WillScot Holdings Corporation (WSC) Q2 2018 Earnings Report, Transcript and Summary

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 since 2015 driven primarily by the introduction of a ready-to-work value proposition and the relentless focus on optimizing rates and capital allocation. During the 2015 to 2017 period, we were able to maintain our business but we're not able to effectively pursue growth via M&A given the relative high leverage of our former parent company. From a recent history, following the arrow from left to right, in late November of last year, we recapitalized and returned the company to the public markets through a business combination with SPAC, which is Special Purpose Acquisition Corporation. In December of 2017, we announced and closed our first acquisition of a company named Acton which was a fast-growing regional competitor. Acton had been producing a run-rate of EBITDA of approximately $26 million at the time of acquisition which in contrast was equal to about 20% of our full-year 2017 EBITDA. The next month, in January of 2018, we announced closed and fully integrated, a smaller independent competitor named Tyson. March 2018 we issued full year 2018 adjusted EBITDA guidance of $165 million to $175 million. This range represents a 33% to 41% increase over our 2017 results as well as confirm that our fourth quarter 2017 adjusted EBITDA was up over 19% year-over-year largely due to the aforementioned organic growth in our U.S. segment and the stabilization of our other segment which occurred in the second half of 2017. The following quarter our Q1 EBITDA was up 32.5% year-over-year driven by that continuation of organic growth further accelerated by the 2 acquisitions. I would note that during this quarter, Acton ran as a standalone business including all duplicative costs while we refined our integration plans. In the first week of April, the Acton business was [ cut over under ] operating platform. This was approximately 3 months past close. At that point, 80% of the duplicative branches were idled and all subsequent business was conducted on our operating platform. At this same time, we began to offer the ready-to-work value proposition and apply our rate and capital optimization tools to the new acquired portfolio. That integration required no changes to our IT platform or organizational structure. Then in June we were added to the Russell Index, in late June we announced the transformational acquisition of ModSpace. Upon subsequent integration which we'll detail later, this acquisition would result in a near-doubling of our revenues to over $1 billion per year and the doubling of our adjusted EBITDA versus our 2018 guidance including the related cost synergies. In July and early August we both received the necessary regulatory clearances and secured the requisite permanent financing for that acquisition. Based upon this progress, we're expecting to close the transaction now in mid-August. Needless to say in the 9 months since our return to the public markets, we've been busy advancing our strategy. I'm extremely proud of the teams accomplishments in this short time. Turning to Slide 5. I'd like to share a few additional highlights from our Q2 results. As a reminder, our Q2 adjusted EBITDA of $42 million is up over 45% versus the same period prior year while our second quarter adjusted EBITDA margins improved 30% which is up 380 basis points over prior year. First, we delivered our third consecutive quarter of approximately 10% year-over-year rate increases. That's the rates for our modular rental units in our U.S. segment. This is particularly pleasing as the last 2 quarters include the acquired Acton and Tyson fleet which had not been growing as quickly. This was primarily due to the fact that they had not previously offered a comparable ready-to-work value proposition. We're very excited to now be extending this offering to a greater number of customers, many of which are new to us. Second, we continue to experience robust demand. Our U.S. segment, which provides the majority of our adjusted gross profit, improved utilization 170 basis points and increased the number of units on rent by 1.6% on a pro forma basis year-over-year. On an as reported basis, the volumes were up 37% given this organic growth further accelerated by the Acton and Tyson acquisitions. Third, we've made substantial progress with Acton integration which progressed according to, and often ahead of, our expectations. As previously noted, Acton was producing a run rate of $26 million of adjusted EBITDA and we were well advanced in the realizing of another $11 million of cost synergies. We have now consolidated production in over 90% of the duplicative branches, we've substantially completed the consolidation of our back offices and are now offering new customers ready-to-work solutions. The improvements associated with the ready-to-work and the application of rate optimization tools will be incremental to the $11 million of cost synergies. We expect to realize these additional benefits over the next 3 to 4 years. Finally, while delivering all of this we announced the transformational acquisition of ModSpace. The integration planning is well underway, we secured permanent financing to replace the bridges which were put in place at the time of the announcement. This included a very successful equity offering and debt financing on attractive terms. We now expect to close this transaction in mid-August and we appreciate the confidence from those that have invested in our company including the new, many new ones, that are joining us today. I believe we've established a proven record of continued delivery of organic growth along with swift and effective integration of acquisitions. We'll follow the same approach with respect to the integration of ModSpace. Turning to Slide 6. I'll provide a brief update as to the profile of our business. Starting in the bottom left quadrant, we served approximately 35,000 customers with the largest 50 representing only 13% of our total revenue. We serve these customers for average lease durations of nearly 3 years. Moving clockwise to the top left quadrant, these customers represent a diverse group of end markets across North America. While this pie chart represents the U.S. and Canada consolidated revenue by end market, our real success is driven by our ability to leverage our unique scale in order to serve the more than 100 MSA's in which we have dedicated fleet, VAPs, sales and operations. In each of these MSA's one would find a [ slight ] varying mix of the same end markets. Moving clockwise to the right. We are a pure play leasing business. 95% of our adjusted gross profit, which excludes depreciation is derived from recurring monthly lease revenues with the ready-to-work or VAPs being the fastest growing portion thereof. Finally dropping to the bottom right, the U.S. drives 89% of our revenues. Turning to Slide 7. Our revenues for the 12 month ending June 30, 2018 were over $560 million on a pro forma basis. This is inclusive of Acton and Tyson but obviously would exclude ModSpace. We operate an unparallel branch network across North America, we're everywhere we need to be and we're serving our customers with a diverse fleet which has a gross book value of approximately $1.5 billion. I'd note that there are 3 key attributes that differentiate Williams Scotsman from our peers. The first is ready-to-work. We've repositioned the business strategically with its unique value proposition through the expansion of our offering of value-added products and services or VAPs. Our customers value it, it's driving our growth with highly accretive returns. The second is our differentiated and scalable operating platform. Over the past several years we've invested in our people, processes and technology and have created a highly scalable and differentiated operating platform capable of asserting market leadership. The operating platform includes sophisticated price management and capital allocation characteristics. And third, the attractive unit economics, which provide a high degree of visibility into our future performance, given the long life assets which live typically 20 plus years coupled with the average lease durations of nearly 3 years. Shifting to Slide 8, reflecting on our end markets. Market demand remains positive as we continue to see strength across the majority of the diverse end markets we serve based upon robust industrial spending, non-res construction, improving [ E&P ] capital spending and expanding non-form payrolls. Looking forward, the American Rental Association forecasts a 5% annual revenue growth through 2019. The AIA consensus forecast is also in the 4% to 5% range. ABI, which is a leading indicator for non-res construction activity has consistently remained positive for the last 2 years. Non-res construction starts on a square foot basis, remain below long-term averages and 30% below the highest levels. Finally U.S. infrastructure, while we can't predict the timing of any substantial U.S. infrastructure spending bills, once approved and implemented, we do expect it would further underpin and strengthen many of our end markets. And Canadian, GDP and improved oil prices are both supportive of our business in our other North America segment. I'll remind folks that while we continue to expect underlying demand for our temporary space to remain solid, aside from acquisitions the fastest growing part of our business is the expansion of our ready-to-work value proposition. This proposition provides a turnkey [ space ] solution for our customers affording them the ability to focus on immediately getting on with their work with a project. We expect the demand for this value proposition will continue to increase over the next several years as we both expand and increase the penetration of the offering and extend it to new customers of acquired businesses. Turning to Slide 9. I'll provide a bit of additional context with respect to the substantial progress we made with Acton. As previously mentioned, Acton was producing a run rate of $26 million of EBITDA in the fourth quarter of 2017. We operated them as a standalone entity including the associated duplicative cost structure for one quarter post close while we finalize integration plans. Prior to that acquisition we had identified $11 million, which is about 40% of the acquired EBITDA run rate in addressable cost synergies. We began to realize these in the second quarter post close and expect to realize at least 80% of these cost synergies in our run rate in the fourth quarter following close. About half of the cost synergies are related to personnel with the balance split between branch consolidation and non-personnel related SG&A; we are well on track to achieve these cost synergies. In addition to the cost synergies, we expect to realize an incremental $25 million a year of revenue associated with extending our ready-to-work value proposition to the new Acton customers. This simply assumes they're supplied at the same levels we've been delivering over the last 12 months to existing Williams Scotsman customers. We expect about 80% of this revenue to fall through to EBITDA and that the benefits will be realized over the next 3 to 5 years as the 12,000 units on rent within the acquired fleet return from their long leases and are redeployed and ready to work. We're using the same proven playbook and advisers to support the potential integration of ModSpace. And finally before turning it over to Tim, I'd ask you to turn your attention to Slide 11. While M&A has been the catalyst for the acceleration in our growth, the organic [ engine ] continues to perform well as evidenced in our 2Q results. The U.S. segment, modular rates, units on rent and utilization are up year-over-year on a pro forma basis. And as noted before, I'm most pleased with the fact that the second quarter of 2018 represents the third consecutive quarter in which U.S. rates are up 10%. With that, I'll hand it over to Tim who will provide additional context.

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 basis points for the modular segments to 29.9%. Adjusted EBITDA margins were also up 360 basis points sequentially from Q1 2018. Recall, we were running with a duplicative cost structure from the Acton acquisition, had disproportionately high professional fees related to the year-end audit and experienced the normal seasonal increase and upfront and variable costs leading into the busier late spring and summer months. In contrast, in Q2, we're beginning to see synergy realization from the Acton acquisition as well as strong flow through to EBITDA from organic growth in our leasing operations. Turning to Slide 13, the key trends in our U.S. Modular leasing business continue to be extremely favorable as was the case in Q1 and due to the Acton and Tyson acquisitions, we've included our units on rents and average monthly rental rate on the left-hand side as they appear in our financial statements. On the right we've presented the same metrics as if we had owed Acton and Tyson for all periods. I'm going to focus on the right-hand pro forma charts because they better illustrate the trends we see heading into the remainder of the year. On the top right chart, average modular space units on rent increased by 1.6% in 2018 versus Q2 of 2017 across the combined Williams Scotsman, Acton and Tyson suites. Average utilization increased 170 basis points year-over-year and 40 basis points sequentially to 72.2% in the quarter so volumes remain steady and we're tightening utilization across the combined U.S. portfolio inclusive of our acquisitions. On the bottom right chart, average monthly rental rate increased 9.8% year-over-year and 3% sequentially to $549.00 per modular space unit on rent in Q2 2018. So as has been the case for the past few quarters, we're thrilled about the continued opportunity to drive great growth in the business both through our pricing platform as well as the increased penetration of value-added products and service across all of our modular assets. As Brad highlighted earlier and for those who listened to our call announcing the ModSpace transaction, we've contrasted the rates derived from value-added products and services on contracts delivered in the last 12 months with the overall rates across the Williams Scotsman and Acton portfolios as of Q1 and we view that as an approximately $69 million embedded growth opportunity which we expect plays out over the next 3 to 5 years organically irrespective of market conditions. That's contributing roughly half of the percentage growth that we've seen in average rental rates over the past few quarters. Slide 14 shows our quarterly revenue and adjusted EBITDA from the U.S. modular segment. In the top left chart, the same as last quarter, our reported revenue is shown in green in the pro forma revenue contribution from Acton and Tyson is in the white boxes. Second quarter revenue in the top left chart grew 27.1% to $124.8 million versus Q2 2017. The quarter is down 1% versus prior year on a pro forma basis due to a decline of approximately $9.3 million in sales of new and rental units. However, strong rate and volume fundamentals drive $8.7 million of revenue growth in our core leasing operations which have a much greater contribution to adjusted EBITDA which is evident in the bottom left-hand EBITDA chart. Adjusted EBITDA increased 44.9% to $38.1 million in the quarter with adjusted EBITDA margins up nearly 4 percentage points both year-over-year and sequentially. Clearly we're beginning to see some operating leverage from the acquired revenue as well as strong incremental flow through from organic lease revenue growth. While the fluctuation and sales revenue can distract a bit from the overall results, we're quite pleased with the momentum that continues to build in our leasing operations and well as the resulting flow through to adjusted EBITDA. Moving to Slide 15, we'll look at our other North America segment which includes operations in Canada, Alaska and Mexico. As a reminder, neither Acton or 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 units on rent and average rental rate. In the top right chart, rates have been quite stable for the past 6 quarters and increased sequentially by 6% in Q2 to $573.00 per unit, per month. The increase in Q2 is driven by continued stability across the other North America markets as well as new project activity in Alaska outside of the oil and gas sector. So we expect rates here to continue to pick up slightly in Q3 but we're not extrapolating rate growth beyond that at this time as the change in Q2 is largely project driven. In the bottom right chart we saw our fifth sequential quarter of average unit on rent growth, average units on rent. We're up 12.7% versus prior year. And utilization improved 7 percentage points versus prior year and 50 basis points sequentially. Strong leasing fundamentals translated into solid growth and revenue and adjusted EBITDA as well as sequential and year-over-year margin expansion in the quarter. I'll note approximately $2 million of the year-over-year revenue increase came from lower margin delivery and installation activities so the flow through to adjusted EBITDA on the remaining lease revenue growth was pretty good, albeit on a smaller scale than what we saw in the U.S. modular segment. Moving to Slide 16. This is our usual reconsolidation of net income to adjusted EBITDA for the modular segments. Just a few highlights, in Q2 we had net income of $379,000 inclusive of $5 million of integration and restructuring costs related to the Acton acquisition which were up a bit from Q1 as expected based on our progress with the integration as well as $4 million of transaction expenses related to the ModSpace deal which if adjusted would imply net income in the quarter approaching $10 million. Obviously, those transaction related items will continue in coming quarters as the Acton integration progresses and assuming we are successful in closing the ModSpace transaction and beginning that integration in Q3 as planned but we are mindful of, and encouraged by the earnings capability we see in the business after isolating for those discrete transaction and integration related items. We also see a significant cost in revenue synergy opportunity in the acquisitions then we expect to further expand earnings over the coming quarters and years. Turning to Slide 17. We'll look at capital spending and operating free cash flow. In the top chart we had gross CapEx in the quarter of $33 million which is up approximately 14% year-over-year. As a reminder, that spend is supporting modular units on rent that are up 37% year-over-year in our U.S. business as well as continued expansion of value-added products and services. So the increase is nowhere near proportional to increased scale of our portfolio which is indicative of the capital synergy we see in consolidation. As a reminder, with this spend, we're not expanding the fleet. Both total unit count and rental equipment net book value were essentially flat versus Q1. So strategically we're allocating this spend to grow units on rent and tighten utilization through refurbishments of assets we already own, supplemented with targeted new fleet purchases as well as growing value-added products and services. We believe this is the most capital efficient way to grow the business when coupled with our M&A activity. As we said before, we'll continue to assess our capital deployment on a quarterly basis and in the short-term our capital investments are almost entirely discretionary. Moving to Slide 18, I'll provide a quick update on our debt structure as of the end of Q2 and then spend a minute describing our subsequent financing activities related to the ModSpace transaction. In Q2, we drew approximately $22 million on the ABL resulting in the $357 million balance and had approximately $220 million of available borrowing capacity as of June 30. As we saw on the prior slide, we had adjusted EBITDA less net CapEx of $10 million in Q2 so cash interest of approximately $18 million inclusive of our first semi-annual bond payment, transaction and integration costs as well as a $5 million increase in our cash balances of June 30 account for the majority of the ABL drop. Net working capital decreased slightly from Q1 to negative $26.5 million, an overall net debt to adjusted EBITDA for the definitions in our credit agreement was 4x. As described in the subsequent events section of the press release, we've been quite active in the capital markets in the past month in an effort to improve upon the structure of the committed debt financing that we had in place upon announcing the ModSpace transaction. If I can direct you to the middle of Slide 21, we announced our amended and expanded ABL revolver which will be a $1.35 billion facility upon closing of the ModSpace transaction with an accordion feature allowing expansion to $1.8 billion. This facility will provide ample liquidity for the company post closing. We then issued $8 million of Class A common shares at $16.00 per share yielding $128 million of gross proceeds and the underwriters may choose to exercise the green shoe which would be another 1.2 million shares issued and $19.2 million of additional gross proceeds to the company. We issued $200 million of unsecured notes which we negotiated privately with a focus on maintaining flexible redemption and interest features and most recently we issued $300 million of new senior secured notes with a 6.875% coupon due in 2023; both beyond secured and secured notes closed into escrow and the funds will be released to fund the cash consideration to ModSpace shareholders upon closing. Slide 22 layers these changes to our debt structure on top of our existing balances as of June 30 resulting in total debt pro forma for the ModSpace transaction of $1.66 billion which is approximately 4.8 times estimated pro forma adjusted EBITDA inclusive of our 2018 guidance range; Acton, ModSpace and the related cost synergies. So needless to say, it's been a busy quarter and a subsequent period and we're very happy with the execution on all fronts in our operations, in the M&A pipeline and in the capital markets. With that, I will hand it back to Brad for any closing comments and Q&A.

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.