Good day, ladies and gentlemen, and welcome to the WillScot First Quarter 2019 Earnings 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] I would now like to turn the conference over to your host, Matt Jacobsen, Vice President of Finance. You may begin, sir.

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 2018 Form 10-K and our Form 10-Q 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 will submit 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 first quarter of 2019. 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 President and CEO; and Tim Boswell, our CFO. Brad will kick-off today's call with a brief overview of our strategy, summarize our first quarter results and provide an update on our progress on our key initiatives. Tim will then provide additional detail on the financial results for the first quarter 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 first quarter 2019 conference call. I’m extremely pleased with our first quarter results as we continue to focus on growing our core leasing revenue through price optimization and continued expansion of our "Ready-to-Work" platform. Revenues of $255 million and adjusted EBITDA of $84.5 million were up 89.2% and 138% respectively over the prior year. Our adjusted EBITDA margin of 33.1% increased 680 basis points over the first quarter of 2018. This extraordinary margin expansion highlights the value of scale and synergy realization on our business when combined with the commercial strategy to drive lease revenue growth organically through rate optimization and penetration of our "Ready-to-Work" solutions. These growth levers are largely in management's control, and when coupled with these outstanding first quarter results, remain confident in our 2019 guidance and our ability to achieve both an annualized adjusted EBITDA run rate of $400 million as we exit 2019 and to deleverage below 4x net debt-to-adjusted EBITDA by the second quarter of 2020. Now turning to Slide three, before we get into further Q1 highlights I'll provide a brief overview of the company given that we again have new investors and analysts joining us today. As a specialty rental service market leader, our mission is to provide innovative, and 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 working the project, being productive, and meeting their goals. We now provide these solutions to more than 50,000 customers with a fleet of over 150,000 units representing over 75 million square foot of temporary space through an unparalleled branch network of over 120 locations spanning the U.S. Canada and Mexico. When we deliver an immediately functional…

Thanks Brad. Please turn to Slide 12. Q1 was an exciting quarter for WillScot as we began to see significant synergy value from both the Acton and ModSpace acquisitions contributing to our financial results and we expect this synergy contribution to build each quarter in 2019 consistent with our original expectations. The top charts show our year-over-year revenue and adjusted EBITDA growth as they are reported in our financial statements. Revenues were up 89.2% and adjusted EBITDA was up 138% versus prior year. As Brad mentioned, about half of the adjusted EBITDA growth is coming from the prior year contribution of ModSpace and the other half is coming from both synergy realization and flow through from organic growth in the combined leasing operations. The net result was $84.5 million of adjusted EBITDA, which is also up 15% sequentially relative to Q4 of 2018 and marks our eighth consecutive quarter of sequential EBITDA growth. The bottom charts show revenue and adjusted EBITDA growth year-over-year on a pro forma basis, which is a better indication of how the combined portfolio performed organically. Total revenue was up 4.5% on a pro forma basis, with 8.9% year-over-year growth in modular leasing revenue, partly offset by a decline in sales revenue. This revenue mix shift favoring our leasing operations is healthy and intentional, and we expect we'll continue through the course of 2019 and consistent with what we've articulated previously. The take away from the pro forma chart is that we saw a tremendous operating leverage in the platform and flow through to adjusted EBITDA in Q1. Of the roughly $25 million increase in pro forma adjusted EBITDA, approximately $7.3 million dollars came from cost synergies that we had specifically identified and actioned. This $7.3 million represents $29.2 million of annualized cost savings or 42%…

Thanks Tim. In closing, our strategy is working and we continue to deliver on our commitments. We're extremely proud of all that we accomplished in the first quarter of 2019 which provides the foundation for a great future. We're very confident in our 2019 outlook and in our ability to achieve an adjusted EBITDA run rate of $400 million with discretionary free cash flow generation approaching $200 million annualized rate as we head into 2020. These accelerated earnings, inherent cash flow characteristics of our platform provide confidence that by the second quarter of 2020, we expect to be at or below 4x net debt-to-adjusted EBITDA as Tim articulated. We appreciate 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. Now we'd be happy to take your questions. Operator, please open the line.

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

Thank you. Good morning gentlemen. The first question I had was if you could just provide some more color on the new order activity that you said was picking up at the end of the quarter and how you anticipate that to track, I guess going forward?

Yes. As I mentioned my prepared comments, the quote activity throughout the first quarter remained at or above our targets. If you consider kind of historic pro forma levels, so we're quite pleased with the quote activity. Order rates, so the conversions are close to order, ramped nicely throughout the quarter and then obviously the delivery of those orders ramped a bit lower for both the reasons mentioned, the integration related friction. I would say and certainly more broad spread weather impacts than we've seen at least in the last four or five years I've been involved in the industry.

Got it. And then just in terms of the synergies overall, I think you talked about there are other synergies that you haven't quantified yet. Are we getting close to coming up with some of those? Just wanted to see whether you guys were there?

Yes, this is Tim. And I expect as we get a little deeper into the year, next quarter or two, we're able to talk a little bit more specifically about that. For now, we're just very very encouraged that the original expectations are starting to show up in the results that will continue to build throughout the course of the year and we will turn our attention to future opportunities thereafter.

All right. Got it. Thanks guys.

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

Great, thanks. Hey, I wonder, I'm actually I'm surprised the volumes aren't down more. Just given the integration you went through, just really what's driving I think the outperformance on that? Number one, and then number two, if you think about it relative from the sales force relative to kind of key clients, is the waiting one towards more towards the other or just any thoughts around that? Tim or Brad.

Well I think where we've seen the biggest disruption is in some of the smaller transactional business. We remain extremely well positioned in with our larger clients and the larger complex activity, but some of that transactional business can get disrupted through either. What's going on in the branch network or in the back office as well. The unit on rent portfolio moves very slowly given that the 30 month average lease duration in the portfolio. So whether it's going up or down it's going to do it very gradually and that's what we see to date and as order activity picks up, we see a gradual recovery. But with pricing and value added products offsetting any weakness we've seen from about volume perspective.

Kevin, the one thing I would add is, I appreciate your context. I mean it's a significant task to go from what was about 200 operating branches to 120. If you recall that occurred November 1st shortly after we closed the March based transaction. So at that point, we hadn't made really substantial structural expansions at any of those locations, but the team's mandate was focus on the customer, take care of the customer first. No, not to drop the balls. So as you articulate, I'm quite pleased with how we navigated the initial consolidation. And now as we've continued to progress, you've got rebalancing of all the idle acquired fleet as well as some more structural expansions at the various remaining 120 branches, which will continue to improve our effectively and efficiency as we go forward.

It makes sense. And then just, any sense -- obviously the pricing has been great. How long do you think you can sustain that double digit pricing?

That's always a tough one to say, Kevin. We – our original expectation is we would push that through the course of this year, and we'll reassess as we get deeper into the year. But certainly the results in Q1 were very encouraging, and suggest continued traction. Brad mentioned you saw that delivered rates on value added products pick up by another $10 for the LTM period ended March which is great. We love to see that number continuing to go up, and the overall $140 million value added product opportunity did not change. But as time goes by and that number doesn't change, that's a great thing, because we grew the business in Q1 and we still have the same size opportunity we had three months ago. So that's that's all good.

Awesome, thank you.

Thank you. And our next question comes from Philip Ng from Jefferies. Your line is now open.

Hey guys can you flush out the seasonality on margins from Q1 to Q2 a little bit more, you call that's in the timing for a variable expense kind of helped margins by I think your 200 basis points in 1Q. So you're expecting that to dip decline, so does that kind of normalize out in 2Q, and anything we need to be mindful for the rest of year as your synergies kind of flow through more fully?

Yes Phil, this is Tim. So in a normal year, I would simply tell you that Q1 margins tend to be a little bit lower than say a few 4, because as you're starting to incur more of that variable cost in the branch network, as you ramp up for the busier delivery seasons in Q2 and Q3. Okay. So what we saw this year was basically a deferral of some of that ramp up whether it's integration related or due to the other seasonal disruptions that we've heard a lot about. So as that activity then shifts into Q2, you get that margin pressure that would otherwise have occurred in Q1 but that you’re going get in Q2, that's all fine. That means orders are picking up, and that's great. And in no way changes our view of the overall direction of the business as we think about Q4 and the run rate going into 2020. And it really has nothing to do with the cost synergy realization that we are generating in the business. This is truly just the normal variable cost that's associated with our delivery activity. So the as we've said before, I think of the cost synergies as building in relatively linear fashion through the course of the year and we clearly saw a big chunk of that drop to the bottom line in Q1.

That's a good segway. I guess my next question is the March based synergies seem to drive a fair amount of the upside in quarter. Are you realizing that a bit more faster than you would have thought? And is the opportunity set shape a little larger as well? Were there any in the pockets that kind of surprised you to the upside?

Now I'd say the cost synergies coming out are very much in line with expectations. And to Manav’s question a minute ago, we are beginning to turn our attention to other areas of the business and whether you call that cost synergy or just operational improvements that are available to us in the business, we do believe there's opportunity there looking forward. Looking at the quarter, that one pleasant surprise was the delivery and installation margin that I highlighted pushing 14%. That's an area where we knew, we had opportunity historically from a legacy WillScott perspective and have been dedicating some time and attention.

Got it. Thanks a lot.

Thank you. And our next question comes from Ashish Sabadra from Deutsche Bank. Your line is now open.

Hi, congrats, congrats on such a solid results. I just wanted to follow up on the earlier comment around delivery and installation margins. Can you just -- you talked about the pricing improvement there as well, but importantly, can you talk about the opportunity for optimizing logistics. How much is outsourced and what can you do to improve the margins there going forward?

Yes, Ashish I’ll really say on that, is that the margin performance in Q1 was largely pricing driven. There is a bit of a dynamic where if you have more of that revenue coming from returns rather than deliveries that all wells equal can help your margins as well. So there was certainly some of that going on given that there was a unit on rent decline sequentially. As it relates to improvements from an efficiency or cost standpoint, it’s premature to get into that. And I do expect we'll revisit that later in the year.

That sounds good. And maybe just a question on the VAPS, again you highlighted how the VAPS, LTM rates have continue to move up every quarter. What's the current penetration with the $260 monthly VAPS rate? What is the penetration there? And where do you think the penetration can go going forward or in a steady state maybe in the middle? Thanks.

Yes. This is Brad. Well, we've kind of stated as our long term objective is to increase that to 60 to 400. We believe that $400 value per month, we would have penetrated about 80% of our units with furniture. As I have mentioned on prior calls, back to a little capital penetration, because almost all the units have steps and ramps, right, but -- so we're primarily talking about as furniture the drivers. So, if we’re 260 now, we're in that 40% to 50% range progressing towards our long term goal of $400 which would be about 80%.

That's great, and congrats once again on solid results.

Thank you.

Thank you. And our next question comes from Scott Schneeberger from Oppenheimer. Your line is now open.

Thanks very much. Good morning. Yes, very nice quarter guys. I want to follow-up on the first quarter to second quarter margin trend discussion. Tim, I know you don't want to give any quarterly guidance and that's wise. But just because that was such a huge swing quarter-to-quarter 4Q to first Q, could you give us a feel, any quantification for first quarter to second quarter just so everyone has a good feel for what that should be, obviously it's not going to be 450 basis points?

Yes. And actually would I intended to convey in my remarks is that that margin should dip in Q2. Scott. Because if you take that that $5 million of variable cost that represents about 200 basis points and we're pushing that I expect into Q2. So that will put us relative to our original expectations. Margins came in a bit higher in Q1 due to this dynamic relative to original expectations. Q2 will come in slightly lower than our original expectations and then normalize consistent with our original plan in Q3 and Q4 culminating in that 35% margin by Q4. So if you take the 33% margin in Q1, take out 200 basis points to 31%; that will be a starting point for thinking about Q2. The other big variable in there is the delivery and installation margin which was a positive surprise in Q1. Any moderation there could pull down Q2 a bit especially as you get into that delivery that very active delivery season. So that's not a cause for any alarm from our perspective. It's just a bit of a unique start to the year in terms of variable cost timing with everything related to our cost takeout initiatives well on track.

Great. Thanks. I think that's helpful. I'll use that as a segway to look at the full year guidance. I think on this end of the phone things are pretty good both ends of the phone as far as how you're tracking. But could you rank order kind of the top two or three things you think are opportunities that could push above the high end of the guidance this year. And then two or three things that keep you a little bit concerned that could push towards the low end? Thanks.

Yes. I'll start with my perspective and then Brad you give yours. And I touched on this when I was referring to the free cash expectations in Q2, Q3, Q4 based on that original guidance. Obviously the remaining EBITDA contribution is one of the biggest variables. If you think about the leasing KPIs, what we're seeing right now is a bit of a volume headwind offset by opportunity and price and value added products and we -- this is a balancing act we play every year, but any significant change in either of those KPIs one way or the other can drive the least revenue result. Delivery and installation margins; there is some opportunity there maybe some margin risk relative to where the percentage came in Q1, but certainly something we're working on. I think our sales expectation for the remainder of the year is balanced. So, I don't have a meaningful expectation there one way or the other. And the cost energy realization appears to be tracking very nicely. So, I think this is all about the fundamentals of the leasing permits.

Yes. I think that's right. The other thing I would add is, Tim touched on volume and how we are -- markets could surprise us further to the upside with more acceleration than we're seeing or expecting that would require us to invest more capital, and given the same depend on what happened in the year, right. It could be very helpful for next year's run rate, but you'd have some incremental variable costs in the period. So I consider volume to be probably neutral if it were just surprises to the upside within the period, helpful for next year. And then the only other one that we touched on before is, Tim, said cost synergies if we were able to realize more than the 80% which we targeted and we're confident in. Or if we were able to start to realize any of these additional fees to kind of cost synergies, but as Tim said its too early to call for now. We're quite proud of where we are leaving Q1 and we'll focus on all of the above as we move forward.

Okay. Thanks. Just one more if I could sneak it in. Brad, on your commentary on volume there, it’s interesting. Obviously there's a lot of puts and takes with the integration right now and it's been covered well on the call. But looking out multiple quarters I think everyone appreciates this focus on rate and the incremental margin flow through and the potential that drives. What is the optimal balance of rate in volume at steady state once you get through the integration process? How do you think about that conceptually a little longer term? Thanks.

Yes, we'd say and I’ll reference are our results prior to the integration is like 15 to 17. So we were significantly improving rate and that's without compromising volume. Now, I will point out that there was a year or two in that period where we were constrained from a liquidity perspective and we couldn't always invest in the growth. So, our focus isn't to sacrifice volume if you will or compromise volume for the other two we believe we have a good track record of getting it all. Now having said that, we're also kind of not in the game to go out and buy market share if you will and pursue. We would then become a capital intensive volume based growth strategy that's not good for us or any of our investors. So I'd say we're balanced on volume. We are very selective as we deploy the capital amongst our 120 branches in the underlying territories. If the rates and the VAPS are interesting in those or advantageous relative to another we'll redeploy the fleet in the capital accordingly. So that's a little bit of the art and science in our price optimization and capital allocation game. So we think we can do all three. We don't have a strategy to compromise volume if we will. But number one and two are rate optimization VAPS.

Great. Thanks. Thanks. Thanks for taking questions.

Thank you. And our next question comes from Courtney Yakavonis from Morgan Stanley. Your line is now open.

Thanks for the question guys. I just wanted to go back to the comments on some of the delayed deliveries from the first quarter. I think you would commented that it was $5 million cost associated with them. But did you quantify the actual revenue amount? And has that all been delivered at this point in the second quarter? Or is this still some left to be alert?

Hi, Courtney. I think the short answer is no. The way to think about deliveries is obviously there a leading indicator of what unit on rent is going to do eventually. Our rent we're down 2% year-over-year in the quarter and that's a slight increase from the Q4 volume results. So, what you see is kind of a dropping of that metric. And relative to original expectations a little lower than we would have originally planned, but with some exciting traction on the other side of the equation which is pricing in value added products and services. So like I said earlier, it's a balancing act. Order volumes are picking up as we go through Q2, but we're still just a third of the way through Q2.

Okay. Got you. And then just on some of the restriction impairment cost contingencies that you're baking in now. I just going to make sure until all of the branch consolidation has occurred at this point it's really -- are these contingency just related to the back office or maybe if you can just explain a little further what they are for? Appreciating that they're offset by the additional real estate it produce [ph]?

Right. And the distinction here is we have consolidated our operating locations, meaning all of the maintenance work and the personnel et cetera are being done in a single location to the extent this is a market where we've consolidated locations. You may have an idle real estate position on a leased property that still needs to be exited. So that could be a lease breakage. It could be a -- you write out that lease depending on the economics of this specific situation and that's what we're managing through, and that's always been part of the plan. This is just a distinction of operating locations were consolidated in Q4 last year. The physical exit of some of the remaining surplus properties is taking place through the course of this year and the biggest contributor there are several of the ModSpace legacy manufacturing locations that I mentioned. Does that answer your question, Courtney?

Yes. That's very helpful. Thank you. And then just lastly forgive me if I missed it. But I think you provide us how much the rental rate growth was from core versus VAPS. Did you get that this quarter?

We did not. I think last quarter in Q4 we had reference to 60/40 split in favor of just core rental rates. So yes, we've characterized 60/40 50/50. We continue to see that range and we'd expect that going forward through the period through 2020 [ph].

Okay. So no dramatic change this quarter?

No change in the trends.

Okay. Got you. Thanks.

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

Hey, guys. Great job, setting expectations and meeting them in the backdrop of a pretty complex integration going on.

Thanks Sean.

First question more housekeeping. I think last quarter you said a pro forma adjusted EBITDA as of 4Q 2018 was about $284.5 million. With the growth this quarter I'm getting to 3.09 and 3.10 range. Is that sounds right to you?

That sounds about right. And obviously that does not include the additional cost synergy realization that will build through the course of this year, so for example when we're reporting that pro forma adjusted EBITDA metric to our banker for example you get a significantly higher number.

Right. That makes sense. Second one is just more on the business. You've highlighted in the past there's been some discrete opportunities within Immigration and Customs Enforcement. I don't know if there's been any change there sort of to your outlook or the opportunities for your business. But is that something that you could provide sort of a full housing solution for people or is that something to think about?

No, but just a couple of points. Most of our assets are not coded to be inhabited by people. There were some former sister divisions of the parent holding company that were more focused on that. We do watch activity with ice and FEMA and the others and I would characterize that as generally they all present opportunities, they kind of move around with the event or challenge of the day. So given our vast portfolio now there are always some activity somewhere. But it's typically not a situation where an event in one region really moves the needle at the top level. So we stay close to it. We typically benefit locally from these interactions but it's kind of just a small piece of a large portfolio if you will right now.

Right. Okay. Thank you. That's helpful. And then just a couple more quick ones. When you talk about the four turns leverage target by to 2Q 2020, in that target are you assuming any debt pay down or is at all basically going to be done through ratio deleveraging?

No. We're absolutely assuming gross debt pay down. On the free cash flow slide. I explained how the business transitions through the course of 2019 to fairly substantial cash generation as we get to Q4 and that trend should continue into the first half of 2020, all else equal. So yes absent to any other capital allocation plan those, that free cash would go to repay debt.

Got you. And then as you think about capital allocation I don't know if it's too early to comment on this, but given that you're going to begin start generating cash, when you kind of rank your top three sort of priorities for capital allocation where would sort of debt reduction versus dividends or share buybacks versus acquisitions sort of rank there?

I’ll start and then Tim jump in. I think between now and the second quarter it’s clear we're going to get ourselves back into the 3x to 4x range. I'm personally quite comfortable with the 4x range. I think once we're back to that level everything is and will be discussed with the board. We think this platform that we created and grown here has pretty interesting and significant further investment opportunities as we expand our VAPS offering maybe we expand into other adjacencies. And of course we're not compelled to. We always keep our eye out for further accretive M&A.

All right. That's it for me. Thank you very much and good luck.

Thank you. [Operator Instructions] And our next question comes from Ross Gilardi from Bank of America. Your line is now open.

Thanks for squeezing me in guys. I think I get the interplay between Q1 and Q2 what you've gone through in a number of times, but I'm just really wonder at the end of the day I mean you did a 33% EBITDA margin in the first quarter, okay. It's going to dial little bit in the second quarter. I think you're still aiming for 35% by Q4. And your guidance implies like 32% at the midpoint and you've got all these synergies that are still going to roll through. So, I get that Q2 is going to give back some of the gain in Q1, but why aren't you raising the guide today? What's -- I don't really hear anything from you that seems like all that big of a concern on the demand environment?

I think that's a fair observation. And the first quarter is a very strong start, its one quarter of four. We're maintaining our guidance of 345 to 365. Maybe if I had to call today we're tracking a bit to the higher side of that. We'll watch this as we progress through the year and keep you posted.

Got it. It's great quarter for sure. I was just trying to understand a little bit more. And then on the rate; I'm not sure if I'm comparing apples and oranges or though. But you just did 13.6% pro forma rate in Mod U.S.? What is in your guide like 10% for the year or is that for the overall module leasing business?

We were we were referring to the Mod U.S. business when we talked about 10% for the year. So I think that's apples-to-apples and to your comment earlier we had a volume headwind relative to original expectations and a very good pricing in VAPS result in Q1. So that's the balancing act we'll play every year.

Okay. Got it. But I mean, it seem like you have a fair amount of cushion there at least out of the gate to doing 10%. I mean I imagine your guidance is baking in 10% of rate growth in Mod U.S. at the mid-point?

Yes. That’s a fair observation. We did not give quarterly guidance in terms of how that trends through the course of the year. I think you can model the value added products component of that, but it's not necessarily a static assumption in terms of our original outlook. So, that's probably coming into play as well.

And then I just want to ask you two, what's happening in portable storage I mean obviously the focus is really on the mobile office business and this has been less of a focus, but is it code you that the demand just clearly is softer there and it's a smaller business. What are the real synergies with that part of the business with the rest of WillScot and could any of those assets be divestiture candidates over time?

I would say, that -- this is Brad. It's a quite interesting aspect of our portfolio. It's just currently less than 5% of our net book value and our focus I think appropriately over the last year has been to leverage the office platform and achieve the results we’re achieving. I mean, looking forward, I would characterize we treat the storage a little more like a VAP right now. It's, it's something we'd like to move along with offices. It's a large addressable market. It has very similar unit economics to our offices loaded with VAPS, very similar lease duration. So, we really like the characteristics of the portable storage business, and I think as we look ahead over the years, it's a part of the business I'd be interested to continue to expand.

Okay. Got it. Thanks guys.

Thank you. And not showing any further questions at this time, I want to turn the call back to Brad Schultz for any further remarks.

No I think we've touched on everything, and we're running short on time. So proud of our results, and look forward to speaking with everyone at the end of Q2. Thank you.

Ladies and gentlemen. Thank you for your participation in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.