Q4 2019 Earnings Call

Good morning, ladies and gentlemen, and welcome to the will Scott Mobile Mini merger conference call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance during the conference. Please press star.

Then d. Ray on your Touchtone telephone Advisory mine. During this conference call maybe recorded I would now might turn the conference over to your host Mr. Magic upset.

Thank you and good morning.

Before we begin I'd like to remind you that comments made by management teams are both well Scott mobile. Many may include forward looking statements as defined under the private Securities Litigation Reform Act of 1995.

Such forward looking statements are subject to safe Harbor rules.

Actual results may differ materially from those forward looking statements as it was all the various factors, including those discussed in our press release and the risk factors identified it will Scott's 2019 form 10-K will be filed with the FCC today.

Well, 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 speak only as of today.

We'd like to remind you that some of the statements and responses to your questions. On this conference call May include forward looking statements such they're subject to future events and uncertainties that could cause our actual results could differ materially from these statements. We assume no obligation and do not intend to update any such forward looking statements.

Press release, we issued earlier this morning the presentation for today's call are posted on the Investor Relations website for wall, Scott and mobile money.

The other release will also be included an 8-K submitted to the FCC.

I will make a replay of this conference call available via webcast from a company website for wall, Scott and mobile many.

The financial information in the district in expressed on a non-GAAP basis. We've included reconciliations to comparable GAAP information. Please refer to tables in slide presentation accompanying today's earnings release Lastly, this morning, well Scott as filing its 10-K with the FCC for the year ended December 31st to 29 cheap.

10-K will be available through the FCC for on the Investor Relations section of the Wall Scott website.

Now with me today.

I've got Broadsofts, President and CEO, both Scott, Tim Boswell CFO of all Scott Kelly Williams, President and CEO of mobile mini.

Today's call they will provide an overview of the announced transaction and its strategic and financial rationale.

Well Scott team will then briefly discuss the company's fourth quarter and full year performance as well as guidance for fiscal year 2020. The call will then be opened up for questions with that I'll turn the call over to Brian.

Thanks, Matt Good morning, everyone. We're extremely excited to speak with you today about an exciting transformational merger of equals between real Scott mobile, many which we announced earlier this morning as well this year will Scott outstanding fourth quarter results in which the company continued strong organic growth cost synergy realization and to live.

At 44 million of free cash flow.

As weve navigated and grown well Scott through transactions with Mark space, Acton and Tyson, we knew the next goal and our long term strategy was to solidify our portable storage capabilities in a way that would appropriately complement our existing modular space fleet.

Mobile many has continually proven itself to be a leader in portable storage solutions with a rental fleet of approximately 200000 units across 156 locations in the U.S.U.K. in Canada.

As we conducted due diligence our excitement about mobile many the opportunity the strategic combination and the value. We believe will be created for both sets of stockholders has only increased.

Combination of our two great companies will create a leader in the broader specialty leasing industry with combined 2019 revenues of 1.7 billion and combined 2019, adjusted EBITDA of approximately 650 million, including the expected 50 million of cost synergies from this transaction.

This combination is truly transformative and while I'll dive into the rationale behind this deal in more detail shortly I'd like to highlight the most important driver behind the combination and that's the complementary nature of our businesses.

Together will Scott's modular space solutions, and mobile minis portable storage solutions, along with the combined companies geographic footprint will enhance the scope and the reach of our value propositions that we bring to our collective customers equally as important each company has predictable lease revenues long lived assets.

Attractive unit economics, all of which drive long term growth and value creation for stockholders.

Extremely confident together will Scott mobile many well not only create value for both customers and stockholders, but also continue to be a great place for our employees to work.

Moving to the next slide I'd like to summarize the specifics of the transaction.

We structured this deal in an all stock merger of equals whereby mobile mini stockholders well received 2.4050 will Scott shares will Scott common stock for each share owned for a combined equity valuation of approximately 4.1 billion at an enterprise value of approximately six per.

6 billion as of today's announcement.

Under the terms the deal will skus stockholders won't approximately 54% and mobile mini stockholders Warner approximately 46% of the combined company.

Now after the deal closes all continue to serve as the Chief Executive Officer of the combined company and I'm excited to have Kelly, William serving as the President and Chief operating Officer, and Tim Boswell, serving as the Chief Financial Officer.

Eric Colson, the current chairman of the board for mobile many will serve as the chairman of the combined companies Board and Jerry whole House current chairman of the Board for Williams, Scott will Scott will serve as a lead independent director.

Composition of the board will consist of 11 numbers and total six members from will Scotts five members for mobile Minis current boards of directors.

Well provide a deeper dive into our thoughts on synergies later, but it's worth highlighting that we anticipate 50 million an annual pre tax cost synergies from this transaction and expect to generate an excess of 290 million in combined free cash flow in 2020.

Given the structure of the deal expected adjusted EBITDA of approximately 650 million, including those cost synergies net leverage of close is expected to be 3.8 turns and we expect rapid deleveraging given the cash flow profile. The combined company thereafter.

The transaction, which been approved by both boards of directors.

As expected to close in the third quarter of this year. In addition to both companies boards. We also have the support it will Scott's largest stockholder TDR capital Tdrs entered into a customary voting agreement and support the combination and we'll have a lockup period of six months.

Further in the first year post lockup TDR will be prohibited from selling more than 50% of a chairs subject to this exchange agreement.

Moving to slide seven as mentioned this transaction is rooted and compelling strategic and financial rationale, which were solidified greatly over the course of our due diligence process.

Importantly, it's worth reiterating will Scott and mobile many are truly complementary businesses, our fleets in markets geographic footprints and customer basis, while each unique together provide a one stop shop for both the office and storage needs of our collective customer base.

One close combined company will have over 360000 units strong fleet of modular space portable storage units. In addition to over 275 operating locations across the United States, Canada, United Kingdom in Mexico.

Complementary nature of our business will ultimately translate into more powerful solutions and enhance services for our customers as well as strong diversified recurring revenue streams that create value for our stockholders.

Each company as predictable leasing portfolio is providing opportunities to drive significant recurring revenue for both companies. The average life of our assets is over 20 years, an average lease durations over 30 months with over 90% of or total revenue coming from these long duration leases.

Shifting to the financial rationale underpinning this transaction, which is equally as compelling.

As I mentioned briefly we've identified 50 million an annual pre tax cost synergies. In addition to upside from revenue synergies from cross selling and customer pull through from modular space solutions to portable storage solutions and vice versa.

All things considered we expect greater than 10% accretion of free cash flow per share for both sets of shareholders.

The combined company will benefit from a strong balance sheet and robust free cash flow generation that can be used to decrease leverage for organic growth opportunities were to explore further inorganic growth opportunities.

More specifically upon full realization of the cost synergies, we expect the combined company to generate approximately 500 million an annual free cash flow.

Well, Scott and mobile many have proven track records of profitable growth and together they are even better position to generate stockholder value with that I'm pleased to turn it over to mobile mini see Kelley Williams.

Thanks, Brad and good morning, everyone.

We at mobile mini could not be more excited to partner with Brad Tim and the entire will Scott team.

We've had the opportunity to worked very closely with Brad and his team over the past several weeks and believe we share similar cultures and strategic vision.

We look forward to growing a combined business as we leverage each other's resources best practices industry knowledge and the diverse skills of our employees.

As Brad touched on briefly this combination brings together two north American leaders wanted modular space solutions and the other in portable storage solutions to create a premier North American specialty leasing platform.

Together, we will operate a robust rental fleet consisting of over 360000 units producing predictable revenue streams with compelling unit economics.

Importantly, well Scott shares our commitment to being the company of choice for employees customers and stockholders.

Our collective employees will have the opportunity to be part of and contribute to the foremost specialty leasing company and our industry and customers will benefit from abroad, and footprint meat and suite of products and solutions.

Moving to slide nine this transaction will combine to complimentary fleets each with an existing an impressive scale on its own.

Mobile mini we have a fleet of over 210000 units consisting of predominantly steel storage containers and ground level offices.

On its own will Scott has over 150000 units in its fleet, consisting primarily of modular office solutions.

Together as if the end of year 2019, we would operate a combined fleet of over 360000 units enhancing the scale of our offering and the diversity of our already attractive end market exposure.

More specifically with combined 2019 revenue of 1.7 billion, a combination or means ideally positioned to further penetrate and service attractive end markets.

As shown on slide 10, our end market focus remains well diversified within the larger industrials universe that has continued to drive strong demand for our solutions.

With expectations for continued favorable economic conditions across North America limited customer concentration there pre improved fleet diversity, we anticipate impressive levels of continued growth.

Our expectations are supported by several indicators, including the <unk>, which has been a strong leading indicator of nonresidential construction activity that has remained above 50 for nine of the last 12 months.

Further nonresidential construction starts on a square foot basis continue to remain stable with current levels in line with long term averages and the U.S. and Canadian 2020, GDP forecast remains stable between 1.5% to 2%.

Lastly, we would expect that any substantial U.S. infrastructure spending bills would further underpin and strengthen our diverse end markets.

Taking a more granular look at the partnership on Slide 11, the combination will yield a fleet with a net book value of approximately $3 billion with a well balanced end market exposure limited customer concentration and an impressive geographic footprint in the North American market.

Based on our individual full year 2019, EBITDA contributions and including the 50 million of anticipated run rate cost synergies. We estimate that the combined company would have generated approximately 650 million in 2019, adjusted EBITDA, representing incredibly strong margins of 39%.

With confidence in our ability to generate strong organic growth and to execute successfully on cross selling opportunities. We believe we can enhance our already attractive recurring revenue model and further improve our margin profile.

To that end slide 12 provides a great digital demonstration of just how broad our combined footprint will be.

With branches in almost every major city in North America will be ideally positioned to meet the evolving needs of customers and benefit from the expansion of mobile Minis managed service and we'll Scott is ready to work service offerings.

That front, we have over 275 locations that we can target explicitly for revenue up sell.

Further we'll have a leading position in north American specialty leasing market and be a premier one stop shop for customers seeking modular space where storage solutions.

By combining our fleets are offering becomes more strategic invaluable to customers the diversity of our portfolio improves and we enhanced the scale and profitability of two already strong recurring revenue portfolios.

At mobile mini we pride ourselves on customer focus driven by our leading edge technology platform.

Brad and I plan to drive value across the combined company by leveraging this core competency for the benefit of all stakeholders.

We very much look forward to working with will the will Scott team at successfully executing on the integration process, while bringing together best practices from both of our great organizations.

With that I'll hand, the call over to Brad to discuss further plans for a successful integration and sources of synergies.

Thank you Kelly.

On slide 13, we've laid out our initial roadmap to the successful integration to these two great organizations.

As we've seen with our successful mud space Acton and Tyson integrations careful planning goes a long way towards executing a seamless integration.

Beginning with an in depth joint assessment of integration planning to occur prior to close we will outline within I T back office commercial unfilled arms detailed integration plans to achieve the 50 million identified cost synergies.

Included in the integration planning process prior to close we'll be both will Scott and mobile Minis executive teams key functional leaders across both organization and those throughout our organization to will have a heavy handed implementation.

All supplemented by our third party advisors, which we've worked with on the prior integrations.

Our initial estimates indicate that we should capture approximately 80% of these synergies in our run rate by year to post deal close with approximately 30% captured in our run rate one year post close.

Turning to slide 14.

Well, there's certainly a lot of work to be done to ensure successful integration our proven and tried to integration model will Scott provides us with confidence we'll be able to achieve our objectives increases value.

In fact in line with synergy estimates provided at the time of the announcement will Scott is on track to deliver approximately 70 million in cumulative cost synergies from its prior month Space Act and Tyson acquisitions.

Starting on the left we've already realized 11 million of cost synergies from Acton and Tyson the same figure identified it deal announcement.

Shifting to Mont space, we've realized approximately 75% of the associated cost synergies in our run rate in the fourth quarter of 2019 31 million of which are in our LTM results.

Other than some remaining real estate related optimization and fleet relocation the mud space integration is complete which is at or ahead of our original schedule.

Tremendous effort went into effectively safely integrating these companies over the last several years and we look forward to bring in those best practices in the skills learn to this combination.

Now, let's turn to slide 15 dig deeper into the synergy opportunity I would like to emphasize these are cost synergies only we've broken down clearly identified hard cost savings in three high level categories on the left side of the page the comprise the 50 million.

The three categories or back office optimization field optimization and other efficiencies within SGN, a all relate to modifying our operations footprint real estate holdings to ensure we're operating as lean as efficiently as possible post combination without of course sacrifice in any of our customer value prop.

Position.

For the right side of slide 15, the largest so those cost synergies approximately 20 million will be realized through consolidation of the back office process.

The remaining 30 million or so we'll be realized through eliminating any redundancies in real estate and facilities logistics optimization and other field optimization as well as other back say back office savings with SGN. A is we streamline internal function and reduce the overlap various professional fees.

Based upon discussions today, which will Scott in mobile mini Prime preliminarily vetted by third party consulting firms and our experience with complex integrations, we're very confident in achieving this cost synergy target.

Beyond these clearly identified cost synergies there are other areas identified as potential sources of further cost synergies, including sourcing and procurement further logistics optimization and among others that would serve to both de risk the 50 million.

As well as provide additional upside is this integration plays out.

All in to realize the full value of the cost synergies identified we expect to incur onetime cost of approximately 75 million.

Moving to slide six.

Perhaps most exciting aspect to this combination is the opportunity to capture incremental upside from the revenue synergies from cross selling and customer pull through.

Well, Scott and mobile many are both unique and that they have individually developed specific service offerings to ensure customers needs are fully met.

Through its we're ready to work solutions will Scott offers value added products and services, what we refer to as Vaps in the form of turnkey solutions for example, steps ramps and furniture rentals to offer customers flexible low cost timely solutions to meet their space needs.

Through many mobile Minis managed service offering it ensures this customers get their project sites quickly up and running by supplementing its products with other third party rebranded products as a one stop shop.

We anticipate significant opportunities for his cross selling and customer pull through from modular to storage and vice versa, as we begin marketing or combined offering.

As one example, even by just expanding the will Scott's ready to work service offering and other vaps to mobile minis, approximately 30000 ground level offices, we expect an additional 35 million potential EBITDA to be generated is that fleet churns over the next three years.

Lastly, beyond or service offerings, we plan to achieve further competitive differentiation through this combination by way of cross application of commercial best practices. Both companies have complementary yet distinct proven methods of achieving operational excellence, we look forward to strengthen our combined practices to further out.

Semis yield management ensure strategic account penetration and to boost the productivity ineffectiveness of our salesforce.

With that I'll hand, the call over to Tim will walk through some additional financial details on the combination and then share outstanding financial results that will Scott announced this morning.

Thank you Brad turning to slide 17, I'd like to discuss our improved combined 2019 balance sheet and strong combined 2020 free cash flow outlook, and then briefly share the highlights of our fourth quarter and full year 2019 performance It will Scott.

As we had expected for some time Q4, 2019 was a pivotal quarter for will Scott in which we delivered a strong inflection to substantial free cash net income generation with approximately $44 million of free cash flow generated in Q4.

Well Scott is carrying this trajectory into 2020 and coupled with mobile minis history of consistent free cash generation, we expect the company to generate approximately $290 million of free cash flow in 2020 on a combined basis.

As Brad mentioned after funding organic growth initiatives and executing cost synergies. We believe the combined business can generate approximately 500 million a free cash flow annually, which creates a broad degree of capital allocation flexibility.

Both companies are de leveraging rapidly on a standalone basis through both growth and debt reduction and we expect this de leveraging capability will be enhanced with the merger.

Assuming a closing in Q3, we expect the combined company to have approximately 3.8 times leverage at closing and approximately 3.5 times leveraged by year end, given the strong free cash flow characteristics.

Our improved balance sheet, coupled with the ability to generate stronger free cash flow provides our company with significant financial flexibility to drive long term stockholder value.

More specifically, we will use our strong balance sheet and robust free cash flow to invest in organic growth initiatives continue to de lever our balance sheet make accretive bolt on acquisitions and evaluate methods to return capital to stockholders in the future.

As Kelly mentioned the fleets of the two companies are highly complementary both from the customers perspective and in terms of their unit economics.

The 2.9 billion dollar combined fleet netbook value comprised of assets with average useful lives greater than 20 years gives us a high degree of discretion around capital expenditures the ability to flex free cash flow in all market environments and to support our capital allocation priorities.

I'd now like to take a few moments to discuss will Scott's fourth quarter and full year results in our 2020 outlet, which we had expected to highlight today and where frankly outstanding.

Turn to page 18.

In Q4, well Scott total revenue increased 8% year over year organically to $278 million, reflecting solid growth in our core leasing and services revenue in the U.S., which also increased 8% versus last.

This increase in leasing in service revenue was entirely organic and driven by continued strong trends in pricing and value added products and services.

Modular space average monthly rental rates in the U.S. increased 15.1% versus the same period, a year ago as we apply our price optimization tools and continue to penetrate the combined fleet with value added products.

Our fourth quarter, adjusted EBITDA increased 33.6% year over year to $98.2 million as corresponding fourth quarter, adjusted EBITDA margin expanded 670 basis points year over year to 35.3%.

I'll note that year over year growth and margin expansion was entirely organic as we delivered on all of our cost savings and cross selling initiatives and it resulted in flow through to EBITDA of over 120% in the quarter.

As we had committed well Scott transition to substantial positive free cash generation in the fourth quarter with free cash flow $44 million up $64 million year over year.

Operating cash flow ramped meaningfully in the fourth quarter as we head into 2020, driven by consistent top line growth throughout 2019, Andy on schedule realization of cost synergies coupled with the completion of cash integration costs.

Reduced interest costs and stabilization of our working capital.

We used the surge and free cash flow in Q4 to repay debt.

Net income also inflected positively in Q4, and we're excited to carry these strong transient growth and profitability into 2020.

Overall 2019 was a transformational year for will Scott, we completed the mud space integration, we achieved our topline growth targets, we inflected to positive free cash in net income generation, we completed our transition to large accelerated filer status.

And as I'll discuss on page 19, our Q4 EBITDA over $98 million implies a trajectory that will support approximately 18% growth in 2020, another 300 basis points of margin expansion and upright and approaching three and a half times leverage.

Our year end 2020 on a standalone basis.

We're incredibly proud that will Scott team and the year they delivered.

Now as we turn to slide 19, I'd like to highlight our 2020 outlook that we initiated via press release this morning.

We expect full year 2020 revenue of $1.1 billion to $1.2 billion and adjusted EBITDA of 400 intend to $430 million driven by a continuation of the trends we've discussed now for several quarters.

At the midpoint of our guidance ranges, we expect to deliver approximately 18% year over year growth and adjusted EBITDA margins up 300 basis points year over year and an overall margin for the year of approximately 36%.

Importantly, this plan will put us on a run rate north of $450 million of adjusted OIBDA heading into 2021.

Just to provide some additional color as to how we expect the year to play out in 2020 will build off of $357 million of adjusted EBITDA in 2019, which includes a 4 million dollar reduction versus how we had reported previously prior to the adoption of assay 842 in Q4.

This change simply results from the reclassification of prior finance leases for long term debt to operating leases and also risk results in a corresponding reduction to interest expense and.

And depreciation so no economic impact of the business.

As shown in the chart, we enter 2020 with the volume headwinds that we have discussed for the past few quarters and will be most significant in Q1 in Q2 in terms of the financial impact.

Q1, adjusted EBITDA should actually be down slightly from Q4, both due to the volume headwind and the normal pick up in variable cost activity.

As the branch network prepares equipment for Q2 in Q3 elevated delivery seasons as.

As well as some onetime SG NY ESO DNA items related to our bi annual sales meeting.

All of which was incurred and we'll be incurred in Q1.

That said, we continue to see robust double digit growth in pricing in value added products in our U.S. segment, which combined with the continued synergy execution. During the course of 2020 will get us comp confidently to the midpoint of the range.

Our plans for the year do assume a return to normal sequential volume growth in Q2, and modest year over year volume growth towards the latter half of the year.

As such we expect 2020 net capex in the range of $160 million to $180 million to support modest volume growth continued 20% growth and value added products revenue and some continued improvements to branch infrastructure.

We continue to monitor demand across all of our geography, as an end markets and performance zero based capital budget every 90 days based on this demand to ensure optimal capital allocation.

Sitting here today as Brad and Kelly mentioned, we continue to see strong market fundamentals that would support this growth plan.

Importantly, we believe this outlook is largely within our control and puts us on an exciting trajectory heading into 2021.

And as I mentioned earlier, we expect the consummation of the proposed merger and the second half of the year, we'd only enhance our financial outlook.

Before turning the call back over to Brad I'd like to touch slide 20, which highlights the extraordinary vaps opportunity, we're executing upon with over $130 million of embedded organic revenue growth and we'll Scott portfolio.

Since the first quarter of 2012, our realized Vaps monthly rate has increased at a 20% CAGR and the rates. We have achieved on units delivered in the last 12 months ended Q4 had increased 39% year over year.

Executing upon this opportunity remains well Scott primary commercial initiative.

We believe there's an opportunity to perform above the rate of $275 per unit that we have recently achieved and as mentioned earlier scaling. This initiative across the combined will Scott and mobile many office fleets is a very tangible revenue opportunity post closing.

For awareness, we've posted our usual will Scott investor presentation to our Investor Relations website and will file our 10-K later day.

With that I'll turn the call back over to Brad for some closing remarks. Thank you Tim.

Please turn to slide 22, and I'll summarize the merger benefits for all stock all stakeholders.

We're extremely excited to bring together these two iconic industry, leading companies and what creates a unique opportunity to drive substantial value creation. This transformational combination will benefit all stakeholders by first improving our recurring revenue and growth profile by bringing to bear assets the.

Carry more than 30 month average lease duration, well possessing an average life useful life of over 20 years second generating robust liquidity profile through enhanced cash flows and a strengthened balance sheet to invest and profitable growth.

Broadening our footprint and fleet, while enhancing the solutions suite of services that we offer to expanded and diversified set of end markets and finally, creating additional resources and opportunities for our collective employees to benefit from and contribute to as the foremost specialty leasing company in our industry.

Additionally, we have material cross selling opportunities, which can result in incremental upside our collective salesforce will now be able to offer our modular customers the storage solution and storage customers a modular solution.

We will bring our offering vap solutions mobile minis ground level offices, and we will extend mobile minis, many service offering across will skus customer base.

The integration teams will Scott and mobile money, we'll be working closely to ensure a smooth transition and successful execution of our integration plan.

As mentioned, we've identified 50 million in cost synergies and I'm highly confident in our ability to capture these.

Now as I step back take a higher level view the transaction I see two complementary companies joining together each was strong individual cultures committed to operational excellence with a keen focus on delivering valuable value solutions to customers.

Other will be an industry, leading best in class team with a proven track record of delivering profitable predictable growth and value for our stakeholders with that let's turn the call over to Q and a portion.

Ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchstone telephone. If your question has been answered or you ways term, maybe yourself from the Keith Please press the pound team.

Your first question comes from Scott Schneeberger with Oppenheimer.

Oh, thanks, very much good morning, everyone and thanks for taking my question.

I guess you know this has been a anticipated or near term heavily and long term over the last couple of decades and anticipated combination that yes, I think makes a lot of logical sense.

I'm not asking first off why right now obviously in the in the past few weeks months theres been a little bit of risk increase to the other business environment. So I guess, if you guys could comment on your comfort with being able to execute this right now.

And in in good times, and if potentially we face in bad times at the end markets. Thanks.

Yes, Scott I'll go first and then Kelly and Tim Opine, a as mentioned in the prepared remarks, I'm highly comfortable with the 50 million a cost synergies, but I mean is we really delved into the due diligence.

It became exceedingly apparent there were significant commercial.

In revenue related synergies associated with cross sell and then the cross application of our combined commercial platforms.

So you've got a 50 million of cost synergies as well as clear line of sight to incremental cross sell opportunities and then we've been working with our colleagues and mobile money for several months on this this has not been.

A rush process, if you will such that both of us got very comfortable working together.

As well as aligning around the the upside both in cost synergies in commercial synergies so.

I think it's the right time.

Our demand outlook still remain solid.

No doubt, there's some uncertainty given the krona virus and other macro market questions.

Remember, we have through your average lease duration and long life assets.

With an incredible free cash flow generation profile post cost synergies will be generating about 500 million free cash flow year. So.

This is the right time to put them together as you said, it's been contemplated for a long time and I'm excited about it.

Yeah I. This is Kelly Scott I would just add I think the industrial logic was was obvious and we certainly had seen that for quite some time I think the investment thesis, obviously very similar complimentary businesses.

Brad bought up the fact I think once we got to certainly I got comfortable with the culture. It will Scott and I think that there's tremendous alignment and and the fact that employees or a focal point of both organizations is really where both companies execute and when you looked at the fleet in markets. When you look at.

The geographic footprint all of these things simply aligned but again I think the cultures, where we're so similar that it's the from an integration standpoint, there's certainly a lot of a lot greater opportunity for us to execute and to do it quicker. So I certainly couldn't be more excited.

In the Scott This is Tim and just to touch on the ability to execute this in light of the.

Macroeconomic backdrop I mean, the beauty of both of these business models. As you know is the forward visibility that you've got into the lease revenue stream, which is driven by that average 30 plus month lease duration. Since we just take the will Scott guidance sure we've baked a little conservatism into the.

Low end of that range.

But the levers that we can pull within the business to deliver the midpoint or perhaps above are largely within management's control and that's 18% year over year growth and you've seen similar trends in the trajectory in the mobile mini business. So we feel like we've got good visibility across the combined.

This revenue stream, then secondly, the transaction structure and all equity stock for stock merger, so de leveraging transaction for will Scott.

We expect to be around 3.8 turns of leverage at closing in Q3.

Heading towards three and a half by the ended the year.

Combined with the enhanced free cash flow that's coming from the combination that gives us a lot of balance sheet flexibility heading into 2021, no matter what it brings.

Alright sounds good. Good response is all and a and Kelly interesting on the cultural fit I think you have a very good point, there I think that will work well.

Another.

Other question, just I'm intrigued I don't know to what extent, you're going to comment on it right now but.

But you know when combining these two companies there maybe some pieces obviously, there's some pieces you guys like in common devops opportunity of cross sell managed services cross sell or are there any pieces that may be considered or not core on a go forward basis to the extent you comment on that now thanks.

Yes, Scott that's something we will look at to determine if there any asset classes that are noncore and we haven't made any such determination.

So I think.

Weve, primarily focused as you would imagine the real cash drivers of these two business or the combined storage and modular office leasing portfolios. So.

Yes, so you'll see as the.

Well, we'll keep our focus there.

Great that guys. Thanks for taking my questions I'll turn it over.

Thanks Scott.

Your next question comes from Rasco already with Bank of America.

Hi, good morning, guys.

More or less.

Hey, congratulations.

Hi.

Whoever.

We must be probably take this question I would just curious about the bridge from the 200 and.

90 million in pro forma free cash to the 500 million.

Could you give us a sense the time timing for achieving that and can we bridge the gap mostly.

With EBITDA growth over the next several years.

Hi, This is Tim Ross. Thanks for the question. The bridge is actually actually pretty simple so as Brad mentioned, a similar to what we experienced in the mob space transaction, you do incur some upfront integration costs before realizing the full.

Benefit of the cost synergies so in that 290 million on a combined basis this year.

You are starting to incur some significant integration cost in the back half of the year in the first half of 2020 that could be 75 million Bucks.

Call it 70% to 75% or that would be incurred in the first 12 months post transaction with the remainder incurred through month 24. So think of that is the timing of the integration costs. The synergies then build.

Along the schedule that Brad articulated we'd have about 30% of those in the run rate 12 months post closing and 80% in the run rate 24 months post closing so you'll have this dynamic where the integration costs flex upfront, then taper off and the synergies flow through.

By month 24. Meanwhile, yes, you've got good continued lease revenue growth on the topline that's really the combination of those three factors that take it from 290 closer to 500.

And you know you'd want to have full centered synergy realization by the time, you're assuming that 500. So after my 24 post closing.

Got it thanks.

Helpful. And then maybe you could talk about the targeted capital structure for the combined company and as you discussed you're going to be 3.8 times pro forma leverage.

Due to 290 290 million that would take it down.

You know I have heard or so and then you're talking about getting.

500 million, which.

Yeah. It was close to three quarters of insurance, So word where do you think this business should be over the cycle and.

Maybe just.

Got it out for us over the next couple of years as to where you think you'll go up is the main prioritization just going to continue to be on de leveraging for the next 12 to 18 months.

Okay, let's break that down into at least two pieces one would be sources and uses expected around closing and then too as we do you ever closer to that three and a half to three range what are our various capital allocation alternatives.

We did put in place for purposes of closing as you know, it's an all stock all stock deal we put in place a expanded 2.4 billion dollar committed Abdel.

At LIBOR, plus 150 that is capable of refinancing the existing mobile mini unsecured debt and a b L balance so when it simplest form out of the gate, we're just swap in debt for debt moving it into the NPL and we do have the flexibility to revisit that mix of debt financing.

Opportunistically based on market conditions, we assume that structure assume Q3 closing is 3.8 times leverage I'm going to three and a half by the ended the year and then look as we've said in our own business, we'd operate well Scott between three and four times leverage at the low end of that range, we're extremely comfortable.

I'll, let Brad and Kelly comments on the continued consolidation opportunity I think in both asset classes, because they're they're both extremely attractive.

So as we execute the integration I expect there is.

A significant appetite to reinvest in organic growth value added products.

Expansion of the fleet in certain areas, both inorganically and organically, but maybe I'll hand, it to Brad and Kelly to talk about.

Their views on capital allocation, yes, Tim summed it up I mean, we've been calling for 18 months that we'd have the will Scott platform back to the Forex, but into the second quarter 2023 to four range is a very comfortable range at Fourx we have.

Great flexibility right as you de lever from four down to three that just increases and my main priorities to continue to reinvest in both organic and inorganic growth opportunities as Tim mentioned being closer to three X. We've got all the agility. If you will to consider all options return value to.

Shareholders et cetera.

My first focus is to continue to reinvest in growth.

Yeah, I don't know Theres anything else that I think we're completely aligned I think the story here is the free cash flow is so robust that it certainly gives us plenty of options and alternatives in terms of cap allocation and them.

Both of US had had focused on Delevering I think that that's something that we've been able to achieve and like I said. The combination just is certainly a exciting to see the free cash flow the combo and I think that did certainly the capital allocation structure something for us to continue to discuss as we go forward.

Got it thanks, guys and just lastly to wrap up to this.

A little discussion.

Brad maybe you could talk about what you're thinking on that the many dividend.

Is that a source of cash flow synergy or will the combined company.

Have a dividend I think you correct me if they can and then he's got like a 3% yield.

Yeah, I think the I mean, not only a matter for the new board to take up.

I've reiterated my.

My primary focus is to continue to reinvest in the organic and inorganic growth opportunities across the two portfolio.

But that's something as the new board will take up as a first matter business and I would just add to free cash flow.

Ranges that we've articulated assume organic reinvestment in the business and no assumptions around return of capital.

Until the board determines that.

Okay. Thanks, guys best of luck.

Thank you. Thank you.

Your next question comes from Kevin Mcveigh with Credit Suisse.

Great. Thanks, and congratulations to all you Hey, I wonder.

If you could give us a sense of you know the once let articulated that's growth and incremental hundred 30 million still achievable is there any way to put some parameters around what the combined entity can achieve from of apps perspective, So pro forma what that can mean and you know maybe just some runway round.

When it gets achieved.

Yeah, I think yes, Kevin we've mentioned in the prepared marks the first target the cross sell the will Scott ready to solution into the mobile mini ground level offices.

Already providing that port that sweet if you will to the will Scott ground level office fleet will be it's much smaller.

So that was.

I think I quantified that has a 35 million EBITDA upside again remember it takes about three years as these a long lease duration.

Projects and and returned back through the through the fleet.

The incremental to the 130.

And I against the less because we've talked on.

All of our past, earning calls we continue to see that penetration increase.

Which has continued to extend the duration of that revenue opportunity.

Yeah, Kevin I would add this is Kelly I would just add it.

First of all its a heavier.

What to what Brad and team have done here well Scott with the so they're ready to work.

Then the Vaps rollout as has been impressive I think it's becoming obvious the customers are looking for convenience and you can see that evidenced by by what they've done with the ready to work service and also mobile Minis managed service.

Business that that's grown substantially although it at a much lesser degree, but I think when when you look at how compelling to two organizations coming together. Our this was another big piece of this where I think scales important convenience is important to the customer and it's a it's a real opportunity for us to cross sell really on both sides I would say with with managed services, we really just.

We are getting started and mobile mini and I think this is a chance to launch that side of the business as well. So certainly another piece that makes us very compelling.

Got it and then just any thoughts around would you expect in HSR, revealing on this transaction or no.

Yes, yes that becomes a combination is subject to receipt of anti antitrust approval. So we will file.

Thank you.

There will be yes file.

Your next question comes from Courtney covenants with Morgan Stanley.

Hi, Thanks to the question I'm, just curious on the plant footprint you know.

On in the deal with mods status. It seemed like a lot of the synergies were coming from footprint consolidation. It doesn't seem like that's the case the steel. So maybe can you just talk a little bit about why you need the 275 footprint and if there's any different dynamics between portable storage versus you know a combination with.

Another modular office player that that might require additional footprints or is that just something that hasn't been decided yet.

It's a great question I'll start and then Kelly should jump in as well.

As you appropriately recall mud space was much different but it was to almost entirely redundant.

Branch networks.

And in fact sales team our approach with this combination will be much different at the field level. So our expectation to think of as simply would be the mobile mini storage division will be kind of a parallel to the will Scott Office Division.

There are some opportunities on real estate, if you look at the because slide 12 with the green dots in the blue dots.

Imagine as a first step everywhere there is a green will be able to start moving blue storage through and vice versa.

But I would say to our expectation as far as actually.

Combining branch off operations, we're going to take some time here through the first certainly through close in the first half of the year and be very methodical with that my expectations. We sit here today.

Two complementary sales teams one focused on office that will cross sell their counterparts in office and vice versa. So.

And I'm really excited to have Kelly as the COO.

The lead that.

And coordinate a I would just add I think.

And on the portable storage side of the business. It's a very fragmented industry. So when you think about footprint, where we get beat even as a national player were six times larger than in the next nearest competitor. It's typically from a logistics standpoint, so about 20% of our revenue is driven through trucking and.

You know so much which we can be a a premium brand and b 20, or 30% higher than our competition on the rental but the trucking piece is a significant cost to add to that to the customer. So this footprint specifically I can take cities like Chicago, Atlanta, where we've got a cell site location.

It's difficult for us to compete on the north side due to trucking costs. So this additional footprint that the combined company has I think as a real competitive advantage for US went up I know that theres going to be some consolidation down but I do believe is bread and I've discussed theres some real opportunity to take some of these branches that might be a little bit smaller and certainly with the combination be much more robust and much more competitive.

Yes.

Certainly on a legit from a logistics standpoint.

Thanks that helps that's helpful. And then if you could also just comment a little bit on the current customer overlap between the two organizations right. Now I know you guys have historically talked about you know most of your customers also have a portable storage on their site, but you have sense at this point of the actual customer overlap.

Importantly, as you'd expect Theres, a fair bit of that specific detail that we really can't get into until close.

We have done some.

Assessing if you will at a high level.

I'll, just say across the diverse end markets I'd characterize it as I've been on past calls we have about 90000 mobile offices simply a drive by most or a lot of our job sites from tribal all 90000, but you would typically see 212 or three storage units around our offices.

And by the small scale of our current container fleet, they're not our containers and oftentimes, it's mobile many but as a as Kelly represented there. The six there's six times. There next competitor the balance of that market is extremely fragmented. So I think you know over.

Over time, we'll be able to be more specific I.

I think the overlap will be high I think both solid.

The majority of more of our end markets require both storage and office and that's what really excites me about the the revenue upside here the cross sell potential.

Great and then just waiting for any of this is Tim just the one other point while there. We believe there is substantial overlap there is no customer concentration and one of the beauties of this portfolio in both companies as you've got this extreme diversification and fragmentation within the customer portfolio, but you've got the visibility that comes.

From the 30 month lease duration I think in our are in 2019, well Scott's largest customer was 1% of revenue.

And.

So there really has no concentration when you when you break down our portfolio. So you're maintaining those kind of mechanical elements of both customer portfolios of getting some diversification. But then also recognizing there is going to be a significant amount of job site overlap which is great.

Thanks, That's helpful. And then just lastly, I'm on the last 12 month delivered rate I think fell this quarter I'm correct me, if I'm wrong, but but can you also just elaborate a little bit on any dynamics I might have been impacting that.

Yeah, just normal Q4 trends coordinated care, while it did go down sequentially, it's up I'm, even more year over year.

39% so.

We're not we're not it will fluctuate were not reading too much into that and heading into 2020 and coming out of breads by annual sales meeting we've got targets significantly above the 275.

Employed across the Salesforce today, so continue to see upside to that.

Okay. Thank you.

Your next question comes from Phil Ng with Jefferies.

Hey, guys. The 7 million free cash will know combined free cash number is a big number implied for the low to mid teen free cash will yield. So that's great I guess I guess I take your combined 2020 of free cash flow and give you full credit for the 50 million, excluding any cash cost synergies.

I guess I've got 340 number so the bridge that implies about 50% increase so whats a realistic timeframe you get to that 500 million number and what are some of the major drivers you got to get there is there anything else outside of EBITDA growth that's driving it.

Yeah, there were really two things and I think Ross touched on this a bit earlier, so Phil first of all as Brad mentioned in terms of the soon synergy realization will get to 80% run rate. We believe 24 months post closing the transaction. So that's taken you into a middle of 2022 right there before your approach.

For the full synergy realization.

Upfront, we will be incurring approximately $75 million of integration costs. So that's going to be a near term a free cash headwind, but as as those integration cost subside and the cost synergies build.

Pick up to 50 to 75 goes away plus some organic.

Growth coming from topline lease revenue, it's really those three elements that are going to bridge you organically.

To that circa 500 million dollar number.

Okay. So it's going along the way you're also going to be de levering and and interest cost will be coming down. So levered free cash flow is going to benefit from that.

Okay. I was just wondering if there any other drivers outside of the just core organic growth, but this quarter, just core and completion of the integration yeah, and what will we kind of give an abbreviated fourth quarter.

Tim mentioned, 15.1% year over year rate growth again, this our ninth quarter or such of double digit rate growth.

So we continue to see that driven about 40% by of apps and the base through or the balance through the base rate on the box so [noise].

Oh.

Organic growth if you will will continue.

So its anchored by the organic growth and Brad sounds like that double digit run rate in terms of [noise].

Price mix improvement do you feel pretty good about sustaining throughout the balance of to get to your 500 million number.

Yeah, as we've characterized I mean that its a.

Lets say in the mid teens, it's a bit superheated are elevated if you will just because of the inefficiencies in the acquired prior office portfolios, but certainly achieving double digit 10% over the next couple of years is something I feels quite achievable.

Got it and then in terms of.

Integrating two big companies you guys have a great track record on that front, but what are some of the biggest riskier.

Pushing his sales a little different is the ERP system any different.

How does salesforce.

Approaching the self process or they can compensated any differently.

Yeah, I would just say I'd reiterate that are in tension here again much different than much space is to largely leave these two operating divisions as they are.

And be very thoughtful overtime as to what and how to combine.

Obviously, there will be opportunities to collaborate and national accounts.

We've mentioned obvious opportunities to cross sell the Vaps and mobile Minis managed services, but those don't require immediate system changes nor do they really require organizational changes that's just being.

Good at collaborating as we are.

Got it and just one last one for me I think in the prepared remarks, you called out a 35 million dollar opportunity on your.

Implementing you're ready to work offering across minis platform can you expand on that a little bit and what needs to happen.

Yeah, just high level. So we had about 30000 units in that flee assume 80% utilization.

We assume the vaps level that will scott's been delivering for that kind of 160 square foot offering.

In the last 12 months and use that as a basis for something that we feels quite achievable again, it's just paced by the three years will take for those ground level offices to international projects return and be redeployed.

Alright, Thanks, a lot appreciate.

Your next question comes from Manav Patnaik with Barclays.

Hi, This is actually a Greg calling and I just wanted to hit a little bit more on the salesforce orientation, and just given that you're going to have one organization. That's been more focus on the modular face them and one on the on the storage side. Just how are you guys thinking about standing up a.

Pieces organization on the cross sell opportunity or how is that going to be oriented on one side or the other.

Yeah. Greg This is Kelly I'll start here I think a lot of the diligence that we did Brad and I as we were discussing the organizations was was really centered around that.

The sales structure and I think it's it's really important right now but that these we look at these two independent it's it's very obvious that Theres cross selling opportunities I mean, I can give you. So many examples from a managed services standpoint, where we can.

Re rent other products and mobile offices are one of those that are become very obvious, but I think there's a there's an opportunity for us here a little bit longer term to have a go to market strategy at at a higher level within the organization in terms of how we have this said the two complimentary products and service offerings that we have to be in alignment with the sale.

Forced to go forward, but I think that's that's somewhere down the road I think what we want to do right. Now is just you know there are our best practices, we have tremendous in this industry knowledge between both organizations and I think there's some opportunity for us here to the identify what we can do with these sales reps to become more efficient and overtime.

I understand exactly how we can we can fit that the two together, but in terms of.

Head count is certainly on the mobile minis side. We are we are never it full staff there, there's always opportunity to grow and based on all of the market data. We have we certainly would look to continue to add so I don't know that its consolidating an employee base as much as is trying to figure out kind of what that go to market strategy is so we can take advantage of of of both brands.

Cross selling at a higher level.

Thanks, Good I would add is just the operation side of that said Theres an earlier question contrasting this to the Mod space combination.

You'll recall from prior presentations between Tyson Acton and Mod space. We went from operating over 200 branches to about 120 now right that was a massive disruption within our field both operations and sales organization.

This is much different right if we combine our branches we've got 275.

There will be some opportunities.

To improve the efficiency, but as far as like branch closures and consolidations it'll be very low percentage of that a much much different than than we experienced with the mob space.

Okay, and then maybe on the the managed services side has this been something that.

You know on the well Scott side, you've looked into is it contemplated any as a capex this year and maybe how it sounds like it's even early days for mobile mini so just some thoughts on the opportunity there.

Yeah, we've actually been doing it but not with the focus that mobile minis applied.

A portion of our ready to work of apps value.

The the we have been quantifying every quarter is through other third party services, such as Rerenting portable toilets, and the such so.

Our primary focus has been drive the growth via the furniture, we haven't let's say stopped any of that to related manage park. A managed services offered opportunity. So I think just.

Taking the platform the mobile minis put in place.

Allows us to really do both yeah, and just to clarify Greg. The the managed services portion of mobile Minis business does not require a capital it's strictly through re rent process with a third party.

That makes us all right. Thank you guys and congratulations.

Your next question comes from Alex Morris Young with Baron Burke.

Hey, good morning, guys. Thanks for the question.

So I got a two parter here in terms of the integration what kind of ramp up of asset purchases are you guys expecting given a possible utilization boost from cross selling.

And then the second part is just looking at some of the differentiating technology is between the companies in terms of maybe unit tracking locks et cetera are these are baked into that 75 million dollar onetime number you identified.

This is Tim I'll start with a combined <unk> organic capital expenditure outlook for the two companies and I think you'll find that it's quite similar to the two standalone trajectories and the business on a combined basis can easily sell fund kind of be organic fleet requirements.

Across all asset classes, so on the well Scott side, we're operating in the mid seventies in terms of modular office utilization, we've got several years.

Of organic volume growth that can be supported with the existing fleet and I know a mobile many has invested in fleet over the past.

Year, so to the point, where the outlook for 2020, a fleet Capex spends are actually quite modest Kelly you can feel free to elaborate as we look forward.

But the free cash flow ranges that we've articulated looking out two three years here fully support.

Combined fleet needs of the business.

I think is Brad the other part of your question was with respect to 75, the 75 million of cost associated with achieving those synergies that's primarily related to combining the ERP.

So so cheap professional service support it's the third party help will bring it to facilitate the integration.

And people and the branch related.

Opportunities as I mentioned before that's we don't include capital investments to upgrade assets. If you will add locks et cetera, that'd be within our normal a free cash flow.

And that Capex.

Yes.

[noise], Okay got it and then God.

Yeah, Alex just real quick I did want it to a to add and I think you brought up technology. I think this is a really big opportunity for us in terms of the combination of both companies as we look at.

You know the implementation of Sep It takes a couple of years, but in terms of creating operational efficiencies.

Mobility everything around route management with logistics I think that again, so many great strengths of both brands coming together I think theres an opportunity here for us to to harmonize from from a tech standpoint, and really improve between both companies the operational efficiencies and share best practices, that's a big.

Opportunity for tailwind here for us.

Got it I don't make sense and then another one just sectors that makes sense to cross sell into how does the current geographic footprint aligned with the strategy there and what sectors you think it up specifically.

This is this is Kelly I mean, I think it's really across all end markets. They're very few maybe maybe a retail where we do our seasonal business, but even that would have there would be some demand for offices, but everything that we have I've been able to identify in terms of cross selling opportunities and end markets are quite frankly.

Theres.

True overlap and I think it's evidenced by our managed services opportunities as I brought up it's a convenience factor to be able to provide other other products in this case again we.

We re rent those product, but those the mobile offices are one product that comes up on a regular basis and the customers willing to pay a premium to for us to be able to to find those those products. So I think it's very obvious across most end markets that there's an opportunity for us to cross sell based on our all the data points that we can come up with.

Yeah in Kelly really hit it on that slide 12, and the deck. If you look at where Theres green only dots are blue only dots I mean that really highlights the cross sell potential I mean, who got to will Scott well established in Canada and Mexico.

Minis kind of just on the fringe there and then even within the U.S. you can't really call out one geography, where neither is present.

But if you look city by city, there's certainly opportunities there.

Great. Thanks, a lot guys.

Your next question comes from Brent Thielman with D.A. Davidson.

Great. Thanks congratulations.

Maybe a couple of quick for Tam I think I'm, just wondering what the breakup the might be associated with the transaction and then the billion dollars and combined and allows any restrictions associated with that.

Yeah, we spent a lot of time on the noel's, Brent and we feel very good about the ability to kind of consumed those over the next three to four years and that's one and one of the great attributes of the business is historically both companies have been extremely tax efficient and we expect that to.

Continue so while there are some restrictions related to say the mud space and a wells we can sequence the utilization of those and wells and way that does not.

Restrict the business and frankly defers, the cash tax obligations of the business in the U.S.

Several years out into the future. So we feel feel very good about the NFL situation, we've got to a break fee.

Mutual break fee, a 3% of equity value of the transaction.

In either direction.

I'll stop there and see if you have a follow up.

No. That's that's great and then I guess just one on the legacy I got caught legacy well Scott outlook for 2020.

I didn't see it in there, but can you quantify or sort of qualify what kind of rental rate performance your expectations kind of embedded in that 2020 outlook.

Yeah, its continuation of the double digit year over year trends that we've seen in the U.S. modular lease revenue lines, not 100% or the revenue, but the trends that we've been seeing in the U.S. a modular lease revenue.

We see the 10% year over year.

Rate growth continuing I did flag there is a volume had.

In the first half of the year, we've talked about the volume trends in the business.

We are assuming sequential pickup in volumes going into Q2 in Q3.

So think about this as a continuation of the pricing and value added products trends that you've seen for several quarters now.

And then a return to normal sequential volume growth just based on the natural seasonality of the business and then the last building block is just the continued synergy realization coming out of the modest based deals so those three things.

Our our really taking your from where we ended 2019.

Two or 2020, and I would you say you know the vast majority of that bridge. We believe is in management's control.

Okay, great. Thank you.

Hi, I'm showing no further questions at this time I will now turn the conference back for closing remarks.

Okay, well. Thank you everyone I'd like to just to remind you of two points with respect to this transaction first both will Scott and mobile mini have outstanding teams with proven track records of delivering profitable growth and together, we will be even better positioned to generate stockholder value.

Specifically as Tim mentioned upon all full realization of the cost synergies, which will be two years post close we expect the combined company to generate approximately 500 million an annual free cash flow so with that we'd like to thank you for joining us. This morning, and thanks for your continued interest in our company.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.