Good day, ladies and gentlemen, and welcome to the Williams Scotsman Second Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's conference may be recorded. I would like to introduce the host for today's conference, Mr. Matt Jacobsen, Vice President of Finance. Sir, please go ahead.

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 and our Form 10-Q filed today. 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'd 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 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 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 30, 2018. The 10-Q will be available through the SEC or on the Investor Relations section of our Website. Now with me today, I have Brad Soultz, our CEO; and Tim Boswell, our CFO. Brad will kick off today's call with a brief introduction to Williams Scotsman, summarize our second quarter results and provide an update on our progress related to mergers and acquisitions among other things. Tim will then provide additional detail on the financial results for the quarter and provide an update on our recent activities in the capital markets before we open up the call for questions. With that, I'll turn the call over to Brad.

Thank you, Matt, and welcome, everyone, to the Williams Scotsman Second Quarter 2018 Earnings Conference Call. Turning to Slide 3. I'll provide a brief overview of the company given that we have several new investors joining us today. As the specialty rental service market leader, our mission is to provide innovative modular space and portable storage solutions. We focus on providing these solutions ready to work so that our customers can forget about the space and focus on what they do best; that's working the project, being productive and meeting their goals. We currently provide these solutions to more than 35,000 customers with a fleet of approximately 100,000 units representing over 45 million square foot of temporary space across the United States, Canada and Mexico. When we deliver an immediately functional space solution, productivity is all our customer sees. This value proposition is unique in the industry, our customers are embracing it and it's driving our growth. Turning to Slide 4. Our strategy has simply been to accelerate the doubling of the company without overpaying or overleveraging. We're pleased to confirm that in the second quarter of 2018, our adjusted EBITDA of $41.9 million is up 45.5% versus the same period prior year and up 18% over the prior quarter. We believe the sequential quarter-over-quarter increase is a reasonable reflection of our strong organic growth beginning to be supplemented by the early synergies associated with integrating the prior 2 acquisitions. Our second quarter 2018 adjusted EBITDA margin improved 30%. That represents an improvement of 380 basis points over the same period the prior year. This strategy is working and it's evident in our strong results. Now as a bit of historical context, our U.S. Modular segment, which is the cash engine of the business has been delivering double-digit EBITDA growth…

Thanks, Brad. Let's turn to Slide 12 in the financial overview section, and we'll go through the results in a bit more detail. Q2 was a strong quarter all around and it shows in the results. In the top left chart, total revenues were up 27% year-over-year with growth across both the segments. On a consolidated basis in pro forma for the Acton and Tyson acquisitions, modular units on rent were up 2.6%, utilization improved by 240 basis points and average rental rates increased 9.8% versus prior year driven by both absolute price increases and value-added products penetration. So our fundamental leasing metrics are driving the result and are strong across both our legacy assets as well as those we've acquired. Also in the top left chart, we're excited to see 29% year-over-year revenue growth in the other North America segment which was driven entirely by organic growth in our leasing operations. We have now had 5 consecutive quarters of sequential growth in units on rent in this segment with improving pricing that is now clearly translating into revenue and EBITDA growth, albeit modest, in dollar terms relative to the U.S. segment. Revenues in the U.S. modular segment were up 27% year-over-year. In the bottom chart on the left-hand bar, you can see that $27 million of the U.S. revenue growth resulted from the Acton and Tyson acquisitions and we generated another $8.7 million of growth organically from our leasing operations. This was partly offset by a $9.9 million year-over-year, decline in revenue from new and rental unit sales of which $9.3 million was in the U.S. segment. Overall, in the top right chart, we delivered adjusted EBITDA of $41.9 million in the quarter which was up 45.5% versus prior year. And our adjusted EBITDA margin percentage expanded by 370…

Super thanks, Tim. So needless to say, we're delighted with our second quarter results and the progress we've made in the last 8 months or so since returning to the public markets. We've continued to deliver strong organic growth and are progressing well on the M&A front with both the integration of Tyson and Acton and the announcement of the ModSpace acquisition which we now expect to close in mid-August. Our strategy is working, and it's apparent in our results. I'm extremely proud of the Williams Scotsman team. We appreciate that you've taken the time to join us today and for your interest in the company. With that, we'll conclude our prepared remarks and now we'll be happy to open the line to take your question. Operator, please open the line.

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

A few questions here. I think just starting off, could we speak to the demand environment. Brad you cited obviously some indicators and some long-term views, but what are you seeing at Street level that gives you confidence through the end of the year and potentially in 2019?

Yes. Scott, that's a good question. Every indicator year-to-date continues to show very robust underlying market demands. And it's pretty consistent across geography and across end markets.

All right. Appreciate that. You guys have had very strong and U.S. modular segment rental rate growth, nearly 10% in the last 3 consecutive quarters. You're coming to a slightly tougher comps in the back half and then thereafter. Could you just speak about your strategy there and then particularly as you -- as you're integrating the other companies and what we might expect to see on that -- in rental rate going forward.

Yes. Scott, this is Tim. I'll start, and Brad can supplement. As mentioned in our remarks, about half of that percentage growth year-over-year is coming from the value-added products opportunity which we kind of quantified based on the spreads in Q1 between our delivered contract rates for value-added products to the overall portfolio so I kind of model that out as a discrete opportunity that's going to play out over time kind of regardless of what's happening to supply and demand otherwise in the market. If you assume half of that [ 10-ish ] percent growth is coming from value-added products, the other 5-ish percentage points is coming from core rental rate increases. Sure the comps are improving but -- or are going to be even more challenging, but market conditions remain quite strong and supportive. So I still continue to think anything in the 3% to 5% range there for core rental rate is a good outlook.

Yes. I think that's spot on. If you model the VAPs by the acquired fleet, which we provided the detail right, and roll that over the next 3 to 4 years, that provides very robust continuation and that's without assuming any further increase in penetration (inaudible) VAPs. On the base rates, you know, we're also acquiring fleet, this has not had the advantage of our rate optimization tools. So I think that, you know, kind of 3% to 5% range that Tim mentioned is very achievable.

All right. Just curious because it's in an important slide, Slide 20 Tim shows the A plus B equals C and I just -- I know in the press release you had mentioned you're going to provide updated guidance once you close on ModSpace. So how should we interpret Slide 20 in the meantime?

Yes, this is a repeat from our announcement deck back in the end of June. So just starting at the top, I think it's illustrative and is useful to help get your arms around the combined scale of the businesses in terms of number of branches, 106 at Scotsman, 80 at ModSpace. There is some redundancy there so that will be a source of some of the cost synergy in the business, even in doing so will either maintain or improve our access to customers and markets. So I think that's a great opportunity in the transaction. Fleet size is what it is. The adjusted EBITDA number is basically the combination of a couple of things; it's our existing 2018 full year guidance for Williams Scotsman and Acton, it is the ModSpace LTM reported EBITDA of $106 million. It's $60 million of cost synergies that we see in the combination with ModSpace and it's $7 million of remaining cost synergies that we will execute upon in the Acton acquisition but will not be in our -- that are not in our 2018 guidance yet. They'll be in our run rate early in 2019. So that's all we're doing there, we're adding that existing information together. Obviously if and when we update our guidance post transaction, we'll take into account kind of or our organic performance; the timing of the ModSpace closing, estimate the contribution from those assets and the remainder of the year as well as the final capital structure upon closing so that's why we're holding off and just going to do that all at once post-closing.

Okay. That's helpful. One more from me if...

Scott, just an additional bit of context is we've mentioned this template with Acton is a good proxy, right, where we post-close, we run it as standalone with duplicative cost structure, we finalize the integration plans and then just kind of that same schedule of 80% of the $60 million being in our run rate 4 quarters post-close. So that's out there as a good template as well.

Excellent. That's helpful in the meantime as we await the close of the transaction and then lastly if I could, in the 10-K and then again in the first quarter 10-Q and as you mentioned the second quarter Q will be out soon, I haven't seen it yet, there is an internal control risk or sighting. And Tim, I was just hoping if you could kind of discuss the background there and if that will remain in filings and just the due process there.

Sure Scott. It's a fair topic, and I think you're referring to some tax-related control items that we reported first in the 10-K and we'll continue to report in our Qs. It's obviously been an area of focus for me and our audit committee. The issues identified in tax in the 10-K were directly related to what was some extraordinary transaction activity that we undertook in Q4 last year. You'll recall that Williams Scotsman International was separated from Algeco which was a pretty complicated global holding company. In that process Algeco carved out and retained an unrelated business segment which had been housed in our Williams Scotsman legal entity and now shows up as discontinued operations in our 2017 financials. Willscot International then separated from Algeco, recapitalized, we combined with the SPAC which was recorded as a reverse acquisition. We then acquired Acton Mobile in December and then we layered the impacts of tax reform on top of all of those transactions. So we're talking about 2 carve-outs, a reverse merger and acquisition and tax reform and about a 30 or 40-day period, and some of which were orchestrated by our former parent holding company. So as we talked about in Q1, I mean, many of the incremental professional fees that we incurred in Q1 as well as the tax issues identified by the auditors were directly related to that activity and the condensed timeframe in which it occurred. When we file our Q, you'll see we've taken steps to remediate those items even though the deficiency will remain until we have a new audit opinion in early 2019. Got no concerns about day-to-day tax accounting and compliance, we've got a fantastic team on top of that. All of that said, we're now embarking on another significant acquisition with ModSpace. So we're going into that transaction eyes wide open with a clear understanding of root causes for the adjustments we booked at the end of last year. We've also got a lot more control over the timeline and resource allocation for that so it's fair to say we're taking a belt and suspenders approach, if you will, to the integration on all fronts not just on tax. And lastly on that topic, just highlight the practical conclusion that none of this changes our view of U.S. cash taxes. We continue to be extremely efficient in that area and the disclosure there no way impacts our view of near-term cash tax exposure. So probably a little more than you bargained for in the response but figured the additional context would be useful there.

[Operator Instructions] Our next question comes from the line of Sean Wondrack with Deutsche Bank.

Quick question on the new and used sales, it looks like they were down a little bit in the quarter. Is that just a consequence of stronger rental demand, you're selling fewer units? Could you talk about that a little bit please?

That's definitely a key aspect of it. I think the other 2 bits are sales are a bit lumpy. They tend to occur in -- you know, they're recognized at the time of completion and they take several weeks or even months to put together is a small factor. As well as we don't really emphasize new and used sales; it's been a core focus of the business to really put all attention onto the recurring lease business. So we're only selling used fleet as an exception and we're only selling new units when we can otherwise convince the other customer to take a lease. So there's a bit of everything, stronger demand, so we're leasing more units. It's not a core focus for us as it has been with some of the acquisitions in even prior periods with Williams Scotsman.

All right. That's helpful. And I know you said that you've seen sort of broad-based growth across all of your markets, were there any specific sectors that were particularly stronger versus others that you're really capitalizing on, you can kind of talk about anecdotally?

No, I think that's -- it's been a little bit interesting and unique about this expansion, it's been more slow and steady. I mean, other than we've talked about the natural disasters here or there in the past which would provide maybe a geographical spike in a particular market, you've seen some shifts Sean maybe, you've definitely have seen retraction in retail build out but that's been offset by expansion in distribution. I would say the [EMP], capital spending is a bit interesting right now. Those are long gestation projects so you know, we're talking about activity or potential projects in the oil sands or on the north slope of Alaska right now. You know, if we're talking to customers now, these are long gestation kind of 2020 type opportunities but that's been certainly improving as we go ahead but, I mean, coming back to the end of it, it's -- there's nothing that really has been or seems overheated or we know, in excess of normal. It's been more kind of slow and steady across the board and Tim, have you seen anything else?

No, if you look at the kind of new contract activity in Q2, the growth -- the growth is coming from our core construction, commercial/industrial segments because the bulk of the business. So, virtually all segments are up. So I complete agree it's broad-based and you see improving fundamentals north of the border in Canada and generally across the other North America segments. So, it's no longer just confined to the -- what we refer to as the lower 49 states.

All right. That's helpful. And then just lastly, if you could just talk a little bit about the potential ModSpace acquisition, you know, how do you think about it, these are the devoted team, you know, that's kind of looking on this working at it. You know, when you think about kind of the branch footprint, are they looking at that and should that take kind of a good amount of time as you're taking a more measured approach? Can you just talk about that a little bit so our expectation...

Yes, I think there's a few very key and relevant points there. The first is, it is a dedicated team. It's the same team and approach that was undertaken with Acton. So as the Acton integration is winding down, it's their same internal team and third-party resources that are already shifting their focus, if you will, onto ModSpace. It's also worth noting that the ModSpace employees are extremely collaborative and engaged in the process. So it's not a kind of one-way dialogue here. Obviously there's certain decisions and information we can't share until close but everything that can be shared and discussed and worked on is happening in a very collaborative environment. And then I would finally remind folks that this acquisition was contemplated and announced in 2016 and didn't close for some reasons out of control of the employees but during that same period there was quite a lot of collaboration and detailed integration planning down even to the potential branch level, right, and [main] position level. So, it's not like we are starting from scratch here with the integration plan. We had a good basis of work from 2016. We've got a team in rulebook that's played out well with the Acton integration and then at a high level our approach is we've got a general management structure that runs the field in the day-to-day basis. We have kind of the separate integration [PMO] type office and structure that does all the planning such that at the time of cutover the general managers are effectively assuming a larger portfolio of business and we try to avoid kind of distractions from the day-to-day which I think is key to the continuation of the organic growth that you're seeing in our 2Q results.

Thank you, and I'm showing no further questions. And I'd like to turn the conference back over to Brad Soultz for any closing remarks.

All right. Thanks, everyone, for taking the time to join us today. You know how to reach us if you have further questions and looking forward to speaking to you at Q3 or sooner. Thanks, everyone.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.