Good morning, ladies and gentlemen, and welcome to the Williams Scotsman First Quarter 2018 Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Mark Barbalato, Head of Investor Relations. You may 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. 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 would 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 those -- from these statements. Williams Scotsman assumes no obligation and does not intend to update any such forward-looking statements. The press release we issued last night and the presentation from today's call are posted on the Investor Relations section of our website. A copy of the release has also been included in an 8-K that we submitted to the SEC. We will make a replay of this conference call available via webcast on the company's website. For financial information that has been expressed on a non-GAAP basis, we have included reconciliations to the comparable GAAP information. Please refer to the tables and slide presentation accompanying today's earnings release. Lastly, this morning, we are filing our 10-Q with the SEC for the period ending March 31, 2018. The 10-Q will be available through the SEC or the Investor Relations section of our website. Now with me today, I have Brad Soultz, our CEO; and Tim Boswell, our CFO. On today's call, Brad will summarize our first quarter in 2018 and touch on our markets, growth strategies and competitive positioning and provide an update on our outlook for the full year among other things. Tim will then provide additional detail on the key operating metrics of our business and our financial results before we open up the call for questions. With that, I'll turn the call over to Brad.

Thank you, Mark, and good morning, everyone. Welcome to Williams Scotsman's First Quarter 2018 Earnings Call. We appreciate the opportunity to update you on our first quarter results, and we want to thank all of you for your continued interest in the company and for taking the time to join us this morning. Moving to Slide 3. I'd like to share my perspective as to the key highlights of our Q1 results. In short and as promised, we've now begun to accelerate our robust organic growth to accretive acquisitions. We have the right team and a unique, scalable operating platform to continue this. Q1 results reflect continued strong execution of our organic growth initiatives and rapid progress integrating 2 recent acquisitions. I'm very proud of all that the team has accomplished in the quarter, which is evident in our financial results and really sets the stage for subsequent periods. Our Modular Segments delivered $35.5 million of adjusted EBITDA during the first quarter, representing a 32.5% increase versus the same period a year ago. This increase includes the contributions from Acton and Tyson. This result is in-line to slightly ahead of our internal expectations, and we are reaffirming our 2018 adjusted EBITDA guidance of $165 million to $175 million, which represents a 33% to 41% improvement over our 2017 results. Let's take a look at revenues. Starting with our total Modular Segment revenue of $134.8 million, this represents an increase of 35.5% versus the same period a year ago. We delivered revenue growth in both of our Modular Segments with each being driven by improvements in both average monthly rental rates and units on rent. By segment, our Modular – US segment, which provides over 90% of our total revenue, improved 39.7% versus the same period the prior year as the…

Thank you, Brad. Let's turn to Slide 9 for more detail on first quarter results from our Modular Segments. In the top left-hand chart, total revenue increased 35.5% to $134.8 million compared to the prior year. Revenue in the Modular – US segment was up 40% as reported, including the 2018 contribution from our 2 acquisitions. On an organic basis, revenue in the U.S. was up 12% during the first quarter, which underscores the strength we are experiencing in our base business, which I'll dig into on the next page. In the top right chart, first quarter Modular Segment's adjusted EBITDA rose 32.5% driven by the 37.6% year-over-year increase in the U.S. segment. Relative to revenue growth, you don't see the operating leverage from the acquisitions yet in our numbers because we are running with redundant costs for the entire quarter and really started executing the Acton integration in early April. The fact that those actions are now being taken will drive synergy realization and operating leverage flow through to EBITDA in subsequent quarters, all of which is consistent with our original plan for the year. On the bottom of the page, we provided a chart to help bridge revenue growth from the first quarter in 2017 to the first quarter of 2018. Had we owned Acton and Tyson in Q1 2017, U.S. modular space revenue would have grown by $9 million, driving a 10% increase from $123 million to $135 million, obviously with higher percentage growth coming from the legacy Williams Scotsman business -- that's the 12% organic growth rate that we've noted previously -- and that's driven by the higher value-added products' penetration and price performance at Williams Scotsman, historically relative to Acton. Turning to Slide 10. I'll highlight the key trends in our U.S. modular leasing business,…

Perfect. Thanks, Tim. So we're extremely proud of the success our company has achieved in the first quarter. While I'm certainly pleased with the continued organic growth, I'm particularly delighted by the significant progress we've made on the acquisition front in the short time since we've returned the company to the public market. We believe we are now well positioned as the clear market leader within specialty rental service modular space segment. We remain confident that we have the right platform and the financial flexibility to grow both organically and through additional acquisitions. We -- as we continue to scale the company, our mission at Williams Scotsman remains steadfast. That is to provide our customers with innovative modular space and portable storage solutions. We differentiate ourselves by providing these solutions, Ready to Work, which is supported by our unique and comprehensive offering of value-added products and services. Customers value these solutions and they continue to drive our growth. That concludes our prepared remarks. Appreciate the time you've taken to join us today and your continued interest in the company. We look forward to speaking with many of you very soon. At this point, we'd like to open up the line, operator, please, for questions.

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

Sorry, can you hear me now?

Yes. Now we can, Scott. We can hear you now. Thanks.

Yes, the mute button got me. So could you guys please elaborate on -- in U.S. modular, the acceleration in units on rent pro forma -- from the -- versus the first quarter -- or fourth quarter. Just speak a little bit to the drivers, end markets, what you're seeing progressing into the second quarter here.

Yes, I'll start with the end markets and then I'll throw it over to Tim. I think we noted that both the American Rental Association and Dodge are predicting kind of 4% to 5% growth year-over-year. That's kind of how I would characterize the end markets. They feel quite robust. In addition to that, as I noted in my prepared comments, we've seen increases in capital investments in E&P. So I think -- I would characterize the end markets as kind of in that 4% to 5% range. And with our new flexible balance sheet, we now have the opportunity to take advantage of those opportunities.

Great. That sounds good. The nearly 10% pro forma rental rate growth was somewhat eye-popping. Could you discuss what you're seeing now and into the second quarter as well on that front? And I guess, speak to what you're doing with rates, VAPs mix, just to give us a better feel of the sustainability of it and where exactly it's coming from now?

Yes. I'll offer a few high-level and then Tim can jump in on it. I think, in short, what we're doing is what we'll continue to do. Right? We have been leveraging our price optimization platform and this Ready to Work value proposition to drive what we believe are very sustainable growth levels at that same rate. As we acquire portfolios, we simply apply that same pricing strategy as well as extend our Ready to Work offering solution to the new customers. So effectively, what we've been doing is driving that 10% quarterly growth. We'll continue to do exactly the same thing. But we'll extend the application, if you will, across the acquired portfolio.

Yes so, Scott, as we've talked about, I think the last time, is you acquire business like Acton and they are effectively not as focused on the value-added products and services side of things. If I strip out Acton, our value-added products per unit on rent is up north of 23% year-over-year in Q1, to give you an order of magnitude in terms of the relative growth rate. So now what we've done is we pulled in the acquired fleet, which now gives us a base every time an Acton unit comes back, we're able to redeploy that unit back to a -- one of our customers with a -- fully outfitted with value-added products and services. To Brad's earlier point, the integration planning was really -- took up of the better part of Q1, and we're in an integration and execution mode right now. So I think that uplift starts in April and will unfold over the course of the 3-year period.

That's helpful. One more just follow-on question and I'll pass it along. How penetrated are you now in VAPs overall, now in your pro forma structure? And how long do you think it takes before you're equally penetrated across the legacy company of the new 2 acquisitions?

So, Scott, I'll be a little guarded in response because we don't disclose that information. But I'll offer a bit of a characterization. As Tim mentioned, about everyone in the industry is supplying some form of VAPs. Basically, it's steps and ramps to get in the building and some damage waivers. That's been pretty consistent for years and years. So if you ask, where's VAPs penetration and you talk about steps, there are almost every unit we ship as do our competitors. What's differentiating, given the Williams Scotsman approach, is that beyond that level, we're offering this turnkey Ready to Work solution which is really the furniture, flat-screen monitors, café packages, et cetera, which makes the interior of the space fully furnished and functional from day one. I would characterize our progress in that endeavor -- setting the acquisitions aside as maybe third, fourth inning of the baseball game if you want to use that analogy, we've really equipped the branches, retrained the sales force, sourced that comprehensive good, better and best offering back in 2015, began to offer it to our customers in 2016, and just continued to see that to increase. As Tim noted, these are long-life assets with long-lease durations. So while it gives you great predictability into your future revenue stream, you also have to be patient and wait for units that you deployed 3 years ago at lower rates and wait out the Ready to Work solution to come back into your yard and redeploy. It's kind of that saying that if you want to bring any acquisition in, with that acquired fleet, the units that are deployed, they're at the first inning, right? We've already played the first 3 or 4 innings in this game so we expect to accelerate that progress. But at the end, and the final growth is going to be paced by just the normal churn of that fleet over several years. Does that answer your question?

Yes. That's great, Brad. Helpful color. And I'll turn it over now.

Your next question comes from the line of Sean Wondrack of Deutsche Bank.

Just to focus on VAPs again for a second. As I was kind of going through your offering docs, VAPs were roughly, call it 15% of your gross profit. It looks like this quarter they were sort of closer to 20%. Over time, where do you expect that to sort of balance out? Do you think it can grow from that number? Or do you think that, that's probably a decent spot to kind of consider them?

I think, Scott, I would -- this is Brad on -- or Sean, I'm sorry. If you refer back to some of the same material you're referencing, you'll notice our delivered rates. If you look at the ratio of the delivered rates at that time on an LTM basis of the VAPs versus the box itself, I mean, you can go back and check the percentage, but it's higher than the 23%, right? So I think that's solid evidence of -- it will continue to increase.

Yes, just as we saw it. Just take Q1. Overall, average rental rates were up 9.9% year-over-year, and I just mentioned, VAPs per unit on rent was up 23-ish percent year-over-year, so. And I think we absolutely see upside in terms of VAPs' penetration and pricing. So as long as that relative growth rate remains above unit pricing, we should expect the gross profit contribution from VAPs to increase.

Right. And just again, were VAPs entirely -- or your basically amplified VAPs offering, was that in the Acton portfolio during the first quarter? It was not, right?

No. No, it's not. The Acton business really operated as a stand-alone entity through the first quarter.

And that is -- last quarter, the 10.2% year-over-year rental rate growth was, I thought impressive. I think more impressive is the fact that we maintained that 9.9% after bringing in the Acton fleet, which effectively had nowhere near the same growth rate. And now, we are executing the acquisition -- or the integration rather, beginning in April. I'm just excited about the opportunity that presents.

And will there be some one-time costs associated with that? Or have most of those already been realized?

There will certainly be one-time costs to basically -- to show up in our capital spend. Just think about it. If we increase the fleet size by 25-ish percent, we now need to have equipment to outfit those acquired units. So that's one one-time cost. Think about it just -- populating inventory is the way to think about it, which is beginning. The other one-time cost are the integration-related costs that I alluded to in my comments. It's about $3.2 million in the quarter and outside of our adjusted EBITDA.

The first cost that Tim referred to, the capital required to scale up our VAPs portfolio, is contemplated in our guidance of $70 million to $100 million.

Great. I guess that's a good segue. You guys have sort of stated, I think during the roadshow, that maintenance CapEx, I think it's on a net basis is sort of in the range of $35 million to $40 million. Does that sound right to you?

That was. And that roadshow was pre any acquisitions. So that was our organic view of net maintenance capital. And now with the fact that we've scaled up the fleet pretty significantly, there is an increased maintenance component and we'd see that as a thing around net $50 million or so. That's an imperfect science but I think that's a good stake in the ground.

Right. So then when you think about sort of against your guidance for this year, that implies kind of $20 million to $50 million of gross CapEx there. Is that primarily being spent on outfitting VAPs throughout your various branches? Or where is the predominance of that going?

I'd say, the largest contributor will be kind of the refurbishment spend across the U.S. fleet. So think of this as taking older, idle units. And as long as markets remain as strong as they are right now, we will pull those units out of the yard, refurbish them and deploy them to customers. That's much more capital-efficient than buying new units, for example. And yes, there is absolutely a growing VAPs portion of that as well, but the largest component is refurbishment spend.

And then will you be able to kind of show us over time your -- how this refurbishment basically results in your fleet available for rent? Basically, stuff that's not locked up, that hasn't been refurbished and can't go out on rent? Do you expect to see kind of an improvement in that metric as you go through the year?

The way I would answer that, Sean, is -- what you have not seen us do in the last few years is grow fleet, right? So if you absent the -- if you just take Q1 -- if you just take our net book value as reported, the only real change in fleet net book value is the acquisition of Tyson. So what should happen is as we refurb older, idle units, instead of buying new units, utilization should tighten up, right? And what you see in Q1 is office utilization in the U.S. up 280 basis points year-over-year pro forma proactive.

Great. Okay, that's helpful. Just a couple more. You noted earlier on the call that the gross book value is about $1.5 billion now. Do you have an estimated sort of market value to value your fleet? Or should we just take sort of $900 million of ABL capacities sort of what the market value is?

I think that's a fair way to look at them. We have the ability to upsize of ABL today to $900 million and the borrowing base would appear to support that.

Great. And then you noted on your last call, you expected to kind of move along with a number of small tuck-in acquisitions as the year goes on. Were you able to identify and kind of target some of these bolt-ons during the period? What did you see on the M&A front?

I would characterize our pipeline as it would relate to those smaller, more independent tuck-ins as I would've expected. I think we talked about being in a position to do half a dozen of those a year -- handful to half a dozen. That's a place of -- I just would reiterate that it's important to just be patient. Those folks are ready to sell when they're ready to sell. So we will be an able and willing -- acquirer when that time comes. So pipeline's good as I would've expected it to be.

Okay. And then last one out of me. Just, when you think about your guidance for the full year, $165 million to $170 million. With the 2 acquisitions that you've done now, does any of that guidance contemplate further acquisitions this year? Or is it entirely based on basically Acton, Tyson and organic growth?

It's entirely based on the 2 deals we've done so far in our organic outlook. Now we'd refer you back to last quarter's investor presentation for a bridge that kind of gets you to that guidance.

[Operator Instructions] Your next question comes from the line of Doug Mewhirter of SunTrust.

Most of my questions have been answered. Maybe, looking at your rate growth which looks very healthy on a pro forma basis. What was your sort of incumbent Williams Scotsman fleet rate growth, sort of backing everything out or was that -- is there something specific in the presentation you can point me to?

Yes, it's not in there and we haven't given it to you. What I can point to is -- which is why I brought it up, the 10.2% in Q4 was incumbent Williams Scotsman. I do not believe there was the same equivalent year-over-year growth in the Acton fleet in Q1, in call it, maybe -- what, that's 25-percent of on rent, which would imply the William Scotsman portion is above that 9.9% result, for the combined fleet. Sorry, I can't be more specific on that, yes.

Yes. Yes.

Okay, and that's sort of what I was thinking anyway. Second question, the -- so when -- in your presentation, when you use your breakdown of the Modular – US segment fundamentals, which is very comprehensive, is portable storage rolled into those numbers or is that separate? And what -- I know portable storage isn't a huge part of our fleet but I was wondering how, what kind of trends those were…

Yes, yes, [ happy ] -- It's not in there. It is in the Q. And you can see all the KPIs for portable storage by segment. Just round numbers. You're talking a little north of a $20 million per year revenue contributor for us in the grand scheme of things. I'll speak to the U.S. portable storage results, which is the vast majority of our fleet. Units on rent were up 7.1% year-over-year. That's largely acquisition-driven. And average rental rates were up 4.4% year-over-year. Again, yes, that will be detailed in the Q.

My last question. In terms of the overall demand picture it sounds like you have a nice economic tailwind and -- tailwind in your specific segments. Is there any particular, just geographic regions in the United States which seem to be either unusually healthy our unusually -- or surprisingly not healthy in terms of your baseline?

I'd characterize the U.S. as generally healthy across. I think as we noted on in the last call, the Texas area -- especially given the hurricanes around Houston -- are robust as we would've expected. Maybe that's one exception. But overall, we see strong markets across the U.S. and in fact, in Eastern Canada as well. It's just a bit softer, if you will, in Western Canada and Alaska. Although we're seeing sprouts of interest that we think will pay dividends in more like 2019 and 2020 in that space.

Your next question comes from the line of Marcus Weiss of Jefferies.

A number of my questions are already asked. This is actually Dan Stratemeier great quarter, again. Can you remind us the current guidance you have out there right now? What is that include for synergies, both pricing and cost, for the last two acquisitions? By pricing, I mean VAP pricing. Any opportunities you see there? Maybe that can also be my next question, last call you were very excited about the VAP opportunity and what you could do there on the pricing side. If you can give us an update now that the deals have closed and you've spent more time with them. I'd appreciate that.

Sure, Dan, thanks. So the guidance assumes that we realized $4 million of cost synergies in the P&L in 2017. As I mentioned, if you just take pricing in VAPs, we're just now starting to kind of use the Williams Scotsman platform to price and outfit acquired units. And so that traction should build during the course of the year. But every unit you deliver starting, say, July 1, the end-year EBITDA contribution is relatively limited.

I would say -- I would just add both of those effects are more an influencer, if you will, as to how we enter 2019.

Yes.

Right? Less of an EBITDA impact in the period but more about where we leave the period.

Your next question comes from the line of Sean Wondrack of Deutsche Bank.

Just one quick follow-up for me. As we think about the rest of fiscal 2018, as we're already one quarter through it, can you talk a little bit to the seasonality of the business? I mean, I know that 2Q and 3Q, I believe, are your strongest quarters. Should we see meaningful kind of upticks in 2Q and 3Q with a little bit of -- sort of abating growth rates in 4Q?

Yes and no. So I'd say -- I'd refer you back to Slide 11. And that seasonality probably manifests itself most clearly in the U.S. segment results. And what you see on that page is -- at least for an organic business, I think reflective of what you would expect on the top line. Again underneath that, there's much less seasonality in the lease revenue stream and VAPs. So that variability is driven more by periodic activities such as the delivery and the return of units, in particular. As I think about -- and that's top line. Bottom line, because we're running with redundant costs in Q1, the synergy value will begin to build starting in Q2, Q3 and then Q4. And that's that $4 million of end-year synergy realization that I referenced. As well as a good chunk of the growth in the U.S. business, currently, is coming from pricing and value-added products and services, which have very high flow-through to the bottom line. So that's probably how I address your question, Brad. I don't know if you've got anything to add.

No, I think you touched on it. You can look historically at our results and get a feel for the seasonality. I think what's unique and 2018 and expect will be our -- the reality of our future is, on top of the normal seasonality, you've got continued rate growth just given the spread between where we're deploying units and the average for the portfolio as it rolls over. And then as well as Tim mentioned, the pace in which we realize these synergies associated with acquisitions. So all three of those are fully contemplated in the $165 million to $175 million.

I'm showing no further questions at this time. I would like to turn the call back over to Brad Soultz for final remarks.

All right. Well, I think, if you didn't notice, we're quite proud of our results. We think we're on track for an exciting 2018. Just want to thank you again for your continued interest in the company as well as taking the time to join us this morning to hear our story. Thanks, and have a great day.

Ladies and gentlemen, this concludes today's conference. And thank you for your participation and have a wonderful day. You may now disconnect.