WillScot Corporation — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019; unaudited. The filing registrant is WillScot Corporation. Results include ModSpace, acquired in August 2018, so reported year-over-year growth is not directly comparable with the prior period.
Business context and financial results
WillScot provides modular space and portable storage solutions in the U.S., Canada and Mexico. Its fleet and branch network expanded following the ModSpace acquisition.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $266.1m | $140.3m | $521.1m | $275.1m |
| Gross profit / margin | $103.9m / 39.0% | $54.6m / 38.9% | $208.6m / 40.0% | $105.6m / 38.4% |
| Operating income | $26.8m | $5.9m | $48.0m | $10.4m |
| Net income (loss) attributable to WillScot | $(10.9)m | $0.2m | $(21.2)m | $(6.0)m |
| Adjusted EBITDA (non-GAAP) | $88.7m | $41.9m | $173.2m | $77.4m |
| Operating cash flow | Not presented by quarter | $60.1m | $18.8m | |
| Free cash flow (non-GAAP) | Not presented by quarter | $(25.0)m | $(34.9)m |
Reported revenue rose 89.7% in Q2 and 89.4% in the first half, primarily reflecting ModSpace and higher pricing. On a pro forma basis including ModSpace in both periods, revenue increased 1.6% in Q2 and 3.0% in the first half. Pro forma Q2 modular leasing revenue increased 9.2%, while pro forma units on rent declined 4.1%; pricing growth was a key offset.
Liquidity, debt and capital investment
At June 30, 2019, cash was $5.5m, total debt carrying value was $1.712bn, and available ABL borrowing capacity was $486.9m. Current assets were $299.0m versus current liabilities of $287.9m. The company reported compliance with debt covenants.
In May, WillScot issued $190m of 6.875% secured notes due 2023 and used proceeds to repay ABL borrowings. In June, it redeemed $200m of 10% unsecured notes using ABL borrowings, recording a $7.2m extinguishment loss. Management expects these transactions to reduce annual interest expense by approximately $6m. Six-month interest expense was $64.5m, compared with $23.9m.
Six-month rental-equipment purchases and refurbishments were $113.1m; proceeds from rental-equipment sales were $23.1m. Operating cash flow improved, but free cash flow remained negative amid fleet investment, interest costs and integration spending.
Changes, outlook, risks and unusual items
- Q2 modular space average monthly rental rate increased 10.9% to $611; utilization rose to 71.9% from 70.3%. On a pro forma basis, rates increased 15.1%, but units on rent fell 4.1% and utilization was flat.
- Management reported $21.2m of cumulative acquisition-related synergies realized and about 49% of the forecast $70m annualized cost synergies in the run rate. Approximately 65% of planned real estate exits were complete; remaining exits were expected through 2019 and into 2020.
- Management cited favorable market fundamentals and expected modest market growth over the next several years, but gave no specific revenue or earnings guidance. It said liquidity and operating cash flows were sufficient for operating, debt-service and capital needs over the next 12 months.
- Q2 included $8.2m of integration costs, $7.2m debt-extinguishment loss, $2.8m impairment charges and $1.2m restructuring costs. The first-half figures included $18.4m of integration costs, $7.2m debt-extinguishment loss, $5.1m impairment charges and $7.1m restructuring costs.
- Risks include integration and synergy execution, demand shifts in end markets, rising input costs and tariffs, customer collections and credit losses, foreign exchange exposure, and interest-rate sensitivity. A 100-basis-point increase in rates was estimated to raise quarter-to-date interest expense by about $2.3m after swaps.
Key facts for investors to verify
- Whether organic leasing growth, pricing and utilization can offset the pro forma decline in units on rent.
- Progress toward the $70m annualized synergy target, including remaining facility exits and related costs.
- Debt levels, ABL availability, variable-rate exposure and the realized interest savings from refinancing.
- Whether operating cash generation can fund fleet investment and debt service while free cash flow remains negative.
- Credit-loss trends: bad-debt expense was $6.3m in the first half versus $2.3m a year earlier.