WillScot Mobile Mini (WSC) - 2020 Q3 - Quarterly Report

Part I Financial Information This section presents the company's financial statements, management's analysis, market risk, and internal controls Item 1 Financial Statements This section presents the unaudited condensed consolidated financial statements, reflecting the significant impact of the Mobile Mini merger on assets, liabilities, equity, and net income Condensed Consolidated Balance Sheets The balance sheet reflects a substantial increase in total assets to $5.62 billion and total liabilities to $3.53 billion post-merger, significantly boosting total equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $5,624,850 | $2,897,649 | | Rental equipment, net | $3,039,710 | $1,944,436 | | Goodwill | $942,791 | $235,177 | | Intangible assets, net | $686,303 | $126,625 | | Total Liabilities | $3,530,345 | $2,188,694 | | Long-term debt | $2,498,207 | $1,632,589 | | Total Equity | $2,094,505 | $708,955 | Condensed Consolidated Statements of Operations Q3 2020 total revenues surged 55.6% to $417.3 million with net income of $16.3 million, driven by the Mobile Mini merger and an income tax benefit Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $417,315 | $268,222 | $929,998 | $785,620 | | Gross Profit | $209,564 | $99,308 | $425,718 | $304,123 | | Operating Income | $25,012 | $29,782 | $91,452 | $77,540 | | Merger Transaction Costs | $52,191 | $— | $63,241 | $— | | Loss on Extinguishment of Debt | $42,401 | $— | $42,401 | $7,244 | | Income Tax Benefit | $(66,675) | $(1,220) | $(66,170) | $(2,022) | | Net Income (Loss) | $16,252 | $997 | $25,411 | $(20,470) | | Diluted EPS | $0.07 | $0.01 | $0.16 | $(0.18) | Condensed Consolidated Statements of Cash Flows Net cash from operating activities increased to $175.1 million for the nine months, while financing activities shifted to a $75.6 million outflow due to merger-related debt actions Cash Flow Summary for the Nine Months Ended September 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $175,095 | $99,076 | | Net cash used in investing activities | $(83,073) | $(122,774) | | Net cash (used in) provided by financing activities | $(75,612) | $18,627 | | Net change in cash and cash equivalents | $16,952 | $(5,007) | Notes to the Condensed Consolidated Financial Statements Notes detail the Mobile Mini merger's accounting, new debt structure, equity changes, a significant income tax benefit, and the establishment of four new reportable segments - On July 1, 2020, WillScot merged with Mobile Mini, Inc., with WillScot as the accounting acquirer, and the company was renamed WillScot Mobile Mini Holdings Corp[21] Mobile Mini Merger Purchase Price (in thousands) | Component | Value | | :--- | :--- | | Fair value of shares of WillScot Class A Common Stock issued | $1,333,527 | | Fair value of Mobile Mini Options converted | $19,279 | | Cash paid for fractional shares | $30 | | Total purchase price | $1,352,836 | - The merger resulted in the recognition of $708.4 million in goodwill and $565.6 million in intangible assets[35][63] - Following the merger, the company operates under four new reportable segments: NA Modular, NA Storage, UK Storage, and Tank and Pump[133] - A significant income tax benefit of $66.2 million for the nine months ended Sep 30, 2020 was primarily due to a $54.6 million reversal of a valuation allowance on deferred tax assets, which became realizable post-merger[101][102] Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the transformative Mobile Mini merger's impact on financial results, new segments, and financing, alongside COVID-19's effects and management's response Significant Developments and COVID-19 Impact Key developments include the Mobile Mini merger, corporate renaming, new segments, and significant debt refinancing, alongside COVID-19's demand reduction and management's cost control response - Closed the merger with Mobile Mini, Inc. on July 1, 2020, and changed the company name to WillScot Mobile Mini Holdings Corp[159] - Restructured into four new reportable segments: NA Modular, NA Storage, UK Storage, and Tank and Pump[161] - Entered into a new $2.4 billion ABL facility and completed several senior secured note offerings to refinance debt in connection with the merger[162][163][164] - The COVID-19 pandemic reduced demand, with Q3 deliveries in the NA Modular and NA Storage segments down 13% and 12% year-over-year, respectively[165] Consolidated Results of Operations Q3 2020 total revenue increased 55.6% to $417.3 million, driven by the Mobile Mini merger, resulting in $16.3 million net income despite significant one-time costs Q3 2020 vs. Q3 2019 Performance (in thousands) | Metric | Q3 2020 | Q3 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $417,315 | $268,222 | 55.6% | | Gross Profit | $209,564 | $99,308 | 111.1% | | SG&A | $112,079 | $64,992 | 72.5% | | Net Income | $16,252 | $702 | 2215.1% | - The increase in Q3 revenue was driven primarily by the addition of Mobile Mini's revenues, which contributed $149.4 million[173] - Q3 2020 results included significant one-time costs: $52.2 million in merger transaction costs and a $42.4 million loss on debt extinguishment, largely offset by a $66.7 million income tax benefit[171][172] Business Segment Results Post-merger Q3 2020 segment performance shows NA Modular with stable revenue but increased Adjusted EBITDA, while new segments (NA Storage, UK Storage, Tank and Pump) contributed significantly to consolidated results Q3 2020 Revenue and Adjusted EBITDA by Segment (in thousands) | Segment | Revenue | Adjusted EBITDA | | :--- | :--- | :--- | | NA Modular | $267,867 | $100,281 | | NA Storage | $104,493 | $46,465 | | UK Storage | $21,653 | $8,306 | | Tank and Pump | $23,302 | $8,507 | | Total | $417,315 | $163,559 | - The NA Modular segment's Adjusted EBITDA increased 14.8% YoY to $100.3 million, driven by a 10.0% increase in average monthly rental rates and cost savings, despite a 0.1% revenue decrease[208][209][211] - On a pro forma basis, the NA Storage segment's Adjusted EBITDA grew 7.9% YoY to $46.5 million, benefiting from SG&A reductions despite flat revenue[233][242] - The Tank & Pump segment's revenue declined 22.8% and Adjusted EBITDA fell 28.6% on a pro forma basis, impacted by reduced oil and gas activity[233][261][263] Liquidity and Capital Resources The company maintains strong liquidity with $1.04 billion ABL facility availability and significantly improved Free Cash Flow of $74.8 million for the nine months, driven by operating cash and reduced capex - As of September 30, 2020, the company had $1.04 billion of available borrowing capacity under its new $2.4 billion ABL Facility[273] Cash Flow and Free Cash Flow for Nine Months Ended Sep 30 (in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $175,095 | $99,076 | | Free Cash Flow | $74,849 | $(23,698) | - Free Cash Flow for Q3 2020 was $28.0 million; excluding merger transaction costs, it would have been $91.3 million[282][283] Item 3 Quantitative and Qualitative Disclosures About Market Risk The company faces market risks primarily from interest rate fluctuations on its variable-rate ABL Facility and foreign currency exchange rate changes from international operations - The company is exposed to interest rate risk on its $1.35 billion outstanding ABL Facility; a 100 basis point increase would raise quarterly interest expense by approximately $1.4 million[310][312] - An interest rate swap agreement effectively fixes the rate on a $400 million notional amount of the variable-rate debt[311] - Foreign currency risk exists from operations in Canada and the UK, where a strengthening U.S. dollar could negatively impact reported revenues upon translation[313] Item 4 Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2020, excluding the newly acquired Mobile Mini's internal controls as permitted by SEC guidance - Disclosure controls and procedures were deemed effective as of September 30, 2020[317] - The evaluation of internal controls excluded the recently acquired Mobile Mini, as permitted by SEC guidance for new acquisitions[318] Part II Other Information This section covers legal proceedings and significant risk factors, including the influence of the largest stockholder Item 1 Legal Proceedings As of September 30, 2020, the company reported no material pending legal proceedings - There were no material pending legal proceedings as of the end of the reporting period[321] Item 1A Risk Factors This section highlights risks associated with Sapphire Holdings, the largest stockholder, whose significant ownership and pledged shares could influence corporate matters and ownership stability - The company's largest stockholder, Sapphire Holdings, beneficially owns approximately 26% of the common stock and can nominate two directors, exerting significant influence over corporate matters[325] - A significant portion of Sapphire Holdings' shares (59.7 million) are pledged as collateral for a margin loan, with a default potentially leading to foreclosure and a change in beneficial ownership[326]