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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2021 |
OR |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________ |
| | | | | |
Commission File Number: | 001-37552 |
WILLSCOT MOBILE MINI HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | | 82-3430194 |
(State or other jurisdiction of incorporation) | | (I.R.S. Employer Identification No.) |
4646 E Van Buren St., Suite 400
Phoenix, Arizona 85008
(Address, including zip code, of principal executive offices)
(480) 894-6311
(Registrant’s telephone number, including area code)
(Former Name or Former Address, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.0001 per share | WSC | The Nasdaq Capital Market |
Warrants to purchase Common Stock(1) | WSCWW | OTC Markets Group Inc. |
Warrants to purchase Common Stock(2) | WSCTW | OTC Markets Group Inc. |
(1) Issued in connection with the initial public offering of Double Eagle Acquisition Corp., the registrant's legal predecessor company, in September 2015, which are exercisable for one-half of one share of the registrant's common stock for an exercise price of $5.75.
(2) Issued in connection with the registrant's acquisition of Modular Space Holding, Inc. in August 2018, which are exercisable for one share of the registrant's common stock at an exercise price of $15.50 per share.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☒ | Accelerated filer ☐ |
Non-accelerated filer ☐ | Smaller reporting company ☐ |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Shares of Common Stock, par value $0.0001 per share, outstanding: 226,826,328 shares at May 5, 2021.
WILLSCOT MOBILE MINI HOLDINGS CORP.
Quarterly Report on Form 10-Q
Table of Contents
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| | | Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2021 and 2020 |
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ITEM 1. Financial Statements
WillScot Mobile Mini Holdings Corp.
Condensed Consolidated Balance Sheets
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(in thousands, except share data) | March 31, 2021 (unaudited) | | December 31, 2020 (as restated) |
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Assets | | | |
Cash and cash equivalents | $ | 26,934 | | | $ | 24,937 | |
Trade receivables, net of allowances for credit losses at March 31, 2021 and December 31, 2020 of $31,630 and $29,258, respectively | 322,425 | | | 330,942 | |
Inventories | 24,132 | | | 21,655 | |
Prepaid expenses and other current assets | 28,152 | | | 29,954 | |
Assets held for sale | 2,413 | | | 12,004 | |
Total current assets | 404,056 | | | 419,492 | |
Rental equipment, net | 2,928,682 | | | 2,933,722 | |
Property, plant and equipment, net | 300,687 | | | 303,650 | |
Operating lease assets | 229,260 | | | 232,094 | |
Goodwill | 1,179,421 | | | 1,171,219 | |
Intangible assets, net | 481,199 | | | 495,947 | |
Other non-current assets | 15,570 | | | 16,081 | |
Total long-term assets | 5,134,819 | | | 5,152,713 | |
Total assets | $ | 5,538,875 | | | $ | 5,572,205 | |
Liabilities and equity | | | |
Accounts payable | $ | 111,408 | | | $ | 106,926 | |
Accrued expenses | 133,036 | | | 141,672 | |
Deferred revenue and customer deposits | 139,575 | | | 135,485 | |
Operating lease liabilities - current | 48,366 | | | 48,063 | |
Current portion of long-term debt | 16,229 | | | 16,521 | |
Total current liabilities | 448,614 | | | 448,667 | |
Long-term debt | 2,454,024 | | | 2,453,809 | |
Deferred tax liabilities | 315,244 | | | 307,541 | |
Operating lease liabilities - non-current | 180,823 | | | 183,761 | |
Common stock warrant liabilities | 99,781 | | | 77,404 | |
Other non-current liabilities | 34,500 | | | 37,150 | |
Long-term liabilities | 3,084,372 | | | 3,059,665 | |
Total liabilities | 3,532,986 | | | 3,508,332 | |
Commitments and contingencies (see Note 17) | | | |
Preferred Stock: $0.0001 par, 1,000,000 shares authorized and zero shares issued and outstanding at March 31, 2021 and December 31, 2020 | — | | | — | |
Common Stock: $0.0001 par, 500,000,000 shares authorized and 226,815,146, and 229,038,158 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively | 23 | | | 23 | |
Additional paid-in-capital | 3,782,649 | | | 3,852,291 | |
Accumulated other comprehensive loss | (29,996) | | | (37,207) | |
Accumulated deficit | (1,746,787) | | | (1,751,234) | |
Total shareholders' equity | 2,005,889 | | | 2,063,873 | |
Total liabilities and equity | $ | 5,538,875 | | | $ | 5,572,205 | |
See the accompanying notes which are an integral part of these condensed consolidated financial statements.
WillScot Mobile Mini Holdings Corp.
Condensed Consolidated Statements of Operations
(Unaudited)
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| Three Months Ended March 31, |
(in thousands, except share and per share data) | 2021 | | 2020 (as restated) |
Revenues: | | | |
Leasing and services revenue: | | | |
Leasing | $ | 315,662 | | | $ | 188,352 | |
Delivery and installation | 83,504 | | | 51,070 | |
Sales revenue: | | | |
New units | 10,955 | | | 9,613 | |
Rental units | 15,202 | | | 6,786 | |
Total revenues | 425,323 | | | 255,821 | |
Costs: | | | |
Costs of leasing and services: | | | |
Leasing | 69,895 | | | 49,809 | |
Delivery and installation | 70,136 | | | 43,865 | |
Costs of sales: | | | |
New units | 7,109 | | | 6,203 | |
Rental units | 9,105 | | | 3,806 | |
Depreciation of rental equipment | 55,698 | | | 45,948 | |
Gross profit | 213,380 | | | 106,190 | |
Expenses: | | | |
Selling, general and administrative | 116,485 | | | 65,537 | |
Transaction costs | 844 | | | 9,431 | |
Other depreciation and amortization | 18,324 | | | 3,074 | |
Lease impairment expense and other related charges | 1,253 | | | 1,661 | |
Restructuring costs | 3,142 | | | (60) | |
Currency losses, net | 36 | | | 898 | |
Other (income) expense, net | (1,988) | | | 276 | |
Operating income | 75,284 | | | 25,373 | |
Interest expense | 29,964 | | | 28,257 | |
Fair value loss (gain) on common stock warrant liabilities | 27,207 | | | (95,329) | |
Loss on extinguishment of debt | 3,185 | | | — | |
Income before income tax | 14,928 | | | 92,445 | |
Income tax expense | 10,481 | | | 790 | |
Net income | 4,447 | | | 91,655 | |
Net loss attributable to non-controlling interest, net of tax | — | | | (130) | |
Net income attributable to WillScot Mobile Mini | $ | 4,447 | | | $ | 91,785 | |
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Earnings (loss) per share attributable to WillScot Mobile Mini common shareholders | | | |
Basic | $ | 0.02 | | | $ | 0.84 | |
Diluted | $ | 0.02 | | | $ | (0.05) | |
Weighted average shares: | | | |
Basic | 228,293,197 | | | 109,656,646 | |
Diluted | 234,720,295 | | | 112,672,997 | |
See the accompanying notes which are an integral part of these condensed consolidated financial statements.
WillScot Mobile Mini Holdings Corp.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
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| Three Months Ended March 31, |
(in thousands) | 2021 | | 2020 (as restated) |
Net income | $ | 4,447 | | | $ | 91,655 | |
Other comprehensive income (loss): | | | |
Foreign currency translation adjustment, net of income tax expense of $0 and $0 for the three months ended March 31, 2021 and 2020, respectively | 5,034 | | | (21,144) | |
Net gain (loss) on derivatives, net of income tax expense of $667 and $0 for the three months ended March 31, 2021 and 2020, respectively | 2,177 | | | (8,758) | |
Total other comprehensive income (loss) | 7,211 | | | (29,902) | |
Comprehensive income | 11,658 | | | 61,753 | |
Comprehensive loss attributable to non-controlling interest | — | | | (2,833) | |
Total comprehensive income attributable to WillScot Mobile Mini | $ | 11,658 | | | $ | 64,586 | |
See the accompanying notes which are an integral part of these condensed consolidated financial statements.
WillScot Mobile Mini Holdings Corp.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
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Three Months Ended March 31, 2021 |
| Common Stock(1) | | Additional Paid-in-Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Shareholders' Equity | | |
(in thousands) | Shares | Amount | | |
Balance at December 31, 2020 (as restated) | 229,038 | | $ | 23 | | | | $ | 3,852,291 | | $ | (37,207) | | $ | (1,751,234) | | $ | 2,063,873 | | | |
Net income | — | | — | | | | — | | — | | 4,447 | | 4,447 | | | |
Other comprehensive income | — | | — | | | | — | | 7,211 | | — | | 7,211 | | | |
Stock-based compensation and issuance of Common Stock from vesting | 229 | | — | | | | 4,951 | | — | | — | | 4,951 | | | |
Repurchase and cancellation of Common Stock and warrants | (2,793) | | — | | | | (76,788) | | — | | — | | (76,788) | | | |
Receipts from issuance of Common Stock from the exercise of options | 341 | | — | | | | 5,414 | | — | | — | | 5,414 | | | |
Withholding taxes on net share settlement of stock-based compensation | — | | — | | | | (3,219) | | — | | — | | (3,219) | | | |
Balance at March 31, 2021 | 226,815 | | $ | 23 | | | | $ | 3,782,649 | | $ | (29,996) | | $ | (1,746,787) | | $ | 2,005,889 | | | |
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Three Months Ended March 31, 2020 (as restated) |
| Class A Common Stock(1) | Class B Common Stock | Additional Paid-in-Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Shareholders' Equity | Non-Controlling Interest | Total Equity |
(in thousands) | Shares | Amount | Shares | Amount |
Balance at December 31, 2019 | 108,819 | | $ | 11 | | 8,024 | | $ | 1 | | $ | 2,378,733 | | $ | (62,775) | | $ | (1,825,361) | | $ | 490,609 | | $ | 64,590 | | $ | 555,199 | |
Net income (loss) | — | | — | | — | | — | | — | | — | | 91,785 | | 91,785 | | (130) | | 91,655 | |
Other comprehensive loss | — | | — | | — | | — | | — | | (27,199) | | — | | (27,199) | | (2,703) | | (29,902) | |
Stock-based compensation and issuance of Common Stock from vesting | 239 | | — | | — | | — | | 1,787 | | — | | — | | 1,787 | | — | | 1,787 | |
Receipts from issuance of Common Stock from warrant exercises and redemptions | 1,497 | | — | | — | | — | | 28,958 | | — | | — | | 28,958 | | — | | 28,958 | |
Withholding taxes on net share settlement of stock-based compensation | — | | — | | — | | — | | (673) | | — | | — | | (673) | | — | | (673) | |
Balance at March 31, 2020 | 110,555 | | $ | 11 | | 8,024 | | $ | 1 | | $ | 2,408,805 | | $ | (89,974) | | $ | (1,733,576) | | $ | 585,267 | | $ | 61,757 | | $ | 647,024 | |
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(1) See Note 1 for information regarding the Company's conversion of Class A Common Stock to Common Stock on July 1, 2020 concurrent with the Merger.
See the accompanying notes which are an integral part of these condensed consolidated financial statements.
WillScot Mobile Mini Holdings Corp.
Condensed Consolidated Statements of Cash Flows (Unaudited)
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| Three Months Ended March 31, |
(in thousands) | 2021 | | 2020 (as restated) |
Operating activities: | | | |
Net income | $ | 4,447 | | | $ | 91,655 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 74,855 | | | 49,764 | |
Provision for credit losses | 8,516 | | | 3,392 | |
Gain on sale of rental equipment and other property, plant and equipment | (8,128) | | | (2,980) | |
Amortization of debt discounts and debt issuance costs | 3,565 | | | 2,896 | |
Fair value loss (gain) on common stock warrant liabilities | 27,207 | | | (95,329) | |
Loss on extinguishment of debt | 3,185 | | | — | |
Stock-based compensation expense | 4,951 | | | 1,787 | |
Deferred income tax benefit | 8,057 | | | 684 | |
Unrealized currency losses (gains), net | (64) | | | 891 | |
Changes in operating assets and liabilities: | | | |
Trade receivables | 341 | | | 636 | |
Inventories | (2,452) | | | 281 | |
Prepaid and other assets | 2,995 | | | (5,701) | |
Operating lease assets and liabilities | 183 | | | (280) | |
Accrued interest | 3,394 | | | (3,540) | |
Accounts payable and other accrued expenses | (13,096) | | | (9,760) | |
Deferred revenue and customer deposits | 4,115 | | | 3,952 | |
Net cash provided by operating activities | 122,071 | | | 38,348 | |
Investing activities: | | | |
Proceeds from sale of rental equipment | 15,202 | | | 6,786 | |
Purchase of rental equipment and refurbishments | (52,535) | | | (39,648) | |
Proceeds from the sale of property, plant and equipment | 13,729 | | | 3,840 | |
Purchase of property, plant and equipment | (7,307) | | | (1,518) | |
Net cash used in investing activities | (30,911) | | | (30,540) | |
Financing activities: | | | |
Receipts from issuance of Common Stock from the exercise of options | 5,414 | | | 4,580 | |
Repurchase and cancellation of Common Stock and warrants | (81,618) | | | — | |
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Receipts from borrowings | 162,000 | | | 35,793 | |
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Repayment of borrowings | (166,112) | | | (45,282) | |
Payment of debt extinguishment premium costs | (1,950) | | | — | |
Principal payments on finance lease obligations | (3,735) | | | — | |
Taxes paid on employee stock awards | (3,219) | | | (673) | |
Net cash used in financing activities | (89,220) | | | (5,582) | |
Effect of exchange rate changes on cash and cash equivalents | 57 | | | (629) | |
Net change in cash and cash equivalents | 1,997 | | | 1,597 | |
Cash and cash equivalents at the beginning of the period | 24,937 | | | 3,045 | |
Cash and cash equivalents at the end of the period | $ | 26,934 | | | $ | 4,642 | |
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Supplemental cash flow information: | | | |
Interest paid | $ | 20,089 | | | $ | 27,384 | |
Income taxes paid, net | $ | 588 | | | $ | 4 | |
Capital expenditures accrued or payable | $ | 25,975 | | | $ | 22,345 | |
See the accompanying notes which are an integral part of these condensed consolidated financial statements.
WillScot Mobile Mini Holdings Corp.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
NOTE 1 - Summary of Significant Accounting Policies
Organization and Nature of Operations
WillScot Mobile Mini Holdings Corp. (“WillScot Mobile Mini” and, together with its subsidiaries, the “Company”) is a leading provider of modular space and portable storage solutions in the United States (“US”), Canada, Mexico and the United Kingdom ("UK"). The Company also maintains a fleet of specialty containment products, including liquid and solid containment solutions. The Company leases, sells, delivers and installs mobile solutions and storage products through an integrated network of branch locations that spans North America and the UK.
On July 1, 2020, WillScot Corporation, a Delaware corporation (“WillScot”), and Mobile Mini, Inc. (“Mobile Mini”) merged (the “Merger”). Immediately following the Merger, WillScot changed its name to “WillScot Mobile Mini Holdings Corp.” and filed an amended and restated certificate of incorporation (the "A&R Charter"), which reclassified all outstanding shares of WillScot Class A Common Stock and converted such shares into shares of Common Stock, par value $0.0001 per share, of WillScot Mobile Mini ("WillScot Mobile Mini Common Stock"). The WillScot Class A Common Stock was listed on the Nasdaq Capital Market (Nasdaq: WSC) up until the Merger, and the WillScot Mobile Mini Common Stock has been listed on the Nasdaq Capital Market (Nasdaq: WSC) since the Merger. As used herein, the term “Common Stock” or “the Company’s Common Stock” refers to WillScot Class A Common Stock prior to filing of the A&R Charter on July 1, 2020 and to WillScot Mobile Mini Common Stock as of and following the filing of the A&R Charter July 1, 2020.
The preparation of financial statements in accordance with US Generally Accepted Accounting Principles (“GAAP”) requires that our condensed consolidated financial statements and most of the disclosures in these notes be presented on a historical basis. Unless the context otherwise requires, the terms “Company” and “WillScot Mobile Mini” as used in these financial statements mean WillScot and its subsidiaries when referring to periods prior to July 1, 2020 (prior to the Merger) and to WillScot Mobile Mini, when referring to periods on or after July 1, 2020 (after the Merger).
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Quarterly Report on Form 10-Q and do not include all the information and notes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements comprise the financial statements of WillScot Mobile Mini and its subsidiaries that it controls due to ownership of a majority voting interest and contain all adjustments, which are of a normal and recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Company. All intercompany balances and transactions are eliminated.
The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2020.
Restatement of Previously Reported Financial Statements
The notes included herein should be read in conjunction with the Company's restated audited consolidated financial statements included in the Company's Annual Report on Form 10-K/A filed with the SEC on May 10, 2021 (the "2020 Form 10-K/A").
As previously disclosed in the 2020 Form 10-K/A, the Company restated its previously issued consolidated financial statements for the years ended December 31, 2020, 2019 and 2018 to make the necessary accounting adjustments related to warrant accounting. The Company has restated herein its condensed consolidated financial statements for the quarter ended March 31, 2020 and related amounts within the accompanying footnotes to the condensed consolidated financial statements. For the quarter ended March 31, 2020, restated net income attributable to WillScot Mobile Mini is $91.8 million, an increase of $95.3 million from the previously disclosed net loss of $3.5 million.
Recently Issued and Adopted Accounting Standards
Recently Issued Accounting Standards
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848), which is elective, and provides for optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The Company is currently evaluating the impact of reference rate reform and the potential impact of adoption of these elective practical expedients on its condensed consolidated financial statements and does not expect the impact to be material.
In August 2020, the FASB issued ASU 2020-06, Debt, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in the ASU are effective for public entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company is currently evaluating the potential impact of the adoption of the pronouncement on its consolidated financial statements.
Recently Adopted Accounting Standards
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles for income taxes and also improves consistent application of accounting by clarifying or amending existing guidance. On January 1, 2021, the Company adopted ASU 2019-12 and the impact of adoption was not material to the Company's consolidated financial statements. The Company will apply the standard prospectively for intraperiod tax allocation, year-to-date losses that exceed anticipated annual losses and enacted changes in tax laws.
NOTE 2 - Acquisitions
Mobile Mini Merger
Purchase Price
Upon completion of the Merger on July 1, 2020, each issued and outstanding share of Mobile Mini Common Stock, par value $0.01 per share, converted to 2.405 shares of WillScot Class A Common Stock, par value $0.0001 per share, and cash in lieu of any fractional shares. The Company issued 106,426,721 shares of Class A Common Stock to Mobile Mini stockholders as consideration for the Merger. The trading price of the Class A Common Stock was $12.53 per share on the closing date. In addition, Mobile Mini stock options converted into WillScot Mobile Mini stock options. The purchase price was determined as follows:
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(in thousands, except share and per share data) | July 1, 2020 |
Mobile Mini Common Stock outstanding | 44,252,275 | |
Share conversion ratio | 2.405 | |
Common Stock issued | 106,426,721 | |
Common Stock per share price as of July 1, 2020 | $ | 12.53 | |
Fair value of shares of WillScot Class A Common Stock issued | $ | 1,333,527 | |
Cash paid for fractional shares | 30 | |
Fair value of Mobile Mini Options converted to WillScot Mobile Mini Options | 19,279 | |
Total purchase price | $ | 1,352,836 | |
The Merger was accounted for using the acquisition method of accounting, and WillScot was considered the accounting acquirer. Under the acquisition method of accounting, the Company assigned the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values at the closing date. The excess of the purchase price over those fair values was recorded as goodwill.
The purchase price for the Merger was assigned to the underlying assets acquired and liabilities assumed based upon their fair values at the date of acquisition, July 1, 2020. The Company recorded the fair values based on independent valuations, discounted cash flow analyses, quoted market prices, contributory asset charges, and estimates made by management. The following table summarizes the July 1, 2020 preliminary fair values of the assets acquired and liabilities assumed. The final assignment of the fair value of the Merger, including the final valuation of acquired rental equipment, intangible assets and the related deferred tax liability and the final assignment of goodwill to reporting units, was not complete at March 31, 2021, but will be finalized within the allowable one-year measurement period.
Opening Balance Sheet
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(in thousands) | July 1, 2020 | |
Cash and cash equivalents | $ | 17,203 | | |
Trade receivables | 87,492 | | |
Inventories | 8,987 | | |
Prepaid expenses and other current assets | 13,717 | | |
Rental equipment | 1,033,190 | | |
Property, plant and equipment | 161,401 | | |
Operating lease assets | 92,054 | | |
Intangible assets | 374,500 | | (a) |
Goodwill identified | 936,173 | | |
Other non-current assets | 2,519 | | |
Total identifiable assets acquired | $ | 2,727,236 | | |
Accounts payable | (29,797) | | |
Accrued expenses | (40,235) | | |
Deferred revenue and customer deposits | (38,846) | | |
Operating lease liabilities | (89,968) | | |
Debt and finance lease liabilities | (897,244) | | |
Deferred tax liabilities | (276,882) | | |
Other long-term liabilities | (1,428) | | |
Total liabilities assumed | (1,374,400) | | |
Purchase Price | $ | 1,352,836 | | |
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(a) | The initial fair value estimates were calculated using preliminary estimates and assumptions which have been updated in the current reporting period as additional information was obtained during the measurement period. The underlying assets have been adjusted from those previously recorded accordingly. Intangible assets were reduced by approximately $8.0 million from amounts reported at December 31, 2020. |
Mobile Mini generated $159.1 million of revenue and $26.9 million of pre-tax income in the three months ended March 31, 2021, which is included in the condensed consolidated financial statements of operations.
The pro forma results presented below give effect to the following as if they occurred on January 1, 2019:
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(i) | The Merger |
(ii) | Borrowings under the Company's 2025 Secured Notes and 2020 ABL Facility (both as defined in Note 9) used to repay certain debt in connection with the Merger |
(iii) | Extinguishment of the Mobile Mini revolving credit facility and senior notes assumed in the Merger and immediately repaid |
(iv) | Extinguishment of WillScot's 2017 ABL Facility and WillScot's 2022 Secured Notes (both as defined in Note 9) repaid in connection with the Merger |
(v) | Elimination of WillScot's non-controlling interest and WillScot's Class B common stock in connection with the Merger. See Note 10 for further details. |
The pro forma information is not necessarily indicative of the Company’s results of operations had the Merger been completed on January 1, 2019, nor is it necessarily indicative of the Company’s future results. The pro forma information does not reflect any cost savings from operating efficiencies, synergies, or revenue opportunities that could result from the Merger.
The Company's results of operations for the three months ended March 31, 2021 represent the activities of the Company after the Merger. As a result, there were no differences between pro forma results and actual results on a reported basis.
The tables below present unaudited pro forma condensed combined statements of operations information for the three months ended March 31, 2020:
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(in thousands) | Three Months Ended March 31, 2020 (as restated) | |
WillScot revenues | $ | 255,821 | | |
Mobile Mini revenues | 150,576 | | |
Pro forma revenues | $ | 406,397 | | |
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WillScot Mobile Mini income before income tax | $ | 92,445 | | (a) |
Mobile Mini income before income tax | 14,907 | | |
Pro forma income before income tax | 107,352 | | |
Pro forma adjustments to combined income before income tax: | | |
Elimination of Merger transaction costs | 24,651 | | (b) |
Impact of fair value mark-ups on rental fleet depreciation | (1,167) | | (c) |
Other depreciation expense and intangible asset amortization | (5,669) | | (d) |
Interest expense | (2,564) | | (e) |
Elimination of Mobile Mini interest | 8,712 | | (f) |
Pro forma income before income tax | 131,315 | | |
Income tax expense | (13,506) | | (g) |
Pro forma net income | $ | 117,809 | | |
| | | | | |
(a) | Excludes impact of non-controlling interest which was eliminated as part of the Sapphire Exchange. See Note 10. |
(b) | Eliminates discrete transaction costs incurred as a result of the Mobile Mini Merger. |
(c) | Depreciation on rental equipment and property, plant and equipment were adjusted for the preliminary determination of the fair value of equipment acquired in the Mobile Mini Merger. |
(d) | Represents the differential in other depreciation and amortization expense related to the provisional fair value purchase accounting adjustments as a result of the Merger, principally the amortization of the Mobile Mini customer relationship estimated at $209,000 and a 13 year life. |
(e) | In connection with the Merger, the Company entered into a new ABL Facility and drew $1.47 billion at close with an estimated interest rate of 2.046%, issued the 2025 Secured Notes at 6.125%, repaid the 2022 Secured Notes and repaid the 2017 ABL Facility. Interest and amortization of deferred financing fees for the 2020 ABL Facility and the 2025 Secured Notes has been included offset by the removal of interest and amortization of deferred financing fees attributable to the 2022 Secured Notes and the 2017 ABL Facility. See Note 9 for definitions of terms. |
(f) | Interest and amortization of deferred financing fees on the senior notes and line of credit maintained by Mobile Mini which were assumed at acquisition and repaid immediately using proceeds from the 2020 ABL Facility and 2025 Secured Notes was eliminated. See Note 9 for definition of terms. |
(g) | Reflects the recorded income tax provision plus the adjustment to recognize the income tax impacts of the unaudited pro forma adjustments for which a tax expense is recognized using a US federal and state statutory tax rate of 25.5%. This rate may vary from the effective tax rates of the historical and combined businesses. |
Transaction and Integration Costs
The Company recorded $0.8 million and $9.4 million in transaction costs related to the Merger during the three months ended March 31, 2021 and 2020, respectively. The Company also recorded $7.3 million in integration costs related to the Merger within selling, general and administrative ("SG&A") expense for the three months ended March 31, 2021.
NOTE 3 - Revenue
Revenue Disaggregation
Geographic Areas
The Company had total revenue in the following geographic areas for the three months ended March 31, as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
(in thousands) | 2021 | | 2020 |
US | $ | 371,269 | | | $ | 235,328 | |
Canada | 23,584 | | | 16,706 | |
Mexico | 3,463 | | | 3,787 | |
UK | 27,007 | | | — | |
Total revenues | $ | 425,323 | | | $ | 255,821 | |
Major Product and Service Lines
Equipment leasing is the Company's core business. This includes rental modular space, portable space and tank and pump units along with value added products and services ("VAPS"), which include furniture, steps, ramps, basic appliances, internet connectivity devices, and other items used by customers in connection with the Company's products. Leasing is complemented by new unit sales and sales of rental units. In connection with its leasing and sales activities, the Company provides services including delivery and installation, maintenance and ad hoc services and removal services at the end of lease transactions.
The Company’s revenue by major product and service line for the three months ended March 31, was as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
(in thousands) | 2021 | | 2020 |
Modular space leasing revenue | $ | 169,952 | | | $ | 131,398 | |
Portable storage leasing revenue | 54,613 | | | 5,849 | |
Tank and pump leasing revenue | 15,760 | | | — | |
VAPS and third party leasing revenues(a) | 62,426 | | | 41,002 | |
Other leasing-related revenue(b) | 12,911 | | | 10,103 | |
Leasing revenue | 315,662 | | | 188,352 | |
Delivery and installation revenue | 83,504 | | | 51,070 | |
Total leasing and services revenue | 399,166 | | | 239,422 | |
New unit sales revenue | 10,955 | | | 9,613 | |
Rental unit sales revenue | 15,202 | | | 6,786 | |
Total revenues | $ | 425,323 | | | $ | 255,821 | |
| | | | | |
(a) | Includes $6.2 million and $4.0 million of service revenue for the three months ended March 31, 2021 and 2020, respectively. |
(b) | Includes primarily damage billings, delinquent payment charges, and other processing fees. |
Leasing and Services Revenue
The majority of revenue (73% and 72% for the three months ended March 31, 2021 and 2020, respectively) is generated by rental income subject to the guidance of ASU 2018-11, Leases (Topic 842) ("ASC 842"). The remaining revenue for the three months ended March 31, 2021 and 2020 is generated by performance obligations in contracts with customers for services or sale of units subject to the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASC 606").
Receivables, Contract Assets and Liabilities
As reflected above, approximately 73% of the Company's rental revenue is generated by lease revenue subject to the guidance in ASC 842. The customers that are responsible for the remaining revenue accounted for under ASC 606 are generally the same customers that rent the Company's equipment. The Company manages credit risk associated with its accounts receivables at the customer level. As the same customers generate the revenues that are accounted for under both ASC 606 and ASC 842, the discussions below on credit risk and the Company's allowance for credit losses address its total
revenues. The Company's top five customers with the largest open receivables balances represented 5.0% of the total receivables balance as of March 31, 2021.
As of March 31, 2021 and December 31, 2020, the Company had approximately $75.4 million and $74.1 million, respectively, of deferred revenue that relates to removal services for lease transactions and advance billings for sale transactions, which are within the scope of ASC 606 and are included in deferred revenue and customer deposits in the condensed consolidated balance sheets. During the three months ended March 31, 2021, $19.3 million of previously deferred revenue relating to removal services for lease transactions and advance billings for sale transactions was recognized as revenue.
The Company does not have material contract assets and it did not recognize any material impairments of contract assets.
The Company's uncompleted contracts with customers have unsatisfied (or partially satisfied) performance obligations. For the future services revenues that are expected to be recognized within twelve months, the Company has elected to utilize the optional disclosure exemption made available regarding transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations. The transaction price for performance obligations that will be completed in greater than twelve months is variable based on the costs ultimately incurred to provide those services.
The primary costs to obtain contracts for new and rental unit sales with the Company's customers are commissions paid to its sales force. The Company pays its sales force commissions on the sale of new and rental units. For new and rental unit sales, the period benefited by each commission is less than one year, therefore the commissions are expensed as incurred.
Credit Losses
The Company is exposed to credit losses from trade receivables generated through its leasing and sales business. The Company assesses each customer’s ability to pay for the products it leases or sells by conducting a credit review. The credit review considers expected billing exposure and timing for payment and the customer’s established credit rating. The Company performs its credit review of new customers at inception of the customer relationship and for existing customers when the customer transacts new leases after a defined period of dormancy. The Company also considers contract terms and conditions, country risk and business strategy in the evaluation.
The Company monitors ongoing credit exposure through an active review of customer balances against contract terms and due dates. The Company may employ collection agencies and legal counsel to pursue recovery of defaulted receivables. The allowances for credit losses reflect the estimate of the amount of receivables that the Company will be unable to collect based on historical write-off experience and, as applicable, current conditions and reasonable and supportable forecasts that affect collectability. This estimate could require change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, the Company may be required to increase or decrease its allowances.
Activity in the allowance for credit losses was as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
(in thousands) | 2021 | | 2020 |
Balance at beginning of year | $ | 29,258 | | | $ | 15,828 | |
Net charges to bad debt expense and revenue | 8,516 | | | 3,392 | |
Write-offs | (5,813) | | | (2,744) | |
Foreign currency translation and other | (331) | | | (5) | |
Balance at end of period | $ | 31,630 | | | $ | 16,471 | |
NOTE 4 - Leases
As of March 31, 2021, the undiscounted future lease payments for operating and finance lease liabilities were as follows:
| | | | | | | | | | | |
(in thousands) | Operating | | Finance |
2021 (remaining) | $ | 45,902 | | | $ | 14,383 | |
2022 | 53,179 | | | 17,655 | |
2023 | 42,937 | | | 14,204 | |
2024 | 34,899 | | | 11,283 | |
2025 | 28,057 | | | 11,391 | |
Thereafter | 69,774 | | | 14,790 | |
Total lease payments | 274,748 | | | 83,706 | |
Less: interest | (45,559) | | | (6,155) | |
Present value of lease liabilities | $ | 229,189 | | | $ | 77,551 | |
Finance lease liabilities are included within long-term debt and current portion of long-term debt on the condensed consolidated balance sheets.
The Company’s lease activity during the three months ended March 31, 2021 and 2020 was as follows:
| | | | | | | | | | | |
(in thousands) | Three Months Ended March 31, |
Financial Statement Line | 2021 | | 2020 |
Finance Lease Expense | | | |
Amortization of finance lease assets | $ | 4,378 | | | $ | — | |
Interest on obligations under finance leases | 547 | | | — | |
Total finance lease expense | $ | 4,925 | | | $ | — | |
| | | |
Operating Lease Expense | | | |
Fixed lease expense | | | |
Cost of leasing and services | $ | 1,106 | | | $ | 1,602 | |
Selling, general and administrative | 14,472 | | | 7,885 |
Lease impairment expense and other related charges | 596 | | | 684 | |
Short-term lease expense | | | |
Cost of leasing and services | 6,379 | | | 7,300 |
Selling, general and administrative | 552 | | | 386 |
Lease impairment expense and other related charges | — | | | 212 | |
Variable lease expense | | | |
Cost of leasing and services | 1,802 | | | 1,832 |
Selling, general and administrative | 1,838 | | | 867 |
Lease impairment expense and other related charges | 176 | | | 287 | |
Total operating lease expense | $ | 26,921 | | | $ | 21,055 | |
Lease impairment expense and other related charges relate to closed locations that are no longer used in operations as a result of consolidation activities within the Company. During the three months ended March 31, 2021, the Company recorded $1.3 million in lease impairment expense and other related charges which is comprised of $0.5 million loss on lease exit and impairment charges and $0.8 million in closed location rent expense. During the three months ended March 31, 2020, the Company recorded $1.7 million in lease impairment expense and other related charges which is comprised of $0.5 million loss on lease exit and $1.2 million in closed location rent expense.
Supplemental cash flow information related to leases for the three months ended March 31, 2021 and 2020 was as follows:
| | | | | | | | | | | |
(in thousands) | Three Months Ended March 31, |
Supplemental Cash Flow Information | 2021 | | 2020 |
Cash paid for the amounts included in the measurement of lease liabilities: | | | |
Operating cash outflows from operating leases | $ | 16,458 | | | $ | 10,108 | |
Financing cash outflows from finance leases | $ | 4,320 | | | $ | — | |
| | | |
Right of use assets obtained in exchange for lease obligations | $ | 10,878 | | | $ | 13,270 | |
Assets obtained in exchange for finance leases | $ | 3,366 | | | $ | — | |
Weighted-average remaining operating lease terms and the weighted average discount rates as of March 31, 2021 and December 31, 2020 were as follows:
| | | | | | | | | | | |
Lease Terms and Discount Rates | March 31, 2021 | | December 31, 2020 |
Weighted-average remaining lease term - operating leases | 6.3 years | | 6.4 years |
Weighted-average discount rate - operating leases | 5.6 | % | | 5.7 | % |
Weighted-average remaining lease term - finance leases | 4.5 years | | 4.6 years |
Weighted-average discount rate - finance leases | 2.9 | % | | 2.9 | % |
The Company presents information related to leasing revenues in Note 3.
NOTE 5 - Inventories
Inventories at the respective balance sheet dates consisted of the following:
| | | | | | | | | | | |
(in thousands) | March 31, 2021 | | December 31, 2020 |
Raw materials | $ | 21,665 | | | $ | 19,560 | |
Finished units | 2,467 | | 2,095 | |
Inventories | $ | 24,132 | | | $ | 21,655 | |
NOTE 6 - Rental Equipment, net
Rental equipment, net at the respective balance sheet dates consisted of the following:
| | | | | | | | | | | |
(in thousands) | March 31, 2021 | | December 31, 2020 |
Modular space units | $ | 2,556,286 | | | $ | 2,520,704 | |
Portable storage units | 940,653 | | | 931,363 | |
Tank and pump products | 134,445 | | | 132,071 | |
Value added products | 148,135 | | | 143,652 | |
Total rental equipment | 3,779,519 | | | 3,727,790 | |
Less: accumulated depreciation | (850,837) | | | (794,068) | |
Rental equipment, net | $ | 2,928,682 | | | $ | 2,933,722 | |
NOTE 7 - Goodwill
Changes in the carrying amount of goodwill were as follows:
| | | | | |
(in thousands) |
Balance at December 31, 2019 | $ | 235,177 | |
Acquisition of Mobile Mini | 928,974 | |
Effects of movements in foreign exchange rates | 7,068 | |
Balance at December 31, 2020 | 1,171,219 | |
Changes to purchase accounting - Mobile Mini | 7,199 | |
Effects of movements in foreign exchange rates | 1,003 | |
Balance at March 31, 2021 | $ | 1,179,421 | |
As discussed further in Note 2, the Company acquired Mobile Mini on July 1, 2020. Goodwill was preliminarily allocated to the NA Modular, NA Storage, UK Storage and Tank and Pump segments, as defined in Note 18, in the amounts of $285.0 million, $491.8 million, $59.2 million and $100.2 million, respectively. The Company expects to finalize the valuation of the acquired net assets of Mobile Mini, including the final assignment of goodwill to reporting units, within the one-year measurement period from the date of acquisition. The Company expects any adjustments to goodwill for financial reporting to be non-deductible for income tax purposes.
The Company had no goodwill impairment during the three months ended March 31, 2021 or the year ended December 31, 2020.
NOTE 8 - Intangibles
Intangible assets other than goodwill at the respective balance sheet dates consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 |
(in thousands) | Weighted average remaining life (in years) | | Gross carrying amount | | Accumulated amortization | | Net book value |
Intangible assets subject to amortization: | | | | | | | |
Trade name - ModSpace | 0.4 | | $ | 3,000 | | | $ | (2,625) | | | $ | 375 | |
Mobile Mini customer relationships | 7.3 | | 209,000 | | | (18,488) | | | 190,512 | |
Technology | 5.3 | | 1,500 | | | (188) | | | 1,312 | |
Indefinite-lived intangible assets: | | | | | | | |
Trade name - Mobile Mini | | | 164,000 | | | — | | | 164,000 | |
Trade name - WillScot | | | 125,000 | | | — | | | 125,000 | |
Total intangible assets other than goodwill | | | $ | 502,500 | | | $ | (21,301) | | | $ | 481,199 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
(in thousands) | Weighted average remaining life (in years) | | Gross carrying amount | | Accumulated amortization | | Net book value |
Intangible assets subject to amortization: | | | | | | | |
Trade name - ModSpace | 0.7 | | $ | 3,000 | | | $ | (2,375) | | | $ | 625 | |
Mobile Mini customer relationships | 8.0 | | 217,000 | | | (12,053) | | | 204,947 | |
Technology | 5.5 | | 1,500 | | | (125) | | | 1,375 | |
Indefinite-lived intangible assets: | | | | | | | |
Trade name - Mobile Mini | | | 164,000 | | | — | | | 164,000 | |
Trade name - WillScot | | | 125,000 | | | — | | | 125,000 | |
Total intangible assets other than goodwill | | | $ | |