Good day, ladies and gentlemen, and welcome to the WillScot Fourth 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 be given at that time. [Operator Instructions] As a reminder, this conference maybe recorded. I would now like to introduce your host for today’s conference, Matt Jacobsen, Vice President of Finance. Sir, please 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 later 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. WillScot assumes no obligation and does not intend to update any such forward-looking statements. The press release we issued last night and the presentation for today's call are posted on the Investor Relations section of our website. A copy of the release is 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-K with the SEC for the 2018 fiscal year. The 10-K will be available through the SEC or on the Investor Relations section of our website. Now, with me today, I have Brad Soultz, our President and CEO; and Tim Boswell, our CFO. Brad will kick-off today's call with a brief overview of WillScot's strategy, summarize our fourth quarter and full year results and provide an update on our progress related to integration activities among other things. Tim will then provide additional detail on the financial results for the quarter and for the full year 2018 and discuss what we are seeing for 2019 before we open up the call for questions. With that, I'll turn the call over to Brad.

Thanks, Matt, and welcome, everyone, to WillScot's Fourth Quarter and Full Year 2018 Conference Call. First, turn to Slide 3, I’d like to provide a brief overview of the company given that we have new investors and analysts 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, focus on what they do best, working their project, being productive and meeting their goals. We now provide these solutions to more than 50,000 customers with a fleet of approximately 150,000 units, which represent over 75 million square feet of temporary space through an unparalleled branch network of over 120 locations across the U.S., Canada and Mexico. When we deliver an immediately functional space, productivity is all our customer sees. This value proposition is unique in the industry, our customers, including those new to us through recent acquisitions are embracing it, and it's driving our growth. If you’ll turn to Slide 4, our strategy has been to accelerate our already strong organic growth with accretive M&A. Just over a year ago, we committed to doubling the company without overpaying or overleveraging. I am pleased to report that we’ve delivered on that commitment as evident in our fourth quarter 2018 revenue and adjusted EBITDA, which were up a 114% and a 104% respectively year-over-year. In summary, we delivered on our commitments last year and we expect to continue to do the same into the future. We delivered $216 million of adjusted EBITDA in the full year 2018, which is slightly above the midpoint of our increased 2018 guidance, which we issued in October of 2018 and reaffirmed in January. Looking forward, we believe…

Thank you, Brad, and please turn to Slide 13, Q4 was an historic period for our company marking the first full quarter of our financial results delivered by the combined WillScot and ModSpace organizations. While we did not realized any material cost synergies related to ModSpace in Q4, you can begin to see the organic growth and operating leverage in the combined business which we expect will continue to build each quarter in 2019. In the top charts, we show our year-over-year revenue and EBITDA growth as they are reported in our financial statements. Revenues were up 113.6% and adjusted EBITDA was up 103.6% versus prior year. Obviously, in Q4 2017, we did not owned Tyson or ModSpace and we only owned Acton for the last 11 days of the quarter. So the bulk of the growth is coming from the full contribution of those acquisitions in Q4 2018. And the net result was $73.5 million of adjusted EBITDA which is, as Brad said, is slightly above the midpoint of the Q4 range implied by the annual guidance that we increased in October incorporating ModSpace. While straightforward, the top charts reinforce two important points. First, we more than doubled the size of the business in the last 12 months and are entering 2019 on a substantially higher earnings trajectory after seamlessly executing three acquisitions. Secondly, the operating leverage is not immediately obvious, because prior to any cost synergy realization both Acton and ModSpace, initially we are dilutive to margins with contributions to adjusted EBITDA of less than 25%. Margins actually declined 140 basis points on an as-reported basis from 30% in Q4 2017 to 28.6% in Q4 2018 due to this dilution from ModSpace relative to our where our legacy WillScot business was operating. I’ll talk about this a bit…

Thanks, Tim. In closing, we delivered on our commitments last year and we expect to do the same into the future. We have a simple, three ingredient recipe to deliver the $345 million to $365 million adjusted EBITDA organically in 2019 while deleveraging this business. Ingredient one is already in place, given we have completed the ModSpace integration. Ingredient two is to deliver the $70 million of associated cost synergies and ingredient three is to harmonize and further optimize rate, utilization and VAPS. We are extremely proud of all that we accomplished in 2018, which provides the foundation for great future. We are very confident in our 2019 outlook and in achieving the resulting adjusted EBITDA runrate of approximately $400 million with EBITDA margins expanding to 35%, all while being generating substantial discretionary free cash flow as we exit 2019. These accelerating earnings and the inherent cash flow characteristics of our platform provide confidence that by the second quarter of 2020, we expect to be at or below the 4 x net debt-to-EBITDA level in line with our target levels. We appreciate now that you’ve taken the time to join us today and for your interest in our company. We look forward to speaking with many of you very soon. That concludes our prepared remarks and we now would be happy to take your questions. Operator, please open the line.

[Operator Instructions] Our first question comes from Manav Patnaik of Barclays. Your line is open.

Hi, good morning guys. I guess, we’ve been through a lot of the financial stuff and so, the main question I had for you guys was just around the macro update. So, you have that one deck where you had those, I guess, the AIA consensus forecast and I guess, it shows it’s almost having in 2020. And so, I guess, I was just wondering how do you plan today if you do follow this forecast, how do you plan today for the slowdowns and all the different moving pieces? If you could just maybe help us understand that better, it would be helpful?

You may start with maybe the current macro outlook and I can talk about our response plan.

Yes, so first of all, the macro level, this is Brad. Our outlook remains quite robust. I mean, if we look at our quoting activity which we monitor on a weekly basis which is a great indication of when inquiries combine with these external forecast. All are supportive of continued growth. I think, just as a reminder, I referenced our quarterly capital allocation process whereby we look at this demand on a frequent basis and adjust capital accordingly. And I’ll ask Tim to expand a bit upon that.

Yes, Manav, I think, when I think about this, I use kind of Slide 19 the free cash flow bridge as a framework with which to think about this. And sitting here today, as we think about the outlook for 2019, it’s hard to see a macro event, kind of disrupting the runrate in the trajectory that the business is on. So, we are kind of looking at a bit further into the future. And as Brad said, the ABI being a great indicator of 9 to 12 months out of future non-res construction starts on a square footage, which in turn corresponds to our delivery volumes. We don’t see an immediate red flag from a volume perspective barring the disruption that we have incurred related to the integrations. So, looking into 2020, what’s the plan? As we monitor all of our leading indicators, quoting activity on the ground being the primary indicator, Brad mentioned. You will recall, we are on a quarterly capital planning cycle and you can see where the capital investments in the business are going in 2019 and that’s probably not a bad guidepost to use for 2016 and going forward. So, I think in any macro environment, Manav, we continue to invest in the value-added products and services program. We believe that opportunity is really just based on the penetration of our assets, not on macro factors. So I’d expect we continue to fund that growth irrespective of market environment and that will frankly insulate a part of the business along with our three year release durations from any change in macro conditions. That gives you a lot of time then to respond with other fleet investments. So, you can quite easily pull back on the additional $30 million of growth investments in the fleet. And a substantial portion of what we call the maintenance CapEx can be reduced as well in a declining volume environment. We define maintenance CapEx as the investment level required in a volume neutral market environment. So, if markets support growth, like we think they will in 2019, we’d invest at that level and if markets are contracting, we can cut that CapEx and dramatically increase the free cash flow coming out of the business. This is a unique dynamic that’s fairly unique to our business model and gets us very comfortable with both the capital structure and the outlook.

Got it. And just a quick follow-up and then I’ll hop off. Internally, do you see any leading indicators or is it just more of the macro stuff that we all end up seeing that causes you are just not acting differently?

No, I think it’s – obviously there has been some disruptions in the capital and equity markets and kind of global concerns. But as far as demand at the end-market level it remains robust. As Tim mentioned, it’s our job to watch out like a hawk and we do. If we see things softening, if we were to see that, we swiftly pull back capital and shift the platform such that we are increasing the free cash flow. But circling back to your point, I am not seeing anything now that caused me concern in the end-markets. We have worked through substantial fleet rebalancing and branch consolidation and as I noted before, our priority is keep folks safe and drive rates, right and increase utilization. As volume opportunities are presented, we are very selective about the ones we take.

Okay, thank you guys.

Thank you. Our next question comes from Kevin McVeigh of Credit Suisse. Your line is open.

Great. Thanks. Hey, just help us understand what gives you the confidence to boost of apps, I think it was 25, you are going up to 140 and is there any way to think about what the acceptance rate embedded in that 140 is?

Yes, the difference, if you remember, Kevin, last time we published that was a quarter ago that LTM rate was, I want to say 234 from memory, right. So it’s simply continued increased penetration that we realized through the fourth quarter and we put our preliminary results out right. We were still consolidating to ModSpace and WillScot systems. So, we were, maybe a little more cautious there. But if you can tell, I am quite bullish on this. I am extremely proud of the fact that we expanded that LTM deliver grade through three acquisitions. So, I think that’s great testament, not only to the platform, but the team that’s driving it.

Great. And then, Tim, just if you wanted to kind of – by that 4 turns leverage you kind of Q3 2020, what could you get it to, if you kind of drive it to – in a tougher scenario if you wanted to by the end of 2020, like, it’s not even macro, just we would have kind of focus more on deleveraging as opposed to anything else. Where do you think you get that leverage to?

Yes, there are too many potential scenarios to give you a specific target, Kevin. So, suffice it say, it could be lower and I would use the capital spending in the business as the primary lever that we would pull between now and Q2 of 2020 to influence that number lower. Like I said, in response to the previous question, and obviously as much risk around the runrate from an EBITDA standpoint, just based on the lease durations in the portfolio. So CapEx would be the primary variable and by sensitizing CapEx, you could sensitize leverage in Q2 of 2020.

Got it. And then, just, is there any kind of meaningful difference between the average lease duration for ModSpace versus WillScot in the core business?

Yes, it did pull us down slightly. I’d say, some of this is how we measure our data. So, I don’t think there is a fundamental difference in the two portfolios. We reported a 30 month average lease duration across portfolio most recently in a year ago, we would have been talking about 35 month average lease duration across portfolio. We see no real change in terms of if you compare like-for-like contracts, or transactions rather in terms of the ultimate lease durations. So, we’ll keep an eye on it as the portfolio is harmonized. If you recall, the biggest difference between the ModSpace fleet and the WillScot fleet is that ModSpace had a slightly higher mix of complexes. These are the buildings that we couple together to make larger square footage installations. And those actually tend to have longer lease durations than the smaller single-wide units for example that we acquired from Acton.

Got it. Thanks.

Thank you. Our next question comes from Sean Wondrack of Deutsche Bank. Your line is open.

Hey guys. Congratulations on completing the integration.

Thanks.

Just touching a couple things in the end-markets. It’s great to hear the robust outlook. There are couple of things that I’ve sort of heard. I had a company reduced guidance this morning based on wetter weather that sort of impact the construction, also we had the government shutdown. Can you comment on both of them and has that really impacted your business? Or is there going to be anything else sort of holding you back in that you can think about in Q1?

I would say, there has been a bit of weather anomaly this year. It’s not something that concerns me, because five years in the business it’s not unusual. I would say, it’s been more broad spread throughout both Canada and the U.S. And as mentioned, I mean, what it typically means is, maybe a delay in a month or two of projects starting. Our enquiries or quotes remain very robust frankly above our targets for the combined portfolio. So, yes, it is factual. I think there has been a bit of a impact on new activations associated with other – I think we are talking about weeks and months here something that gives me concern. We left the first – we left the fourth quarter down a modest 1%. If you think about that fourth quarter, maybe half to two-thirds of it was pretty significantly impacted by these ModSpace branch consolidation and fleet reallocation. Remember that started in November and then that activity kind of continued heavily into the first quarter. So, I think as commented before, we expect to be down unit owned rent through the first half and then solely bring that back to up a modest 1% at the end of the year.

Great.

It’s also safe to say we are reiterating our guidance today. So, whatever softness you see on the volume side, we see opportunity on pricing and value-added products.

Great. Fair enough and with government being roughly 3% of your overall demand, did you see any impact from the shutdown? And then you also mentioned some of these discrete end-market opportunities? Obviously, the integration issue has been a very politically charged issue. But if you can kind of comment on what you are seeing your boots on the ground there would be helpful?

Yes, we didn’t really see anything on the government side at all good or bad I guess, if you will. And these kind of discrete end-market opportunities, first, I’d characterize this is a very broad portfolio across Mexico, U.S. and Canada. So, at any one time, there is usually one or two of those going on somewhere, right and typically as those events occur, we will see a surge in demand. And certainly a surge in sustained pricing. One of the more recent national issue is the wildfires in California. I think the infrastructure plans are just finalized that that business is just being awarded for the rebuild and we expect to experience some benefits of that. But then just, again, keep in mind that’s one little small piece of a very broad portfolio here. So, kind of ebbs and flows over time if you will.

Great. I’ll ask one more and I’ll get back in queue. Just, regarding your current capital structure, you outlined your goals, you have been basically hitting all the goals that you have outlined. Some of your data shorter term – do you foresee there being sort of a global refy in the next two years as you move on to the next stage of your growth?

We will undertake all of that opportunistically, Sean. It’s hard to sit here today and say, yes, we are absolutely going to refy everything. So, what I like about the debt structure specifically is, in the mean time setting aside any global refinancing, you’ve got a handful of tactical things you could do, flexibility to pay down at every tranche in the debt structure. And given our free cash profile is shifting dramatically in the second half of this year and heading into 2020. I think we will definitely start with those tactical opportunities and be opportunistic as it relates to everything else.

Okay, great. Thank you. I’ll turn it over.

Thank you. Our next question comes from Ashish Sabadra with Deutsche Bank. Your line is open.

Thanks for providing all the details. A quick question about the VAPS monthly rate of $250 on a LTM basis. Can you – did you provide what the penetration rate for VAPS was there? And maybe any color on what the average VAPS monthly rate is right now ongoing?

So, we do not provide specific penetration guidance. So I think, the $250 is – if you think about dollars per unit, it’s the best reflection of penetration. We have characterized that $200 to $250 level represents about a 40% furniture penetration meaning of, 100 units we shipped in the period, 30 were fully equipped with furniture and 60 weren’t. And that increase in penetration over time is what’s really driving that increase in value. We’ve stated that our internal target is to drive that penetration to 80% over the next several years and as noted, I am pretty encouraged about the progress through these acquisitions and the early adoption of the new customers.

Ashish, in response to the second part of your question which is the overall average, if you look at Slide 9 and the top-left chart, our delivered rate on contracts in the last 12 months is $250 of recurring monthly revenue or unit per month and the overall portfolio average is the $127 that you see next to it. So, it’s interesting here is the $127 is actually down slightly and that is due to the dilution from Acton and ModSpace because they did not had as robust of a value-added products program. So you actually have the overall portfolio average that has contracted slightly due to the acquisition dilution. We’ve continued to push the delivered rates. Therefore the spread between delivered rates and the overall portfolio widened resulting in the higher revenue potential number that Brad articulated.

That’s extremely helpful. And my – so I guess, as you continue to improve penetration, what I was wondering was there could be potential upside to even that $250 number on a monthly runrate as the penetration continues to improve. But maybe my next question was around margin strength and you laid out the 35% margins in the fourth quarter of 2019. As we think about going forward, there are still opportunities like further cost synergies, as well as the pricing and VAPS, those are higher margin businesses. The right way think about it is, is that further upside to that 35% margin in the out years?

Yes, we believe there is opportunity on the cost synergy slide that Brad talked about. In the bottom left-hand corner, there is a list of very logical projects that we are undertaking, that could certainly contribute to future margin expansion. If we rewind a year-and-a-half ago, when we were first marketing Williams Scotsman to this fact, we did present an EBITDA margin bridge that went up to 38% based on – it was illustrative, but yes, we have – from the outset of this journey, headline aside, see higher margins.

That’s great. Congrats once again on solid results.

Thank you. And our next question comes from Phil Ng of Jefferies. Your line is open.

Hey guys. You’ve seen really strong momentum on AMR. Do you expect that double-digit runrate to be sustainable in 2019, just based on the updated VAPS opportunity alone, it kind of implies about mid-single-digit annually? So just curious how are you thinking about for like-for-like pricing and any other mix dynamics we should be appreciative of?

Yes, that’s exactly what expect that’s consistent with the January update we gave and you are right, value-added products will continue to be driving at least half of that year-over-year improvement. As you think about what other levers we have to manage pricing, just on the modules themselves. We obviously got the upfront rental rates which have been supportive. You will recall that an average contract that we sign last for about eleven months. But ends up staying on rent 30 months on average. So, you’ve got flexibility to manage rates during that intervening period. And we’ve been rolling out the price optimization platform across the combined volume of the WillScot, Acton and ModSpace portfolio. So, you’ve got really four different levers right now that we are managing in order to drive absolute rate improvement.

Got it. That’s really helpful. And just on that note, how has the new sales force for ModSpace transitioned away from maybe how they approached pricing or rate optimization and then the upselling piece for that? Have you kind of provided any new training for the new sales force and has that resonated well and just curious this new customer base that you have via acquired assets, has that resonated in a similar fashion for them as well?

Yes, Phil, this is Brad. I would say, that was a pleasant find once we were under the hood with ModSpace. So, first of all were there were redundant or overlapping sales reps between Williams Scotsman and ModSpace, we obviously focused on the best talent and generally it was about a 50-50 selection. The ModSpace team had begun to implement the same rate optimization tools that Scotsman was deploying and had began to offer furniture through a third-party lease release. So, I would say, it was already well within their behaviors and their mindset. We did have an all sales and operations joint session back in October of last year where we really focused everyone on the Williams Scotsman operating platform and then significant training on our tools and processes and we continue to follow that. So, long and short of it is, they’ve been great adopters and adapters. They were already started on the journey. We are very pleased with the progress and I am sure that’s contributing to the increase in VAPS that we spoke about earlier.

Got it. And just one last one for me, Tim, appreciate it you provided some of that color on the free cash flow runrate exiting 2020 of $200 million. Obviously, which is a nice acceleration. The other piece I just want to make sure, you could help us frame up is the discretionary spend associated with that, whether it’s CapEx, and what’s left on the restructuring front we should be mindful of? Thanks.

Yes, so on the free cash flow bridge, the assumptions I am making that get to a $200 million and this is directional discretionary free cash flow number. There is some improvement on our overall cost of debt combined with the $400 million EBITDA runrate and then the CapEx assumption for 2020 is that you’d add - I’d say use the 2019 guidance as directional guidance for the foreseeable future in this market environment. So, does that answer your question, Phil?

What would the discretionary piece? Was there anything that we need to be mindful of? Did you gave maintenance CapEx and I guess, the growth CapEx that you say, I guess, we could kind of flush out whatever you guided for 2019. Is there anything else that we should be thoughtful of in terms of like restructuring spend…

No, if you get into 2020, we expect that all the restructuring costs on a cash basis to be incurred in this view, you do – if you just think about our cash flow statement, you have the gross profit associated with our rental unit sales. So, just make sure you are capturing that piece if you are starting with EBITDA as the starting point for your bridge. But, other than that, no, we expect the integration restructuring – have been completed from a cash standpoint barring any other transaction activity.

Okay. All right. So that’s a pretty solid number. That’s a really nice acceleration. Appreciate the color. Thanks.

Thank you. [Operator Instructions] Our next question comes from Scott Schneeberger of Oppenheimer. Your line is open.

Thanks, good morning and congratulations guys on executing very well in 2018. First question from me, could you please discuss the drivers of the 12.6% rental rate growth in the fourth quarter in terms of core rate, repricing of the acquired assets and VAPS growth? And then, Tim, how might you think about the composition going forward? Thanks.

Yes, we talked about this a little bit in January in rough numbers. Approximately, 60% of the percentage growth in Q4 was coming from the base rates and the remainder was coming from the value-added products opportunity. And like I think, roughly 50-50 as you go through 2019 is a reasonable assumption and we are managing those a bit independently. So, if one take it the way the other may give us a bit.

All right. Understood. Thanks. And then, just could you discuss the expected cadence of adjusted EBITDA over the course of 2019 and perhaps elaborate on some seasonal dynamics. It was touched upon earlier, but, obviously, you have a bit of a sporadic history with acquisitions laid in there. So, just a little bit of thought of the cadence this year will be great help. Thanks.

Yes, I mean, my comments earlier were around the pace of the margin expansion. Obviously, we haven't been giving quarterly guidance. But appreciate that there has been a fair amount of change in the portfolio. So it’s a good question. As you go from Q4 and what we are 28.6% adjusted EBITDA margin in Q4, I'd expect some modest expansion going into Q1 which in prior years would be a little unusual, usually Q1 is a bit lower from a margin perspective. So what we have going on is that usual seasonal weakness from a margin standpoint as your variable costs start to ramp up heading into Q2. But it’s offset by cost synergy realization that will be generated from really the – all of the Acton synergies as well as the beginning of the ModSpace synergies and then that margin percentage expansion should expand by – as is said about a 100 basis points quarter-to-quarter, with the larger improvements happening in Q3 and Q4. So, those margin percentages and we saw this in Q4, Scott, for example can be impacted pretty significantly by sale volume. So that’s probably the primary variable that can change things quarter-to-quarter. But when you look at the kind of the core underlying leasing gross margin, which is where we have the bulk of our management time and attention focused, that doesn’t surprises us much.

All right. Thanks. Yes, I appreciate that Tim. Very helpful. Thanks.

Thank you. And our next question comes from Sean Wondrack of Deutsche Bank. Your line is open.

Hey guys. Just one more quick one from me. Could you comment on the M&A environment? If you are seeing any other opportunities there and kind of what you are seeing there?

We obviously can’t comment about specifics, but I think I characterized on the last call that ModSpace integration behind us, we have the capability and the capacity to make further acquisitions. We’ve also consistently said, we are not going to overpay and we are not going to overlever. So, coming back to our primary focus right now that the ModSpace system integrations are complete, is harvest the $70 million in cost synergies, drive this VAPS growth potential and delever the platform back into the 4 x range. So, we’ve got the capability and capacity to do it. We are not compelled to do it and we are not going to overpay and we are not going to increase leverage.

Okay. Thank you very much.

Thank you. I would like to turn the call back over to Mr. Brad Soultz for closing comments.

Hey, thanks everyone for joining the call. I think as we said before, we are really proud of 2018 accomplishments beyond the financials, as well. And extremely excited about the future for this pretty unique and fast-growing specialty rental platform. So, thanks everyone. Have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. You may disconnect. Everyone, have a wonderful day.