Ladies and gentlemen, thank you for standing by, and welcome to the WillScot Corporation First Quarter 2020 Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Matt Jacobsen, Vice President of Finance. Thank you, and please go ahead, 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 2019 Form 10-K and other various SEC filings. 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 this morning and the presentation for today's call are posted on the Investor Relations section of our website. A copy of the release has also been included in an 8-K that we submitted to the SEC. We will make a replay of this conference call available via webcast on the company website. For financial information that has been expressed on a non-GAAP basis, we've included reconciliations to the comparable GAAP information. Please refer to the tables and slide presentation accompanying today's earnings release. Over the next several days, we'll also be filing our 10-Q with the SEC for the first quarter of 2020. 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 WillScot and our first quarter results and provide an update on recent key developments in our business and in our markets. Tim will then provide some historical perspective on how our business operates across market cycles and give a bit more detail on our outlook for the rest of 2020 before we open up the call for questions. With that, I will turn the call over to Brad.

Thank you, Matt. Good morning, everyone. I'd like to welcome everyone to WillScot's First Quarter 2020 Conference Call. Please turn to Slide 7 of our Investor Relations presentation, which highlights our outstanding Q1 financial results as well as our revised 2020 outlook. Both our Q1 results and our strong outlook are particularly pleasing given the unprecedented and unexpected impact of the COVID-19 pandemic. I'm humbled by the compassion, grit and perseverance of the WillScot team, who've taken immediate necessary steps to protect each other, while actively deploying our temporary modular Space solutions in every major metropolitan area in North America in order to help our customers and our communities persevere through this pandemic and continue to thrive into the future. First, our Q1 revenue of $256 million is up 1% over the same period in 2019. This was driven by continued outperformance in our U.S. Modular segment, in which leasing and service-related revenue was up 6% year-over-year on a 14% improvement in rate. This is the tenth consecutive quarter of double-digit rate growth, and we expect this momentum to continue as we look ahead. While we'll delve deeper into this in a few minutes, I'd remind you that 40% of the rate improvement is driven by increased penetration of our value-added products and services, or VAPS, and the remaining 60% by our price optimization tools and processes. Next, our Q1 adjusted EBITDA of $90 million is up 7% versus the prior year. The continued revenue mix shift favoring leasing, combined with our ongoing cost reductions, result in a 210 basis points improvement in EBITDA margins, which were 35% for the quarter. And finally, our Q1 free cash flow of $8 million represents a $34 million year-over-year improvement, and is our fourth consecutive quarter of positive free cash flow. Finally, as…

Thank you, Brad, and good morning. Turning to Slide 16, given the macroeconomic backdrop, we wanted to revisit some of the pages we provided back when we went public, give our perspective on how WillScot performed in the last recession. It also highlights some fundamental differences that we think work to our advantage looking ahead. The bar chart in the middle of the page shows our leasing, delivery and sale revenue for the last 16 years. So a couple of observations. First, due to our long lease durations, unit on rent volume slowly declined post-GFC, bottoming in 2011. We can forecast pretty easily the churn of our installed base, which did not change following the GFC. There simply weren't enough new projects starting to replace those that naturally ended due to the prolonged drop in nonres construction starts. Secondly, during the post-GFC period, we harvested cash from the business for almost 7 years. Total fleet size contracted as we increased rental unit sales with no major fleet reinvestment until 2015. So we clearly lagged the nonres recovery due to our captive ownership structure. As a stand-alone public company today, we will be aggressive in leading the recovery. Third, at the bottom of the page, you see our revenue mix has changed dramatically. Over 90% of revenue today comes from our leasing operations versus only 64% in 2007. As we've discussed, sales revenue is more volatile, and we've deemphasized it strategically. So we have greater forward visibility into our revenue streams. I'll also point out that we had a high concentration in the education market, which accounted for roughly half of the volume decline post-GFC, as state and local budgets tightened. We have no such outsized end market exposures in the portfolio today. Lastly, heading into the remainder of 2020 and…

Thanks, Tim. So to sum up, I'm proud of our Q1 accomplishments and extremely confident in our revised outlook. Most importantly, I'm humbled by the compassion, grit and perseverance of the WillScot team in the face of the COVID-19 pandemic. We have the right strategy and the right team to continue to increase our long-term shareholder value, and I'm looking forward to the transformational combination with Mobile Mini. As we spent time with the Mobile Mini management team, it's continued to be reinforced how much we are alike, more than different, and the very similar strong cultures of the 2 companies. Together, WillScot's Modular Space solution and Mobile Mini's Portable Storage solutions will enhance the scope and reach of the value proposition that we bring to our collective customers. Equally as important, each company has very predictable lease revenues, long-lived assets and attractive unit economics, all of which drive long-term growth and value creation for our stockholders. These 2 great companies will certainly be even stronger together. With that, I'd like to thank you for taking the time to join us today. This concludes our prepared remarks. And operator, would you please open the line?

[Operator Instructions]. Our first question comes from Scott Schneeberger of Oppenheimer.

Glad to hear you're doing well. The -- I guess I'd like to start -- looking at Slide 12, thank you for the very detailed presentation deck, by the way. I'm just curious, could you elaborate a little bit on additional workspace for social distancing? Are you seeing anecdotally any orders for that at this point across end markets besides government health care? And then also this offset of warehousing and distribution in the commercial and industrial category, could you please elaborate on that as well?

Scott, it's Brad. Thanks for joining us. Yes, we're absolutely seeing more than anecdotal evidence and the need for additional space on project sites, office sites, schools, et cetera, as everyone contemplates the reality of the new social distancing norm. So that's something we're working actively with customers on, in some cases, it's reconfiguring furniture in the office they have. In many cases, there's going to be a requirement for more space. In addition to just, let's say, this social distancing within an office, at a job site, we're also seeing the likely need for additional buildings to screen folks as they're coming on to job sites, especially in this kind of a restart phase, if you will, as these economies come back online.

And just staying on this slide, a real quick follow-up, on the energy category, down not too bad in the first quarter. I don't know how much you want to discuss about what you've seen in April, but just curious because we've certainly seen a lag down, and thoughts on how you're managing that business.

Yes. The upstream portion is such a small percentage of what we do. It's largely been stable for the long term, certainly, since 2017. So I don't expect significant further declines just given the mix of services we're providing that customer group.

All right. And then, Tim, I guess, bringing you into the mix. Thank you for the discussion on decremental margins. And just curious to hear your thoughts on what the EBITDA cadence may be over the balance of the year. I know it's very difficult to predict, but just kind of consideration for second quarter impact, adverse impact? And then various scenarios of how it may look in the back half depending on duration of social distancing?

Yes. We clearly didn't give any sequential EBITDA guidance for a reason, just given the -- really the inability to predict how long the demand disruption lasts. I'd expect Q2 to be impacted probably the least relative to each of the quarters, just given that more of our current installed base will be generating lease revenue. And the churn of the portfolio is very slow, but if demand is depressed through the end of the year, that EBITDA run rate would decline through the end of the year. So it really all comes down to what is your view of the severity and the duration of the disruption. I think we've got a very good view of Q2 at this point, and the installed base is performing exactly as we would expect.

And just one more quick one, if I can sneak it in. Just a thought on the pricing and the mix on what was the contribution from rate and what's the contribution from VAPS. You gave the current update and you're still investing in that. So I'm just wondering if that contribution mix would change over the balance of the year on what you're looking at right now? Or should that stay fairly consistent?

Sitting here right now, we have not changed our rate strategy, and we're continuing to drive value-added products right now. So sitting here right now, I don't expect the mix to change. We did provide kind of the historical view of what happened during the financial crisis. We have not seen a change in delivered spot rate trajectory. It did happen historically. But I think the beauty of that chart and the beauty of lease duration in this business is that 15-month lag that you saw between the change in DSR and the change in ARR. So again, depending on how severe and how long this goes, I mean, there are scenarios where pricing just continues to pop right through demand disruption over time. Because, again, the lease duration in the business today is 17% longer than it was back then, which logically extends that period of time between a DSR change and an average rental rate change.

Our next question comes from Kevin McVeigh of Crédit Suisse.

Great, and hope you all are staying safe. Brad or Tim, did you see the average lease duration to 34 months? If so, that -- I think that's up from 28 months, is that right?

Yes It's been up over 30 for some time -- this is Tim, Kevin. Going back to the financial crisis in 2007, it was in like that 27-or-so month range. And what you've seen consistently over the last 12, 13 years, is that lease duration has ticked up by a little less than 1 month per year over that entire period. It's been a very long-term consistent trend, and that's what provides the fundamental stability of the lease portfolio. You saw that trick move, Kevin, like when we acquired the Acton portfolio. It dropped down a bit, Acton at a higher mix of smaller, single wide mobile offices. Then you saw it pop back up a bit when we integrated ModSpace. They had more complexes that tend to stay on rent for longer durations. So really, the only changes in that metric over the last 2 years have been fleet mix driven by acquisition. But if you just take a longer-term historical perspective, it's been a steady march upwards.

That's helpful. And then the chart where you looked at kind of the order versus kind of the delivery scheduled, is there any way to frame how much of kind of the delay in the scheduling is, the physical shutdown versus just hesitancy? Or is it all physical shutdown?

It's more weighted, Kevin, to uncertainty with new starts, right? So the projects -- the few that have been impacted, again, as noted, are largely starting to come back online. They've just remained on rent. So yes, that shift is largely attributed to new orders, with less uncertainty as to when specifically they'll start.

Great. And then just one quick one, and I'll jump back in. On the -- well, many congrats. I was surprised the timing didn't get pushed out a little bit just given with the government shutdown. Any thoughts around that? Or just any updates on synergy targets? Obviously, given what's going on, there's a pretty fluid situation.

The only thing I'd like to add, I mean, we've been working very closely, we probably have close to 100 colleagues from both sides, very organized process, developing the integration plans, that's going extremely well. And that's all just providing confidence in the $50 million cost synergies we've articulated before. And we've said that we're confident in closing this in the third quarter, which we are. Look forward to that.

Our next question comes from Courtney Yakavonis of Morgan Stanley.

If you can just comment, maybe first, I just want to confirm, all the units that you guys have on rent right now are collecting lease revenues, or have there been any changes with certain customer groups? And then maybe secondly, can you also just address kind of the range of CapEx outcomes for this year? You've kind of outlined the range of potential revenue scenarios that you're looking at from either down $10 million to down $30 million just in 2Q or for the balance of the year. But Tim, you mentioned how, in prior cycles, CapEx has gone net negative. So how bad would revenues have to be for that to really be a scenario this time around?

Yes. This is Tim, Courtney. Let's first start with the installed base. And I commented, it's performing exactly as we would expect. We have not seen any changes in pricing, return activity, rental duration or payment activity. So clearly, there's risk there going into Q2. But if you look at total receipts per week or number or percentage of the portfolio that's paying per week or the average payments per week, there have been no changes through the end of April. So the portfolio is performing as we would expect, and there have been no kind of unusual discussions around changes in rental terms. But we always work with our customers on a regular basis. In terms of the CapEx range, if you look at Page 26 of the presentation, we've provided, I think, a realistic range sitting here right now for the scenarios that we see. So based on the $30-ish million of the net investment in Q1, that's kind of in the books, I'd expect something similar to that in Q2, just simply to support the demand that we see right now. So that's a pretty good run rate that we've been on since Q4, and we'd need to see a material further reduction in demand to take CapEx down significantly lower. So in the sensitivity charts, if you go to the extreme example of maybe it's a 30% demand decline through the end of the year, sustained going into 2021, that's a very severe scenario in our mind. That would take CapEx down to the $100 million-or-so level, and that's after having already invested $30 million or so in Q1. So that's -- you're beginning to see some very material cuts in that scenario. And we'd be obviously taking a hard look at 2021 at that point as well, but way premature to make that type of extrapolation.

Okay. That's helpful. And then you also, I think, broken down on Slide 12, just the different end markets and what you're seeing there. Can you also just comment on portable storage? And if there's any big discrepancies between what modular office has seen and what portable storage has seen? And I also appreciate, Brad, your comments about looking for the deal to conclude in 3Q. But is there any scenario, if it becomes obvious, that we're going into a more prolonged downturn or anything that would cause you at this point to think that this isn't the right time for that deal?

No. I think it's a perfectly complementary business. Again, our storage position is relatively small. But if you look at order activities by end markets, it's a very similar behavior. So it's kind of the same impacts, if you will.

Our next question comes from Phil Ng of Jefferies.

Within your guidance, it looks like the midpoint, if I'm understanding this sensitivity table correctly, it's assuming about a 10% decline in demand for the rest of the year. Can you help us understand what that translates to on units on rent, and what you're assuming from an AMR and spot rate standpoint from 1Q levels?

Phil, this is Tim. So if you think about our original guidance outlook for the year, we really haven't assumed much change in terms of the pricing or value-added products trajectory. So we're really talking about a demand and variable cost sensitivity right here. The range of potential outcomes, if you focus on either a 10% demand decline for a quarter or a 30% demand decline for the rest of the year are just way too broad to try and give you kind of unit on rent guidance. But in kind of the bottom right-hand corner of those sensitivity charts, the unit on rent erosion is significant, and that will be the primary headwind for the year. In that bottom right hand quadrant, though, you're still basically flat from an EBITDA standpoint. So the way to think of that is volume is roughly offsetting all of the tailwinds that we have on pricing and value-added products. We're still executing ModSpace cost synergies, but there is also then going to be a headwind from sale activity as well as some delivery and installation. So you mix all that together, and it's a flat year under the kind of extreme scenario that we think is reasonably possible sitting here right now. It's certainly not the base case, but we don't see scenarios worse than that at this point.

Yes. The only thing I'd add, Phil, is if we were in that bottom right quadrant, we'd be aggressively adjusting fixed cost structures and such, as we look into the second half of the year.

Got it. Okay. That's really helpful. And were deliveries weaker or stronger in any particular end market for April? And then, I guess, did you see any impact from some of these markets, like New York and Boston, where construction was halted? And how that's going to impact the shape of the year?

Yes. Just a couple. I mean, I mentioned the very small special events, obviously, were immediately impacted. Retail is also a smaller piece of our business, more immediately impacted. New York is a geography, and Boston, let's say, all of the end markets were impacted a bit quicker than others. But it's also where we saw some of the initial spike in demand for the COVID response. So other than that, there's really nothing notable across the various end markets or geographies.

Okay. And then, I guess, from a historical perspective there in the global financial crisis, were you able to pick up some market share? Because a lot of your competitors are still regional mom-and-pop operators.

I think the point, looking back at that cycle chart, is that this industry construct today is a lot different. WillScot and ModSpace were pretty formidable competitors back then. And you also saw that the reinvestment in the WillScot business lagged in the recovery simply because of our ownership structure at the time. And the beauty here today is that we've got complete flexibility to lead that recovery and capture the share, both organically or through further consolidation, I think, for obvious reasons. So I wouldn't look back there and say, "Hey, that's a case study in how we captured share." I'd say I'd look back at it, and say, "here's what's different today and how we plan to execute the business, going forward."

Our next question comes from Manav Patnaik of Barclays.

Thank you for all the details and sensitivities, and I guess a lot of the near-term questions have been asked. I have a little bit of a longer-term question, which is, clearly, I think in the medium term, you'll see a lot of maybe sectors that you didn't traditionally do a lot of volume, with asking for the space and social distancing and so forth. But as you think through this, I was just curious if you have put any thought to longer term, if you need to change or tweak or add to the strategy and the business model, if you see anything there, because it doesn't seem as clear to me.

Yes. I would -- this is Brad, I'll talk on the social distancing one, and I'll just use our own internal offices as a good case study, right? So we've set every employee that's not absolutely required to be in a branch to deliver our essential services to work remotely from home. As economies are opening, we're now looking at transitioning back, and you take every office layout, and you look at the density of people, you have to assure, at least for the medium term, there's the 5- to 6-foot social distancing when they're in their workspace. You hallways need to be wider. Your bathroom facilities might require some modification, et cetera. So we're looking at that in our headquarters and all of our shared offices. And without naming specific customers, we're seeing many of those doing the same. So it's too early to put numbers out there, but certainly, social distancing requires more space. So if there's a silver lining on the demand side of this on the recovery side, that's it. I would say one thing we learned again from the global financial crisis is not to have bespoke assets, which we did have in the case of the education market. So as we look ahead and we see new opportunities, we'll seek to take advantage of them using common assets. And then the other catalysts, obviously, that I touched on is the infrastructure stimulus. Fairly optimistic about that. Candidly, it won't be a short-term catalyst, but in the medium to long term, that could significantly lift and underpin all of our end markets, frankly.

Got it. And then just one follow-up. The Mobile Mini Transaction, obviously, it makes a lot of strategic financial sense for you guys. Do you think that it kind of -- the diversification of the portfolio is probably even better timing with what's going on now? Or probably it wouldn't change your mind either way?

No, I'm even more excited about it now. We see how these 2 portfolios perform in uncertain market environments. Definitely 2 great companies that will be stronger together.

Manav, this is Tim. You've got the common long-lived assets, you've got the common lease duration, which causes the portfolios to churn in very similar ways. You've got significant customer overlap, but not perfect overlap, which provides cross-selling opportunity as well as diversification. From a capital allocation perspective, you've got tuck-in acquisitions across multiple asset classes as well as just a tremendous free cash flow profile on a combined basis, which gives you a lot of optionality: deleveraging, consolidation, organic growth, return of capital. So I think no matter how you slice that one up, the 2 companies are stronger together and more powerful together.

Our next question comes from Sean Wondrack of Deutsche Bank.

Brad and Tim, I hope all is well and everyone's safe. Thank you for the great degree of information here. This is really helpful. When we think about the business, just given your longer lease durations and your better visibility, is that what makes it able for you to sort of make these structural costs down the line as opposed to taking them now? So that if the market doesn't fall as much as you think, you can recover faster? Or what's the rationale sort of behind not taking those deeper structural cuts now?

It's not really a wait and see, Sean. It's more of the fact that the significant amount of our cost structure, which is already variable, right? So we've actioned all of that. That was -- let's say, it's adequate to address what we see right now. As Tim said, we always want to be in a position to support a recovery. So it's more just the nature of our cost structure as depicted on the graph on the top of that slide. Whereas -- the other thing I would note is, we have quite a degree of seasonal variability, which is one of the reasons we retain such a variable cost structure. And we're accustomed to flexing that, typically in the fourth quarter and first quarter, we're flexing that in any case. And while demand net is down sequentially right now, it's still not at levels that are overly concerning. These are more in line with levels that we operate kind of in that December, January, February time frame as a normal course. So it's how we construct the cost structure.

Right. Okay, that's helpful. And then Slide 26 is great. Is there a way to think about sort of working capital if demand were reduced? Would we see working capital benefits there further, too?

Yes. I think in the short run, I think one thing we've been happy with is the stabilization of working capital. Clearly had a headwind in the first half of last year, and as that stabilized after completing the ModSpace integration at end of Q2 last year, that's allowed us, in part, to deliver the free cash flow inflection that we had planned. So I wouldn't think of it, going forward, as a huge opportunity if demand is going down. Certainly, I think the ARR side of the portfolio will provide a benefit in that type of environment. We do take customer deposits, however, at the front, which is a bit of an offset. And then payables, we're just going to pay our vendors on time as we would. So I don't view that as a factoring into our thinking a lot when we're doing our different scenario planning.

Our next question comes from Brent Thielman of D.A. Davidson.

Great. The pending orders metric you provided, that seems pretty encouraging. I'm just wondering what or if you can handicap the conversion historically to actual orders? Just trying to, again, handicap that.

Yes. So these are actual pending orders. Of course, there's always a few orders that are canceled. We've seen no change in cancellation rates. So the only thing we've seen are the dates associated with the actual physical delivery of the unit is pushed out longer into the future. So if we were sitting here a year ago, we would have expected more of the current pending order book to be scheduled for delivery within the next 4 weeks. It's kind of this rolling week window by which we manage the business. We've just seen that -- those orders shift further out.

Okay. And then I guess my follow-up. From your perspective, does this environment sort of changed the VAPS value proposition? I'm curious, did your catalog sort of expand to include health and safety products? And if so, is that potentially incremental to any expectations to any material degree?

It's a great observation. I think what we have seen through this is continued interest in providing -- our customers, having us provide full turnkey solutions, above and beyond just offices and furniture: hand sanitation, bathroom facilities, et cetera. Much of that we do through third-party relationships today. So for me, it just reinforces the fact that, as we continue to expand the value proposition we can bring to each one of these customers' projects, the easier we can make it for them, the more productive they can be, the safer they'll be, and frankly, the bigger opportunity for our shareholders. So I think this unfortunate COVID pandemic has kind of reinforced and validated an assumption we've always held.

I would now like to turn the call back to Brad Soultz with any further remarks.

All right. I just want to thank everyone and wish everyone safe and health as we continue to navigate these uncertain periods. So thanks, everyone. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.