WillScot Holdings Corporation (WSC) Q1 2018 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Williams Scotsman First Quarter 2018 Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Mark Barbalato, Head of Investor Relations. You may begin.

Thank you, and good morning. Before we begin, I'd like to remind you that we will discuss forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our Form 10-K filed with the SEC. While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. We would like to remind you that some of the statements and responses to your questions in this conference call may include forward-looking statements. As such, they are subject to future events and uncertainties that could cause our actual results to differ materially from those -- from these statements. Williams Scotsman assumes no obligation and does not intend to update any such forward-looking statements. The press release we issued last night and the presentation from today's call are posted on the Investor Relations section of our website. A copy of the release has also been included in an 8-K that we submitted to the SEC. We will make a replay of this conference call available via webcast on the company's website. For financial information that has been expressed on a non-GAAP basis, we have included reconciliations to the comparable GAAP information. Please refer to the tables and slide presentation accompanying today's earnings release. Lastly, this morning, we are filing our 10-Q with the SEC for the period ending March 31, 2018. The 10-Q will be available through the SEC or the Investor Relations section of our website. Now with me today, I have Brad Soultz, our CEO; and Tim Boswell, our CFO. On today's call, Brad will summarize our first quarter in 2018 and touch on our markets, growth strategies and competitive positioning and provide an update on our outlook for the full year among other things. Tim will then provide additional detail on the key operating metrics of our business and our financial results before we open up the call for questions. With that, I'll turn the call over to Brad.

Thank you, Mark, and good morning, everyone. Welcome to Williams Scotsman's First Quarter 2018 Earnings Call. We appreciate the opportunity to update you on our first quarter results, and we want to thank all of you for your continued interest in the company and for taking the time to join us this morning. Moving to Slide 3. I'd like to share my perspective as to the key highlights of our Q1 results. In short and as promised, we've now begun to accelerate our robust organic growth to accretive acquisitions. We have the right team and a unique, scalable operating platform to continue this. Q1 results reflect continued strong execution of our organic growth initiatives and rapid progress integrating 2 recent acquisitions. I'm very proud of all that the team has accomplished in the quarter, which is evident in our financial results and really sets the stage for subsequent periods. Our Modular Segments delivered $35.5 million of adjusted EBITDA during the first quarter, representing a 32.5% increase versus the same period a year ago. This increase includes the contributions from Acton and Tyson. This result is in-line to slightly ahead of our internal expectations, and we are reaffirming our 2018 adjusted EBITDA guidance of $165 million to $175 million, which represents a 33% to 41% improvement over our 2017 results. Let's take a look at revenues. Starting with our total Modular Segment revenue of $134.8 million, this represents an increase of 35.5% versus the same period a year ago. We delivered revenue growth in both of our Modular Segments with each being driven by improvements in both average monthly rental rates and units on rent. By segment, our Modular – US segment, which provides over 90% of our total revenue, improved 39.7% versus the same period the prior year as the 2 acquisitions further accelerated an already robust underlying organic growth of 12%. Our Other North America segment revenue increased by 5% versus the same period in the prior year, driven by increases of 13.3% and 2.1% in average units on rent and average rental rates, respectively. Coming back to the U.S. segment. We continue to realize strong momentum in rates in our U.S. modular segment. The average monthly modular space rental rates improved 9.9% on a pro forma basis, which confirms the continued strong organic growth trajectory. The organic growth is driven, as I'll remind you, by our pricing initiatives as well as the continued expansion of our Ready to Work solution, which is a unique value proposition supported by our comprehensive offering of value-added products and services or VAPs. Our customers fully value these solutions and they continue to drive our growth with highly accretive returns. Including the effect of the lower rates across the acquired portfolio, these monthly rental rates increased by 3.9% versus the last year on an as-reported basis. We also continued to experience robust demand across the majority of our end-markets. Average modular space units on rent in our U.S. segment climbed 38.7% versus last year on an as-reported basis and 2.9% on a pro forma basis. This reflects the collective benefits of growth investments to supply robust end-markets, our commercial execution and the 2 strategic acquisitions. On the acquisition front, the integration of Acton is off to great start. Acton, which was acquired in December 20 of last year, continued to operate on its legacy platform during the first quarter while we completed the detailed integration plans. I'm pleased to report that these plans are being executed very well by our team. The Acton fleet and customers have now been operating under the Williams Scotsman operating platform since early April. Over 80% of the duplicative branch locations have now been idled. Additionally, the smaller Tyson acquisition was integrated into our operating platform 3 weeks following its close. These acquisitions solidify our U.S. market leadership position, leverage our operating platform and will accelerate our future growth. With our scalable operating platform well in place, favorable economic backdrop and the progress we've made integrating these 2 acquisitions, we're reaffirming our total revenue, our adjusted EBITDA and net capital expense for guidance for 2018. I'll revisit this again at the end of my remarks. Turning to Slide 4. I'd like to provide a brief overview of our operating platform and our market position. Our first quarter results demonstrate our unique operating platform's ability to sustain organic growth while also scaling up in order to effectively integrate acquisitions. On a pro forma basis, our LTM revenue is now $560 million with more than 90% of our adjusted gross profit derived from predictable recurring lease revenue business. With these 2 acquisitions, we now manage a fleet with a gross book value of $1.5 billion. This fleet's comprised of nearly 100,000 modular space and portable storage units, which together total over 45 million square feet of temporary space, which is deployable within short notice from over 100 locations across North America. We now serve an expanded, diverse customer set of more than 35,000 customers with no one of these customers representing more than 2% of our revenue. We believe we are now the clear market leader within the specialty rental service modular space segment. We expect to continue to leverage our highly scalable platform to assert and further extend our market leadership with the financial flexibility to capitalize on both strategic growth opportunities and through acquisitions. Our unique Ready to Work value proposition complements our core modular leasing operations and is driving growth with highly accretive returns. This unique value proposition, coupled with our scalable and differentiated operating platform and the underlying long-life assets with long lease durations, altogether, provide for a great degree of visibility into our future performance. Our success in quickly integrating these 2 recent acquisitions confirms the platform's ability to readily scale and further increases our confidence that it can support the further doubling of our business. Let's shift to Slide 5 and look at the underlying strong end-markets in which we're operating. We're continuing to see strength across the majority of the diverse end-markets we serve based on robust industrial spending, robust non-res construction and improving EMP capital spending, and finally, expanding nonfarm payrolls. The American Rental Association forecast of 4.5% annual revenue growth in 2018; Dodge Data and Analytics forecast of non-res construction square-foot growth of 3.7% in 2018. I'll remind, while this construction starts to remain robust, we believe there's significant further headroom as they're still 30% below the 2007 levels. The Architecture Billing Index or ABI, is a leading indicator for non-residential construction activity, has consistently remained positive for the last 2 years. We do also expect the $1 trillion U.S. infrastructure investment, once approved and implemented, will further underpin and strengthen many of our end-markets. While we continue to expect underlying demand for our business to remain solid, aside from acquisitions, the fastest-growing part of our business is the expansion of our Ready to Work value proposition. These solutions provide a turnkey space solution to our customers, affording them the ability to focus immediately on getting on with their work or their project. The demand for this value proposition is very robust and we expect it will continue to remain so over the next several years as we both increase the penetration of this offering and extend it to customers of acquired businesses. Turning to Slide 6. I'll highlight a few key core leasing indicators that are supporting our U.S. growth. I'd ask you to look first at the graph on the top left side of the page which reflects our reported U.S. modular space average units on rent of just shy of 49,000 units, which is an increase of 38.7% compared to the prior year. This is the volume that best reflects the scale of our business going forward. The corresponding utilization contracted 50 basis points to 71.8%, given the recent acquisitions came in with lower utilization rates. However, as you can see at the bottom left side of the page, on a pro forma basis, modular space average units on rent in the U.S. rose 2.9% versus the same period a year ago. Corresponding utilization expanded 280 basis points to 71.8% versus the same period a year ago. This is a better reflection of the continued organic growth of the business. Moving to the graph in the lower middle of the page. I'd like to again highlight another outstanding quarter of revenue growth. On a pro forma basis, modular space average monthly rental rates climbed 9.9% in the first quarter to $533 versus $485 in the prior year. As noted before, this is driven by both our pricing initiatives as well as continued expansion of our Ready to Work solution. Shifting to the top center of the page, and including the effect of the lower rates across the acquired portfolio, as reported average monthly rental rates in the U.S. increased 3.9% to the $533 compared to the same period in the prior year. The acquired Acton and Tyson portfolios came in with lower relative average monthly rates, primarily due to the fact that they were not previously offering the Ready to Work value proposition. Lastly, before I turn it over to Tim, please turn to Slide 7. I'm pleased to reaffirm our previous guidance for 2018. I'm confident that we are on track to deliver an exciting result in 2018. We're exiting the first quarter with momentum in all of our core operational metrics in the U.S. Our 2 integrations have progressed according to plan, and our Other North America segment is stable to improving. As a reminder, in 2018, we expect to deliver adjusted EBITDA of between $165 million and $175 million, total revenues of between $560 million and $600 million. The mid-points of these ranges apply a year-over-year adjusted EBITDA growth of 37.1% or a revenue growth of 30%. We do expect to invest between $70 million and $100 million of net rental CapEx depending on market conditions. In summary, we continue to be excited about 2018 and are proud of our results. We have a favorable economic backdrop, momentum in our core organic growth indicators, clear line of sight in the contribution from the acquisitions and the related synergies and the right operating platform to optimize and further scale the company. With that, I'll hand it over to Tim who'll take you through the financial results in more detail. Tim?

Thank you, Brad. Let's turn to Slide 9 for more detail on first quarter results from our Modular Segments. In the top left-hand chart, total revenue increased 35.5% to $134.8 million compared to the prior year. Revenue in the Modular – US segment was up 40% as reported, including the 2018 contribution from our 2 acquisitions. On an organic basis, revenue in the U.S. was up 12% during the first quarter, which underscores the strength we are experiencing in our base business, which I'll dig into on the next page. In the top right chart, first quarter Modular Segment's adjusted EBITDA rose 32.5% driven by the 37.6% year-over-year increase in the U.S. segment. Relative to revenue growth, you don't see the operating leverage from the acquisitions yet in our numbers because we are running with redundant costs for the entire quarter and really started executing the Acton integration in early April. The fact that those actions are now being taken will drive synergy realization and operating leverage flow through to EBITDA in subsequent quarters, all of which is consistent with our original plan for the year. On the bottom of the page, we provided a chart to help bridge revenue growth from the first quarter in 2017 to the first quarter of 2018. Had we owned Acton and Tyson in Q1 2017, U.S. modular space revenue would have grown by $9 million, driving a 10% increase from $123 million to $135 million, obviously with higher percentage growth coming from the legacy Williams Scotsman business -- that's the 12% organic growth rate that we've noted previously -- and that's driven by the higher value-added products' penetration and price performance at Williams Scotsman, historically relative to Acton. Turning to Slide 10. I'll highlight the key trends in our U.S. modular leasing business, which continue to be extremely favorable. Due to the 2 acquisitions, we've included our units on rent and average monthly rental rate on the left-hand side as they appear in our financial statements; and on the right, we've presented the same metrics as if we'd owned Acton and Tyson for all periods in 2017. I'm going to focus on the right-hand pro forma charts because they are the better indicator of the accelerating trends that we see heading into the remainder of the year. On the top right chart, average modular space units on rent increased by 2.9% in 2018 versus Q1 of 2017 across the combined Williams Scotsman, Acton and Tyson fleets. Average utilization increased 280 basis points year-over-year to 71.8% in the quarter. And importantly, starting in Q2 2017 on this chart, the year-over-year growth rate in terms of unit on rent volume has accelerated for each of the past 4 quarters. On the bottom right chart, average monthly rental rate increased 9.9% year-over-year to $533 per modular space unit on rent in Q1 2018. Similar to volumes in the U.S., year-over-year growth has accelerated for 4 consecutive quarters. As a reminder, in the bottom left-hand chart, these are the as-reported numbers. Average rental rates were up 10.2% year-over-year last quarter, that's Q4 2017, with only a few days of Acton contribution. And the fact that we sustained a nearly 10% growth rate across the entire fleet in Q1 is extremely encouraging as we head into the remainder of the year. Moving to Slide 11. This shows our quarterly revenue and adjusted EBITDA from the U.S. modular segment. In the top left chart, our reported revenue is shown in green and we have added a white box to illustrate the revenue that Acton and Tyson would have contributed had we had owned them over the entire period. First quarter revenue on the top left chart grew 39.7% to $122.1 million versus Q1 '17 as a result of the Acton and Tyson acquisitions as well as the accelerating volume and price trends that I've just discussed. If we had owned Acton and Tyson for both periods presented, total first quarter Modular – US segment revenue would have increased 9.6% from $111.4 million in Q1 '17 to $122.1 million in Q1 '18. In this chart, you'll note some normal seasonality in the top line, which is primarily driven by lower delivery and installation activity in Q4 and Q1 in contrast to maintenance activity, which begins to pick up in Q1. Most delivery and installation as well as maintenance expenses items that we recognize in period when incurred or services are rendered, whereas leasing revenue is more stable due to the 3-year average lease durations, and obviously, we recognize that revenue over the duration of the lease. Moving to the bottom left-hand chart. Modular – US segment adjusted EBITDA increased 37.6% to $32.6 million compared to the prior year, which is in line with the revenue growth rate. As I mentioned earlier, that does not yet reflect any operating leverage from the acquired revenue as we effectively ran with all redundant costs in the quarter. As I mentioned last quarter, Q1 is typically a lower margin quarter as you see in the bottom left-hand chart, as variable cost begin to ramp up heading into the summer season. We also incurred disproportionately high public company cost in Q1, which we expect to moderate and remain in line with our full year guidance in the remainder of the year. These 3 factors resulted in the 27% adjusted EBITDA margin in the U.S. in Q1, which was actually slightly above our internal expectations for the quarter and in line with the average Q1 margins of the past 2 years. Obviously, our guidance for the year implies adjusted EBITDA and margin expansion of over 100 basis points versus 2017 and we expect to see that expansion in the remainder of the year. First quarter was clearly a strong quarter for the U.S. modular segment with outstanding organic and inorganic top line and adjusted EBITDA growth, with clear line of sight towards margin expansion in the coming quarters. Moving to Slide 12. Look at the Other North America segment, which includes operations in Canada, Alaska and Mexico. As a reminder, neither Acton nor Tyson had any operations in these markets so no pro forma adjustments are required. I'm going to start on the right-hand side of the page with average rental rate in units on rent. In the top right chart, we're seeing continued stabilization of pricing, with the highest average monthly rates since the third quarter of 2016 and a 2% improvement over Q1 of '17. In the bottom right chart, we now have 4 sequential quarters of average unit on rent growth heading into the rest of 2018, and average units on rent were up 13% versus Q1 2017. While these leasing metrics as well as currencies are improving year-over-year, they were offset by lower gross profit contribution from sales of units as well as an increase in our allowance for doubtful accounts in the quarter resulting in $3 million of adjusted EBITDA, which has been the case for 5 as of the last 6 quarters. As discussed last quarter, we had a large sale project in Q4, which drove the jump to $5 million of adjusted EBITDA, and obviously, did not reoccur in Q1. Overall, we are encouraged by the improving fundamentals here and see the opportunity for upside but more so in 2019. Turning to Slide 13, and similar to last quarter, I'll briefly connect Q1 EBITDA back to net loss. In contrast to the historical financials in our discussion last quarter, Q1 2018 has simplified dramatically as we expected. As expected, there is no impact from discontinued operations or overhead expenses from our former parent holding company in Q1 2018, nor will there be going forward. There were also no lingering expenses in the P&L related to the November 2017 merger of Double Eagle Acquisition Corp and Williams Scotsman International, Inc., although we did reduce approximately $10 million of accounts payable in the quarter related to that transaction. An interest expense dropped by 47% is now reflective of the new debt structure that we put in place in November. As you can see in the reconciliation, we incurred $3.2 million of restructuring and integration costs in the quarter, primarily related to Acton and Tyson. These costs will continue to be expensed in coming quarters as integration actions are agreed and taken that were removed from adjusted EBITDA. Turning to Slide 14. As we mentioned last quarter, one great attribute of our business model is the ability to flex capital spending in response to changes in market conditions. Most of our modular space and portable storage units have 20-year useful lives, which allow us to cut capital spending in periods of lower demand and reinvest during periods of growth. As we saw in the Modular – US segment, we are clearly in a strong growth environment in the U.S. and are investing accordingly to grow units on rent and VAPs. In the first quarter of 2018, our Modular Segments invested $25 million net of rental unit proceeds to support the continued growth of value-added products, refurbishments of existing units as well as some targeted new fleet investments. While Q1 capital spend was up $8 million year-over-year, I'd note that we are supporting units on rent in the U.S. that are up 39% year-over-year due to the integration of Acton. We're on a stronger organic growth trajectory heading into Q2 and Q3 than last year and much of the increase has been funded by insurance proceeds received that offset losses incurred during the Hurricane Harvey last fall. Annualizing Q1 net CapEx would put us at the high-end of our capital guidance range. And while Q1 typically is a seasonally high CapEx quarter, based on current robust market conditions, it does feel like we're trending above the mid-point of our capital guidance. All that said, I'll reinforce that in the short term, our capital investments are almost entirely discretionary and we'll continue to reassess the reinvestment of our cash flow on a quarterly basis. Moving to Slide 15. There's been no change to our debt structure. We drew $37.3 million on our asset-backed revolver in the quarter to fund $24 million for the purchase of Tyson in January as well as to fund the $23 million reduction of accounts payable and accrued liabilities, both of which you will see in the cash flow statement. Of the working capital usage, approximately $10 million was related to transaction costs that we had previously accrued but not paid related to the Double Eagle merger with WSII. Approximately $6 million was due to the normal payout of our 2017 short-term incentive plan which dispersed in March, and approximately $7 million was a one-time reduction of other past due accounts payable. As of March 31, net working capital was approximately negative $25 million, which is a great place for us to be moving forward and should result in a small source of cash as we grow. Currently, we have a total of $243.8 million available on borrowing capacity under the ABL prior to any upsize, with ample liquidity to support our 2018 outlook and are comfortably compliant with all terms in the credit agreement. Net debt to EBITDA sits at approximately 4x, pursuant to the definitions in the credit agreement, which allow for pro forma adjustments related to acquisitions and other items and use the principal balances rather than carrying values presented here. With that, I will heed it back to Brad for any closing comments, and then Q&A.

Perfect. Thanks, Tim. So we're extremely proud of the success our company has achieved in the first quarter. While I'm certainly pleased with the continued organic growth, I'm particularly delighted by the significant progress we've made on the acquisition front in the short time since we've returned the company to the public market. We believe we are now well positioned as the clear market leader within specialty rental service modular space segment. We remain confident that we have the right platform and the financial flexibility to grow both organically and through additional acquisitions. We -- as we continue to scale the company, our mission at Williams Scotsman remains steadfast. That is to provide our customers with innovative modular space and portable storage solutions. We differentiate ourselves by providing these solutions, Ready to Work, which is supported by our unique and comprehensive offering of value-added products and services. Customers value these solutions and they continue to drive our growth. That concludes our prepared remarks. Appreciate the time you've taken to join us today and your continued interest in the company. We look forward to speaking with many of you very soon. At this point, we'd like to open up the line, operator, please, for questions.

[Operator Instructions] Your first question comes from the line of Scott Schneeberger of Oppenheimer.

Sorry, can you hear me now?

Yes. Now we can, Scott. We can hear you now. Thanks.

Yes, the mute button got me. So could you guys please elaborate on -- in U.S. modular, the acceleration in units on rent pro forma -- from the -- versus the first quarter -- or fourth quarter. Just speak a little bit to the drivers, end markets, what you're seeing progressing into the second quarter here.

Yes, I'll start with the end markets and then I'll throw it over to Tim. I think we noted that both the American Rental Association and Dodge are predicting kind of 4% to 5% growth year-over-year. That's kind of how I would characterize the end markets. They feel quite robust. In addition to that, as I noted in my prepared comments, we've seen increases in capital investments in E&P. So I think -- I would characterize the end markets as kind of in that 4% to 5% range. And with our new flexible balance sheet, we now have the opportunity to take advantage of those opportunities.

Great. That sounds good. The nearly 10% pro forma rental rate growth was somewhat eye-popping. Could you discuss what you're seeing now and into the second quarter as well on that front? And I guess, speak to what you're doing with rates, VAPs mix, just to give us a better feel of the sustainability of it and where exactly it's coming from now?

Yes. I'll offer a few high-level and then Tim can jump in on it. I think, in short, what we're doing is what we'll continue to do. Right? We have been leveraging our price optimization platform and this Ready to Work value proposition to drive what we believe are very sustainable growth levels at that same rate. As we acquire portfolios, we simply apply that same pricing strategy as well as extend our Ready to Work offering solution to the new customers. So effectively, what we've been doing is driving that 10% quarterly growth. We'll continue to do exactly the same thing. But we'll extend the application, if you will, across the acquired portfolio.

Yes so, Scott, as we've talked about, I think the last time, is you acquire business like Acton and they are effectively not as focused on the value-added products and services side of things. If I strip out Acton, our value-added products per unit on rent is up north of 23% year-over-year in Q1, to give you an order of magnitude in terms of the relative growth rate. So now what we've done is we pulled in the acquired fleet, which now gives us a base every time an Acton unit comes back, we're able to redeploy that unit back to a -- one of our customers with a -- fully outfitted with value-added products and services. To Brad's earlier point, the integration planning was really -- took up of the better part of Q1, and we're in an integration and execution mode right now. So I think that uplift starts in April and will unfold over the course of the 3-year period.

That's helpful. One more just follow-on question and I'll pass it along. How penetrated are you now in VAPs overall, now in your pro forma structure? And how long do you think it takes before you're equally penetrated across the legacy company of the new 2 acquisitions?

So, Scott, I'll be a little guarded in response because we don't disclose that information. But I'll offer a bit of a characterization. As Tim mentioned, about everyone in the industry is supplying some form of VAPs. Basically, it's steps and ramps to get in the building and some damage waivers. That's been pretty consistent for years and years. So if you ask, where's VAPs penetration and you talk about steps, there are almost every unit we ship as do our competitors. What's differentiating, given the Williams Scotsman approach, is that beyond that level, we're offering this turnkey Ready to Work solution which is really the furniture, flat-screen monitors, café packages, et cetera, which makes the interior of the space fully furnished and functional from day one. I would characterize our progress in that endeavor -- setting the acquisitions aside as maybe third, fourth inning of the baseball game if you want to use that analogy, we've really equipped the branches, retrained the sales force, sourced that comprehensive good, better and best offering back in 2015, began to offer it to our customers in 2016, and just continued to see that to increase. As Tim noted, these are long-life assets with long-lease durations. So while it gives you great predictability into your future revenue stream, you also have to be patient and wait for units that you deployed 3 years ago at lower rates and wait out the Ready to Work solution to come back into your yard and redeploy. It's kind of that saying that if you want to bring any acquisition in, with that acquired fleet, the units that are deployed, they're at the first inning, right? We've already played the first 3 or 4 innings in this game so we expect to accelerate that progress. But at the end, and the final growth is going to be paced by just the normal churn of that fleet over several years. Does that answer your question?

Yes. That's great, Brad. Helpful color. And I'll turn it over now.

Your next question comes from the line of Sean Wondrack of Deutsche Bank.

Just to focus on VAPs again for a second. As I was kind of going through your offering docs, VAPs were roughly, call it 15% of your gross profit. It looks like this quarter they were sort of closer to 20%. Over time, where do you expect that to sort of balance out? Do you think it can grow from that number? Or do you think that, that's probably a decent spot to kind of consider them?

I think, Scott, I would -- this is Brad on -- or Sean, I'm sorry. If you refer back to some of the same material you're referencing, you'll notice our delivered rates. If you look at the ratio of the delivered rates at that time on an LTM basis of the VAPs versus the box itself, I mean, you can go back and check the percentage, but it's higher than the 23%, right? So I think that's solid evidence of -- it will continue to increase.

Yes, just as we saw it. Just take Q1. Overall, average rental rates were up 9.9% year-over-year, and I just mentioned, VAPs per unit on rent was up 23-ish percent year-over-year, so. And I think we absolutely see upside in terms of VAPs' penetration and pricing. So as long as that relative growth rate remains above unit pricing, we should expect the gross profit contribution from VAPs to increase.

Right. And just again, were VAPs entirely -- or your basically amplified VAPs offering, was that in the Acton portfolio during the first quarter? It was not, right?

No. No, it's not. The Acton business really operated as a stand-alone entity through the first quarter.

And that is -- last quarter, the 10.2% year-over-year rental rate growth was, I thought impressive. I think more impressive is the fact that we maintained that 9.9% after bringing in the Acton fleet, which effectively had nowhere near the same growth rate. And now, we are executing the acquisition -- or the integration rather, beginning in April. I'm just excited about the opportunity that presents.

And will there be some one-time costs associated with that? Or have most of those already been realized?

There will certainly be one-time costs to basically -- to show up in our capital spend. Just think about it. If we increase the fleet size by 25-ish percent, we now need to have equipment to outfit those acquired units. So that's one one-time cost. Think about it just -- populating inventory is the way to think about it, which is beginning. The other one-time cost are the integration-related costs that I alluded to in my comments. It's about $3.2 million in the quarter and outside of our adjusted EBITDA.

The first cost that Tim referred to, the capital required to scale up our VAPs portfolio, is contemplated in our guidance of $70 million to $100 million.

Great. I guess that's a good segue. You guys have sort of stated, I think during the roadshow, that maintenance CapEx, I think it's on a net basis is sort of in the range of $35 million to $40 million. Does that sound right to you?

That was. And that roadshow was pre any acquisitions. So that was our organic view of net maintenance capital. And now with the fact that we've scaled up the fleet pretty significantly, there is an increased maintenance component and we'd see that as a thing around net $50 million or so. That's an imperfect science but I think that's a good stake in the ground.

Right. So then when you think about sort of against your guidance for this year, that implies kind of $20 million to $50 million of gross CapEx there. Is that primarily being spent on outfitting VAPs throughout your various branches? Or where is the predominance of that going?

I'd say, the largest contributor will be kind of the refurbishment spend across the U.S. fleet. So think of this as taking older, idle units. And as long as markets remain as strong as they are right now, we will pull those units out of the yard, refurbish them and deploy them to customers. That's much more capital-efficient than buying new units, for example. And yes, there is absolutely a growing VAPs portion of that as well, but the largest component is refurbishment spend.

And then will you be able to kind of show us over time your -- how this refurbishment basically results in your fleet available for rent? Basically, stuff that's not locked up, that hasn't been refurbished and can't go out on rent? Do you expect to see kind of an improvement in that metric as you go through the year?

The way I would answer that, Sean, is -- what you have not seen us do in the last few years is grow fleet, right? So if you absent the -- if you just take Q1 -- if you just take our net book value as reported, the only real change in fleet net book value is the acquisition of Tyson. So what should happen is as we refurb older, idle units, instead of buying new units, utilization should tighten up, right? And what you see in Q1 is office utilization in the U.S. up 280 basis points year-over-year pro forma proactive.

Great. Okay, that's helpful. Just a couple more. You noted earlier on the call that the gross book value is about $1.5 billion now. Do you have an estimated sort of market value to value your fleet? Or should we just take sort of $900 million of ABL capacities sort of what the market value is?

I think that's a fair way to look at them. We have the ability to upsize of ABL today to $900 million and the borrowing base would appear to support that.

Great. And then you noted on your last call, you expected to kind of move along with a number of small tuck-in acquisitions as the year goes on. Were you able to identify and kind of target some of these bolt-ons during the period? What did you see on the M&A front?

I would characterize our pipeline as it would relate to those smaller, more independent tuck-ins as I would've expected. I think we talked about being in a position to do half a dozen of those a year -- handful to half a dozen. That's a place of -- I just would reiterate that it's important to just be patient. Those folks are ready to sell when they're ready to sell. So we will be an able and willing -- acquirer when that time comes. So pipeline's good as I would've expected it to be.

Okay. And then last one out of me. Just, when you think about your guidance for the full year, $165 million to $170 million. With the 2 acquisitions that you've done now, does any of that guidance contemplate further acquisitions this year? Or is it entirely based on basically Acton, Tyson and organic growth?

It's entirely based on the 2 deals we've done so far in our organic outlook. Now we'd refer you back to last quarter's investor presentation for a bridge that kind of gets you to that guidance.

[Operator Instructions] Your next question comes from the line of Doug Mewhirter of SunTrust.

Most of my questions have been answered. Maybe, looking at your rate growth which looks very healthy on a pro forma basis. What was your sort of incumbent Williams Scotsman fleet rate growth, sort of backing everything out or was that -- is there something specific in the presentation you can point me to?

Yes, it's not in there and we haven't given it to you. What I can point to is -- which is why I brought it up, the 10.2% in Q4 was incumbent Williams Scotsman. I do not believe there was the same equivalent year-over-year growth in the Acton fleet in Q1, in call it, maybe -- what, that's 25-percent of on rent, which would imply the William Scotsman portion is above that 9.9% result, for the combined fleet. Sorry, I can't be more specific on that, yes.

Yes. Yes.

Okay, and that's sort of what I was thinking anyway. Second question, the -- so when -- in your presentation, when you use your breakdown of the Modular – US segment fundamentals, which is very comprehensive, is portable storage rolled into those numbers or is that separate? And what -- I know portable storage isn't a huge part of our fleet but I was wondering how, what kind of trends those were…

Yes, yes, [ happy ] -- It's not in there. It is in the Q. And you can see all the KPIs for portable storage by segment. Just round numbers. You're talking a little north of a $20 million per year revenue contributor for us in the grand scheme of things. I'll speak to the U.S. portable storage results, which is the vast majority of our fleet. Units on rent were up 7.1% year-over-year. That's largely acquisition-driven. And average rental rates were up 4.4% year-over-year. Again, yes, that will be detailed in the Q.

My last question. In terms of the overall demand picture it sounds like you have a nice economic tailwind and -- tailwind in your specific segments. Is there any particular, just geographic regions in the United States which seem to be either unusually healthy our unusually -- or surprisingly not healthy in terms of your baseline?

I'd characterize the U.S. as generally healthy across. I think as we noted on in the last call, the Texas area -- especially given the hurricanes around Houston -- are robust as we would've expected. Maybe that's one exception. But overall, we see strong markets across the U.S. and in fact, in Eastern Canada as well. It's just a bit softer, if you will, in Western Canada and Alaska. Although we're seeing sprouts of interest that we think will pay dividends in more like 2019 and 2020 in that space.

Your next question comes from the line of Marcus Weiss of Jefferies.

A number of my questions are already asked. This is actually Dan Stratemeier great quarter, again. Can you remind us the current guidance you have out there right now? What is that include for synergies, both pricing and cost, for the last two acquisitions? By pricing, I mean VAP pricing. Any opportunities you see there? Maybe that can also be my next question, last call you were very excited about the VAP opportunity and what you could do there on the pricing side. If you can give us an update now that the deals have closed and you've spent more time with them. I'd appreciate that.

Sure, Dan, thanks. So the guidance assumes that we realized $4 million of cost synergies in the P&L in 2017. As I mentioned, if you just take pricing in VAPs, we're just now starting to kind of use the Williams Scotsman platform to price and outfit acquired units. And so that traction should build during the course of the year. But every unit you deliver starting, say, July 1, the end-year EBITDA contribution is relatively limited.

I would say -- I would just add both of those effects are more an influencer, if you will, as to how we enter 2019.

Yes.

Right? Less of an EBITDA impact in the period but more about where we leave the period.

Your next question comes from the line of Sean Wondrack of Deutsche Bank.

Just one quick follow-up for me. As we think about the rest of fiscal 2018, as we're already one quarter through it, can you talk a little bit to the seasonality of the business? I mean, I know that 2Q and 3Q, I believe, are your strongest quarters. Should we see meaningful kind of upticks in 2Q and 3Q with a little bit of -- sort of abating growth rates in 4Q?

Yes and no. So I'd say -- I'd refer you back to Slide 11. And that seasonality probably manifests itself most clearly in the U.S. segment results. And what you see on that page is -- at least for an organic business, I think reflective of what you would expect on the top line. Again underneath that, there's much less seasonality in the lease revenue stream and VAPs. So that variability is driven more by periodic activities such as the delivery and the return of units, in particular. As I think about -- and that's top line. Bottom line, because we're running with redundant costs in Q1, the synergy value will begin to build starting in Q2, Q3 and then Q4. And that's that $4 million of end-year synergy realization that I referenced. As well as a good chunk of the growth in the U.S. business, currently, is coming from pricing and value-added products and services, which have very high flow-through to the bottom line. So that's probably how I address your question, Brad. I don't know if you've got anything to add.

No, I think you touched on it. You can look historically at our results and get a feel for the seasonality. I think what's unique and 2018 and expect will be our -- the reality of our future is, on top of the normal seasonality, you've got continued rate growth just given the spread between where we're deploying units and the average for the portfolio as it rolls over. And then as well as Tim mentioned, the pace in which we realize these synergies associated with acquisitions. So all three of those are fully contemplated in the $165 million to $175 million.

I'm showing no further questions at this time. I would like to turn the call back over to Brad Soultz for final remarks.

All right. Well, I think, if you didn't notice, we're quite proud of our results. We think we're on track for an exciting 2018. Just want to thank you again for your continued interest in the company as well as taking the time to join us this morning to hear our story. Thanks, and have a great day.

Ladies and gentlemen, this concludes today's conference. And thank you for your participation and have a wonderful day. You may now disconnect.