings, and how integration costs affect reported cash generation.
- Cash conversion and capital intensity: reconcile $172.6 million of operating cash flow with $152.6 million of net capital expenditures and only $20.0 million of free cash flow.
- Debt service capacity, ABL availability and refinancing needs ahead of the 2022–2023 maturities, including sensitivity to interest rates.
- Mobile Mini merger approvals, financing terms, closing timing, potential conditions or termination costs, dilution and achievable synergies.
- Potential limits on use of tax loss carryforwards, deferred-tax-asset assumptions, and sensitivity of Canadian goodwill valuation to forecasts and discount rates.