WillScot Corporation — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. The filing is for WillScot Corporation, the legal successor following the November 2017 business combination; it is not titled WillScot Holdings Corp. The company provides modular space and portable storage solutions across the U.S., Canada and Mexico. Its former remote accommodations business is presented as discontinued operations.
Financial results and position
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $134.8 million | $99.3 million |
| Gross profit / gross margin | $50.9 million / 37.8% | $37.9 million / 38.2% |
| Operating income | $4.5 million | $4.8 million |
| Net loss from continuing operations | $6.8 million | $12.4 million |
| Net loss attributable to WSC / loss per share | $6.2 million / $0.08 | $10.2 million / $0.70 |
| Adjusted EBITDA (non-GAAP) | $35.5 million | $21.9 million |
| Cash from operating activities | $4.8 million | $25.3 million |
Revenue rose 35.8%; management attributed growth to approximately 12% organic growth in Modular–US and the Acton and Tyson acquisitions. Gross profit increased 34.3%, while gross margin edged down 0.4 percentage points. Interest expense fell to $11.7 million from $24.7 million, largely because the post-business-combination debt structure replaced prior Algeco Group financing. The 2017 period included $2.2 million of income from discontinued operations; the reported year-over-year comparison is also affected by acquisitions and the changed corporate cost structure.
At March 31, cash was $2.9 million, total assets were $1.43 billion, and total debt carrying value was $664.1 million, including $662.2 million of long-term debt. The $600 million ABL facility had $243.8 million of available capacity, down from $281.1 million at December 31, 2017. ABL borrowings had a 4.35% weighted-average rate; $300 million of senior secured notes bear 7.875% interest and mature in 2022. The company reported compliance with debt covenants. Rental-equipment purchases were $32.1 million, with $8.1 million of proceeds from equipment sales. Cash declined $6.3 million during the quarter.
Changes, outlook and noteworthy items
- Acton, acquired in December 2017, continued to be integrated; Tyson Onsite was acquired in January 2018 for $24.0 million net of cash acquired and funded with ABL borrowings. Management cited expected procurement, scale and overhead synergies; it expected more significant Acton and Tyson cost savings to begin in Q2 2018.
- Modular–US revenue increased 39.7% as reported. Average modular-space monthly rental rates rose 3.9%, while units on rent increased 38.7%, with growth reflecting acquisitions and organic gains. Utilization in this segment decreased 50 basis points to 71.8%, partly because of acquired idle fleet. On a pro forma basis, Modular–US revenue grew 9.6% year over year.
- Management described demand fundamentals in its major commercial, industrial and construction markets as favorable and expected modest market growth over the next several years. It noted continued competitive pricing pressure in Other North America and weaker portable-storage utilization.
- Q1 included a $3.0 million gain from Hurricane Harvey insurance proceeds. Adjusted EBITDA also includes acquisition integration and other adjustments; it is a non-GAAP measure and is not cash available for debt service or investment. SG&A included $2.6 million of integration, transaction and professional costs, alongside higher acquisition-related and public-company costs.
- Operating cash flow was lower than the prior-year period, primarily due to cash used to pay accounts payable and accrued liabilities; the 2017 comparison also included the former remote accommodations business. Management said liquidity sources and operating cash flows were sufficient for expected operating, debt-service and capital requirements.
- Disclosure controls were concluded to be ineffective at March 31, 2018 because of material weaknesses in income-tax accounting and reverse-acquisition accounting. Management described remediation plans, including added review controls and specialist support. No material change in risk factors was reported; management said ordinary-course legal matters were not expected to have a material effect.
Investor verification points
- Check acquisition-adjusted organic growth, acquired-fleet utilization, and whether the expected integration savings materialize.
- Track operating cash generation against rental-fleet investment, cash balances and declining ABL availability.
- Review debt service costs, covenant headroom and the effect of variable-rate ABL borrowings.
- Assess the $3.0 million insurance gain and other non-GAAP adjustments when evaluating recurring earnings and Adjusted EBITDA.
- Monitor remediation and auditor-related disclosures concerning the material weaknesses, and updates to preliminary acquisition valuations and tax estimates.