Q4 2020 Willscot Mobile Mini Holdings Corp Earnings Call
Welcome to the fourth quarter, 'twenty 'twenty, well, Scott Mobile Mini earnings Conference call. My name is Sia and I will be the operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct the question and answer session. Please note that this conference is being recorded I will now turn the call over to Nick.
Gerardi director of Treasury, and Investor Relations, Nick you may begin.
Good morning, and welcome to the Wills, Scott Mobile mini fourth quarter earnings call participants on today's call include Brad salts, Chief Executive Officer, Kelly Williams, President and Chief operating Officer, and Tim Boswell Chief Financial Officer, today's presentation materials may be found on the investor.
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Slide two contains our safe Harbor statement, we will be making forward looking statements during the presentation and our Q&A session, our business and operations are subject to a variety of risks and uncertainties many of which are beyond our control as a result, our actual results may differ materially from today's call.
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For a more complete description of factors that could cause actual results to differ and other possible risks. Please refer to the safe Harbor statement in our presentation and our filings with the SEC with that I'll turn the call over to Brad Salt.
Thanks, Nick Good morning, everyone and thank you for joining US today as you saw in our press release yesterday will Scott mobile mini had a tremendous and transformational 2020.
Our team rose to a set of challenges. Unlike any we've tackled before and I'm proud of and grateful for their efforts.
From our safe and rapid response to COVID-19 pandemic true our transformational merger between will Scott the mobile mini our business portfolio and team demonstrated the resilience and ability to create value for all stakeholders, most importantly of which our customers.
Now before discussing earnings and on behalf of the entire will Scott Mobile Mini board.
Like to start by thanking Kelly Williams for many contributions he has made his mobile mini's CEO and will Scott mobile mini C O K.
Kelly has decided to transition for our company in July.
Kelly has built an incredible enterprise and mobile mini and he was instrumental in planning and executing our integration his impact will be felt for many years to come I speak for everyone at will Scott mobile mini when I Express our gratitude for his leadership and partnership and I wish him. The best of luck as he pursues the next.
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Now turning to page five of our presentation. As you know we are a leading business services provider specializing in innovative flexible workspace and portable storage solutions, we serve diverse end markets across all sectors of the economy from a network of over 275 branch locations.
And the additional drop lots in North America and UK.
The business attributes listed here constitute of formula for sustained growth and returns and we see clear evidence of each one in our fourth quarter results, which were outstanding.
The first leasing revenues increased by 4% year over year on a pro forma basis in our north American modular and storage segments illustrating the durability of our revenue streams. This was driven by a 13% year over year pricing and value added products growth in the modular segment illustrating the expanding VAT.
New proposition that we offer our customers.
Adjusted EBITDA of $180 million increased 8% and adjusted EBITDA margin of 41% expanded 580 basis points versus prior year on a pro forma basis.
Our sequential progression from the third quarter was exceptional with the 190 basis points increase in adjusted EBITDA margin all underpinned by continued vast penetration core price increases and stable units on rent.
For the full year 2020, we generated 646 million of pro forma adjusted EBITDA, an impressive achievement given the unprecedented operating environment.
We also generated $87 million of free cash flow and of 20% free cash flow margin in the fourth quarter well on our way to our target of $500 million of annual run rate free cash flow by the second half of 2022.
Now despite the pandemic and the major integration effort that is underway our financial results of accelerated and this is entirely due to the commitment and determination of the combined will Scott mobile mini team.
The kept one another safe you've executed at the highest level, you've always kept the customer first and of truly a best in class organization.
Now successful as 2020 was I'm, even more excited for our future.
New order rates pricing and value added products penetration continued to trend favorably across the portfolio and we expect to deliver 6% revenue and 8% adjusted EBITDA growth organically at the midpoint of our 2021 guidance Tim.
Tim will discuss guidance in detail later, but the key drivers of our business as well as our strategy are unchanged.
Volumes are stable and expected to improve over the course of 2020 with powerful tailwind from pricing and value added products the <unk>.
Benefit of M&A continues to flow to our bottom line and we have an incredible opportunity to drive long term growth and value creation for years to come simply by building. Upon the best practices that are already in place that will Scott mobile mini.
On page 11 begins to frame the opportunities that we see internally.
Our portfolio of multi year growth levels levers continues to expand.
As premised in the merger announcement, we continue to optimize pricing across our fleet as we work to implement dynamic pricing customer segmentation and contract standard of standardization across our segments.
<unk> penetration continues to grow in the modular segment with the 13% increase in the last 12 months delivered <unk> rate versus those of the prior year.
We are also now began to implement <unk> and the legacy mobile mini ground level offices and storage fleet.
Through the course of the pandemic our team has effectively offset the nonresidential headwinds by leveraging our unique value proposition to capture incremental demand across our diverse end markets as well as geographies as.
As well as we began sharing cross leads cross selling and sharing leads across our storage and modular platforms.
The combined talent and expertise of the sales force is absolutely one of our biggest competitive advantages.
The expanding application of technology is helping us maximize cash flow, creating operational efficiencies and opportunities to further reduce cost we are well on our way to integrating the legacy will Scott and mobile many back office infrastructure, which supports our cost synergies and back office efficiencies our system.
<unk> is on track for the first half of this year and we have a growing list of operational improvement opportunities, which will continue to contribute to margin expansion in 2021 in future years.
We will continue to deploy capital strategically.
We use the rolling 90 day zero base capital allocation process, which helps us react quickly to changes in customer demand, which you saw fully owned display in the second and third quarter of last year.
Based upon the demand we see today, our guidance implies that we intend to reinvest in growth in 2022.
Our scale and organic initiatives.
Enable us to drive value and our successful M&A track record gives us confidence to continue to pursue accretive acquisitions.
Finally, we will continue to reduce leverage and return capital to shareholders.
Reduce leverage to three eight turns in the fourth quarter well on our way to a targeted range of 3% to three five by the end of 2021.
Our $250 million share repurchase authorization is in place, which we used in the fourth quarter to opportunistically repurchase $35 million of warrants and share equivalents.
Now moving to slide 12, leveraging our strong core values and the inherently sustainable value proposition and our temporary modular in storage solutions, we are developing our ESG roadmap.
Our chief Human Resource Officer has run Lopez is leading our ESG planning efforts in partnership with the recent attention addition to our team Jamie Bullhead.
She is our vice president of ESG.
Of our board of directors is actively engaged in this process and we will share of key focus areas in the 2021 proxy and a more comprehensive roadmap by this time next year.
Our ESG strategy will align with our core values and our business strategy to drive both value and sustainability.
Stay tuned for more to come over the next year.
Turning to page four I'm, sorry, 14 <unk>.
Despite ongoing nonresidential headwinds during the fourth quarter, we saw the 3% increase in year over year deliveries and our modular segment and only a 5% decrease in our monthly deliveries in the storage segment module, the utilization was stable sequentially and storage utilization increased year over year.
Looking ahead, we expect modest sequential unit on rent growth across the portfolio as we continue to offset the nonresidential construction headwinds by serving our customers' needs for additional space to accommodate screening and social distancing across our diverse end markets as well as leveraging new opportunities such.
As of the support of vaccination distribution returned to schools across all of our geographies.
The expected modest improvements in nonresidential construction would result in modest year over year volume growth by the end of the year.
Our branch network is ramping and staff to support this demand even as our corporate resources are laser focused on integration.
We have strong and sustainable tailwind as pricing accelerated across both modular and storage segments, along with increased <unk> penetration.
We've delivered the 13th consecutive quarter of double digit modular price increases with a 13% year over year in the fourth quarter.
In our North American storage segment rental rates increased 3% Mark in the 30 <unk> consecutive quarter of year over year rental rate increases and our U K segment continues to achieve outstanding results with an 18% year over year price increase.
These fundamental improvements underpinned by the outstanding financial results in the fourth quarter form the foundation.
<unk> of our outlook heading into 2021, which Tim will further address with that I'll hand, it over to Tim.
Thank you Brad and good morning, everyone.
Turning to page 19, our 2020 results were exceptional showing yet again, the resilience and accelerating earnings potential in our business.
I'll touch on a few key highlights from the fourth quarter results.
Leasing revenues for the North American modular and storage segments increased 4% year over year versus 2019 on a pro forma basis, driven by price increases increased <unk> penetration storage volume growth and stabilizing volumes in modular.
Amidst the pandemic and an unprecedented GDP contraction. This is remarkable validation of the durability of our lease portfolio.
This organic growth translated into 8% adjusted EBITDA growth with $180 million of adjusted EBITDA in the quarter.
And our adjusted EBITDA margin of 41, 1% set of new company record expanding 580 basis points versus 2019 on a pro forma basis.
We generated $87 $4 million of free cash flow and of 20% free cash flow margin in the quarter.
This puts us on approximately of $350 million of free cash flow of run rate for 2021 and between completion of the integration execution of synergies continued deleveraging and organic growth. We have a simple playbook to achieve our $500 million run rate free cash flow milestone by the second half of 2022.
We reduced leverage to three eight times, our pro forma last 12 months' EBITDA and are easily easily on track to achieve our three to three five times target by year end 2021, and I am very pleased to see that our GAAP net income and earnings per share metrics are coming into focus with solid profitability for the year as well as in our last three years.
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With those outstanding results in mind I am excited to share our 2021 guidance of $675 million to $715 million of adjusted EBITDA, which represents between 5% and 10% year over year growth and will put us on a trajectory for another great year in 2022.
Sure.
Moving to page 20, I'll point out of few nuances in the quarter revenue of $438 million increased 5% sequentially from the third quarter and was flat versus prior year on a pro forma basis.
If you break this down leasing revenue increased 11 $4 million or 4% on a pro forma basis and was up year over year in all of our modular and storage segments, delivering installation and sales revenues were down, 2% and 30% respectively, resulting in the flat consolidated top line again of pro forma.
The U.
But the strength in leasing revenues is very encouraging and is the foundation for our 2021 outlook.
Modular units on rent in the North American modular segment declined only 50 basis points sequentially from Q3, which is stronger than our typical seasonal progression from Q3 to Q4 and.
And pricing and value added products inflected sharply with the 12, 9% increase in the North American modular segment.
The storage segment volumes increased year over year, although pricing was flat in North America with strong increases in the UK as Brad mentioned and Thats an area, we will focus on in 2021.
Again solid 8% EBITDA growth record margins of 500 up 580 basis points and in the bottom right chart, you see of very strong free cash flow quarter, even with a $13 million increase in fleet investment and approximately $12 million of integration related costs.
Page 21 goes into more detail regarding our cash flows our cash from operations continues to grow approaching a $130 million into 4% sequential increase from the third quarter. Once you adjust for the merger transaction costs.
Cash used in investing activities has been in a consistent range I will note that these numbers are not pro forma so the year over year increase in the fourth quarter is simply attributable to the inclusion of mobile mini as well as $5 million of it investments to support the integration.
Most importantly in the bottom right chart I'll highlight a dramatic expansion of our free cash flow margin, while the fourth quarter as always of higher margin quarter, We're seeing 20, 20% flow through to free cash flow since the merger closed if you adjust for the transaction costs incurred in the third quarter.
I'll caution this margin will fluctuate quarter to quarter as we flex our capital expenditures. However over the long term integration costs will go away the synergies will flow through and you can see the cash flow of potential that this business is capable of generating.
In the fourth quarter, we repaid $52 million of debt and repurchased $35 million of warrants and share equivalents. So this cash flow profile clearly gives us optionality from a capital allocation standpoint.
I won't belabor page 22, all of the same factors that are driving margins and free cash flow will drive GAAP net income and EPS I will note from a modeling perspective.
Pretax income our GAAP tax rate and our share count are all stabilizing. So we can start to be more precise with these estimates and I expect these metrics to ramp significantly.
Turning to page 23, there of.
No changes to our debt structure other than our rapid deleveraging trajectory.
We finished 2020% of three eight turns of leverage and over $1 billion of liquidity and our asset backed revolver.
Our weighted average cost of debt is approximately four 1%, which implies an annual cash interest run rate of approximately $104 million.
We are easily on track to achieve less than three five times leverage by the end of 2021, which gives us ample balance sheet capacity.
Our debt structure is extremely flexible with ample liquidity and no maturities until 2025.
And we'll continue to be opportunistic and further optimization of the structure.
Now to the 2021 outlook on page 24.
We're set up for a great year in 2021.
At the midpoint of our guidance, we expect to deliver 6% organic revenue growth and 8% adjusted EBITDA growth with approximately 50% flow through of revenue to adjusted EBITDA.
We're cautiously optimistic on the market backdrop.
And are assuming of strong GDP growth with a modest 2% to 3% recovery in nonresidential construction square footage starts, albeit well below 2019 levels.
This market assumption supports three 3% of 5% year over year delivery growth across our segments, which would translate into modular unit on rent growth on a year over year basis by the end of 2021 and continued year over year storage growth in volume.
These delivery volume improvements would be strongest in the second and third quarters, which would drive increases in variable costs and capex relative to prior year and it would increase our mix of lower margin delivery and installation revenues in those quarters.
So we would expect margins to actually contract both sequentially and year over year in Q2, and perhaps in Q3. If this demand picture holds up.
That said margins should then increase normally into the fourth quarter as variable costs normalize ending the year with margins 100 to 200 basis points above the record margin. We just achieved in the fourth quarter of 2020.
Also due to this volume assumption, we expect net capital expenditures to range between 180 million to $220 million as we fund the vast growth modular fleet refurbishment and new fleet and select the products and markets.
Of course these investments are entirely demand driven and we can flex the range up or down as we did in 2020, if the demand environment changes.
So there could be larger than normal margin fluctuation based on our demand assumptions as we progress through the year, but this would imply a welcome improvement in the market backdrop as volume rebuilds and synergies flow through in the second half margins will stabilize and our overall run rate will be on a solid upward trajectory into 2022.
Page 25 provides an EBITDA bridge for the year the illustrates how we get to our 'twenty one guidance range.
We obviously have massive tailwind from pricing and value added products that are driving the business, primarily within our north American modular segment our.
Of our modular pricing and value added products assumptions for 2021 are consistent with what we've discussed previously that we do see upside more so in 2022 as we apply some of these practices across the portfolio.
Our current outlook suggests that contribution from volume could inflect through the course of 2021 Mark.
Modular volumes are down three 7% to start the year, representing a near term headwind.
Based on an improved demand outlook, we would easily invest an additional $20 million of variable cost relative to last year, primarily in the second and third quarters, which will begin rebuilding volumes.
And by the end of 2021, we could be in a position where volumes are contributing favorably to year over year revenue growth.
Ironically, if volumes are stronger than we expect this variable cost headwind could be greater in 2021, but would result in an even stronger revenue run rate heading into 2022.
The reverse would be true if delivery volume soften like they did last year.
Lastly, we see synergy realization as we expected approximately $10 million of the remaining <unk> synergies should build through the course of the year.
And we continue to see the mobile mini synergies building in the third and fourth quarters as planned.
We are expecting some cost inflation in areas like occupancy expenses and employee comp and benefits, but overall this outlook for 2021 is in line with what we were forecasting back in the second quarter of last year as we were closing the mobile mini merger so no surprises from our perspective.
Lastly on page 26, our capital allocation framework is unchanged and I believe our remarks today have been consistent with this framework our free cash flow is clear as is our deleveraging trajectory we plan to invest in organic growth opportunities supported by what currently feels like a strengthening market backdrop, we are.
<unk> M&A opportunities and don't have any major balance sheet or operational constraints.
And we repurchased $35 million of share equivalents opportunistically in the fourth quarter.
As I turn it back to Brad I'd like to thank the entire well Scott mobile mini team for their perseverance and great results in 2020.
Your hard work has transformed the company and puts us on an exciting trajectory not just for 2021, but for years to come.
Brett Thanks, Tim turning to slide 27, our scale technological sophistication and commercial position all support the powerful levers we have to create value for years to come at any point in the cycle exiting.
Exiting 2020, our pricing momentum has continued with the large portfolio of opportunities that we're excited to execute.
<unk> in both modular and storage represent significant further growth opportunities. Our sales team is already working together to cross sell of natural result of the end market and customer overlap between our segments in North America, the complementary nature of our business and the culture and values alignment of our team.
We have about $60 million of synergies the remaining to execute from this merger and prior acquisitions and our strong track record makes us confident we can deliver on this expectation.
We are thoughtful and deliberate as we consider our capital allocation and we will continue to prioritize growth deleveraging and share repurchases.
Now moving to slide 28, our management team is in place to drive our long term goals and harness the combined expertise of the legacy will Scott and mobile mini organizations. We are aligned on our core values and prepared to continue to deliver excellence in 2021 and beyond.
As always thank you to our team for supporting our company and our customers I also wish all of you listening today continued safety and good health. This concludes our prepared remarks, operator would you. Please open the line for questions.
At this time, if you would like to ask the question. Please press star one on your telephone keypad again Thats star one for any questions. We'll pause for just a moment to compile the Q&A roster.
And our first question will come from Ross Gilardi with Bank of America. Please go ahead.
Hey, good morning, guys.
Good morning.
I just wanted to ask you about the $500 million.
Free cash flow target and just longer term how to think about our conversion rate and then if I take your EBITDA guidance for 'twenty, one add a little growth in 'twenty two it would seem to imply EBITDA to free cash conversion of somewhere in the neighborhood of 65 Tim.
70% is that a fair way to.
To look at it.
Going forward I think you said $500 million run rate by the middle of 2022 of them I'm, just trying to think of it more on the conversion rate.
On a long term basis.
Hey, Ross this is Tim.
As the portfolio stabilizes, we'll be able to dial that in but I think youre heading in the right direction. Okay. So take Q4 as an example, we did call it $180 million of EBITDA and $87 million of free cash flow, that's almost 50%.
Conversion that is burdened with call it $12 million of integration related expenses. So you can take that conversion rate of little bit higher.
But it's also a higher higher margin quarter, typically, but it's illustrative of where the business is going so to your point as we roll roll of the business and the portfolio of forward with some organic growth driven by pricing and value added products those items are going to flow through to EBITDA.
And frankly, frankly cash flow.
At north of 80%.
And then the only other variable is to what extent are we are we reinvesting in the business and Capex right and I do want to highlight that the can fluctuate quarter to quarter, typically Q4, and Q1 would be a little lighter.
If we're in a normal seasonal pattern, we would dial that up with some fleet refurbished refurbishment in Q2 and Q3. So I'll pause there I think you've got evidence of what's possible in Q4, and some I think very logical reasons to believe the that can go higher.
What are the one timers, Tim on free cash flow of that go away from 2020 of that go away in 2021.
So we've called out the integration expenses I think in last quarter's call I said that would be between 10% and $15 million per quarter.
We definitely realize that in Q4 of portion of that about $5 million has been capitalized in our expenses.
But that is still of cash headwind that we that we incurred and will continue to incur through Q2, and then I would expect that to begin to taper down as we get to the end of 2021.
Okay, So you'll have $10 million to $20 million per quarter of integration for two quarters next year. So you'll have sort of $20 million to $40 million of integration expense the drops off on a full year basis in 'twenty, one of that what you're saying.
Yes on a full year basis, yes, that's right.
Okay and then just the last one on your bridge you show net synergies of $5 million to $15 million in 2021 per EBITDA, but you talk about on one of your first few slides of about $60 million of cost synergies left to execute I'm. Just wondering what's the growth synergy number baked into the 'twenty one outlook and can you give.
This a little bit better sense of the buckets for the the $60 million longer term and the timing for achieving that.
Yes, let me just tell you what is building during the course of the year. So we've got about $10 million of Mod space synergies that will build through the course of the year. So call. It $5 5 million of full year contribution in the P&L.
But based on the wells Scot mobile mini merger, we always said that about 30% of the $50 million of cost synergies would be begin building 12 months post closing so 30% of 50 is $15 million 15 divided by four to $3 75, so of 375 of incremental uplift in Q.
Three then growing thereafter to about 80% contribution for <unk>.
Synergy realization by Q3 of 2022.
So those are the synergy components.
I think like any business, we do have some other inflationary factors in the business occupancy occupancy expenses, some employee comp and benefits of some things that.
I would point to but for simplicity sake, we just presented kind of of net for purposes of the bridge.
Okay. We can take it offline if the math is there's so many puts and takes on the map, but I'm just like on an absolute dollar basis is it possible just to say what the growth synergy number baked into the 'twenty. One outlook is the gross number not the net number.
Yes, I'd call it 20 millions of Scott.
Okay, Alright, thank you very much.
Sure.
The next question is from Scott Schneeberger with Oppenheimer. Please go ahead.
Thanks, very much good morning.
I would like to ask you about the sustainability of the the double digit rental rate growth in North American modular.
As well as the high single digits.
Plus the rental rate for gmos in storage clearly driving the business nicely.
Is this.
Throughout 'twenty, one is the sustainable, particularly in North American modular and potentially beyond thanks.
Yes, the double digit rate growth of set.
For <unk>.
Several calls now we think sustainable.
Certainly next year and I think for years to come.
If you just.
Look under the Hood of the.
The composition of <unk> got 40% of that coming from <unk> growth.
The vamps rates were up again on new deliveries, 13% year over year.
$311, we've always talked about $400 is our internal target.
We continue to make great progress in that direction on the modular side and the balance is kind of that same spread if you will on the core pricing so.
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Rates were ever going to be stressed it would would've been after of shocks such as the pandemic and you've just seen the beauty and the platform here continue to perform right through that.
The same story on storage as we spoke about in the last call.
The 32nd or 32 quarters of consecutive double digit rate growth.
The the Hood that is outstanding growth on close the ground level offices positive rate growth positive rate growth I'm sorry.
On the ground level offices.
And pretty stable rates on the storage side, so as we began to implement.
The commercial practices that we've used in modular and we're seeing effected in the ground level office, we're seeing effective in the UK.
I think there is further upside on the storage side of the platform.
Things of that Brian.
Tim looking at the EBITDA guidance and then you had mentioned earlier.
Slide 50% flow through.
The what's what's an achievable.
It's <unk>.
Incremental margin flow through from the business and the normalized <unk> potentially and.
Yes.
How is your feeling about the high end of the guidance range of what could get you above that in the.
In 2021 on the on the EBITDA range. Thanks.
Okay. I mean, if you want to think about a normalized flow through.
The EBITDA, we are calling by the end of the year, we will have margins up.
Easily 100 basis points.
I called out the variable cost headwind in the business of approximately $20 million.
That's over 100 basis points of margin.
Headwind right there.
So if you just take the midpoint of the guidance is round numbers of $100 million of revenue growth $50 million of EBITDA growth you know you've got $20 million of of headwind there maybe.
Maybe.
10 of that is a little above normal, let's say, so it's easy to get to 60% flow through on the portfolio and of stabilized environment.
Thanks, Tim and the high end of the guidance range, what would be the factors that could keep you.
Above their or App, which grew up at the high end in this coming year.
Would it require infrastructure bill.
What are some of the things that you look at the big drivers.
We're down in that range.
Yes, Scott, we'd really need to see strong demand in the first half of the year.
As effects of the where we're at so we've been offsetting this nonresident headwind with the outperformance in other markets or other end markets and some new opportunities so as those headwinds.
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If that occurs in the first half thats kind of pushes to the top side of the range. The infrastructure. We think is of great medium and long term stimulus.
But even if it was announced today, it's not going to drive.
<unk> new construction, if you will yet this year I think the widespread pricing improvement broadly across the portfolio is another lever that takes the higher more quickly the irony with infrastructure if that materializes in Q4, just to make an example.
We're investing to support that volume could actually we could actually depressed margin and EBITDA in the year right. That's just how the business works that would obviously be a fantastic scenario to be in because we'd be building the portfolio for 2022 and 2023, but as you know the portfolio doesn't it doesn't move that quickly. So we're very very comfortable with the range that we've put forth.
Alright, thanks, Great I appreciate I'll turn it over.
The next question is from Kevin Mcveigh with Credit Suisse. Please go ahead.
Great. Thanks, so much.
Tim in the slides it looks like you've framed the $125 million of that and then another $35 million of the gmos.
Cielo as part of that 125 or would that be in addition to that so it isn't one.
One of that.
It would be about 160, Brent all in is that right.
Yes.
And then just keep in mind, we're really just getting started implementing the <unk> and the globe. So if you think about the three year trajectory on that it.
It will be fairly modest here in the next couple of quarters, and then really begin to build.
Got it that's helpful and then.
350 million of free cash flow in 2021.
It put $500 million in focus Tim.
Is there upside to that number I mean, obviously the gating factor would be the investments in capex things like that but any puts and takes the as you think about that $500 million because it seems like you're closing in on that even though a lot faster than what we would've thought.
Yes in terms of the $3 50, it's a good.
I think midpoint to center on the same responses I just made in terms of EBITDA upside would apply to the free cash flow number.
And then of course any fluctuation in capital expenditures, it's easy to make that number go up we our capex is almost entirely discretionary even over the medium term.
But I think based on the growth profile that we see right now the investment levels that we expect.
A good a good point to center on and really it would just be any anything that takes the EBITDA to the top end of the range or.
Any moderation in Capex of the short term would cause that to flex up.
Awesome. Thank you really really nice job.
The next question is from Courtney <unk> with Morgan Stanley. Please go ahead.
Hi, just wanted to follow up a little bit on that.
Comment on infrastructure potentially.
Depressing EBITDA in the area of he built out the portfolio can you just is that.
Net sales force of that.
Capex on building out the fleet can you just help us understand that.
That comment a little bit more.
The impact of any more of the 2022.
EBITDA versus 21.
Then also if you can just give us a sense of what.
Types of infrastructure projects would be most impactful for them.
For your portfolio.
I think historically you've talked about.
It's not necessarily being.
Something I kind of huge exposure to.
Courtney This is Tim good morning, I'll start and Brad I'll come back to your.
Specific kind of infrastructure sector question, but my comment around infrastructures.
The infrastructure's impact on the P&L applies to any volume shock right, whether it's infrastructure or something else. So if we take Q2 of last year. For example, we had a demand shock.
Going going down going negatively right and given the flexibility and the variable cost structure in the business, we pulled out a lot of direct labor and a lot of maintenance expenses across both the modular in the storage platforms right now if you get a shot going the other direction you do incur some of those maintenance maintenance expenses too.
Make more deliveries that's of great. That's a great thing and just the way. The P&L works is those maintenance maintenance expenses are recognized.
When the work is performed and then that investment then builds of your lease revenue, which grows over time. So it's.
Theres really nothing unique about infrastructure in that regard, it's simply whenever you have a big volume movement, one way or the other it can have a short term impact on margins as there's more maintenance cost in the branch network.
Brad you want to talk about the the.
The short answer is all infrastructure helps us.
From a legacy modular perspective, it's factual that.
Roads and bridges and such.
We're less consumers of the large modular offices, but storage and ground level offices or on the <unk>.
Every road construction projects that drive by so.
We're excited for all.
Yes.
Okay, great. Thanks, and then I think you've historically talked about.
Some of the benefits or some of the offsets from.
The declines in non resi from Covid and I appreciated the comments about the high versus low end of guidance really being.
More growth from the first half of the year. So can you do you have any sense at this point, a just kind of quantify how much of the demand in 2020 was offset by some of these are temporary COVID-19 projects and do you have any sense at this point about the longevity of our.
When when some of those projects could come off of rent.
No.
Again this is Brad it's hard to be too precise the.
The answer you in the kind of two things I would think about the any incremental demand we're seeing for COVID-19.
Whether it's testing or vaccine distribution is kind of of volume offset to all of the event business. We've historically done.
They are both on the Grand scheme of things relatively small right, they're not needle movers.
If you look at the whole portfolio and use modular as an example fourth quarter of last year, new deliveries were up over the prior year. Despite all of these nonresidential headwinds and Thats, what really excites us. It's every other end market whether its their need for additional space per person the need for screening on the job site.
Or just new buildings are needed or new end markets.
We've got a vast sales team across 275 of the largest msas throughout North America, and the U K that are always mining for new opportunities. So it's that the resilience in the portfolio that it puts us at the place where we're offsetting this nonresidential headwind.
I can't predict when it will come back.
When it does I think it creates a quite interesting volume opportunity for us.
Alright.
We haven't seen any change in our average lease duration. So we monitor this pretty closely what is the average duration that we're getting on a contractual basis. What's the average duration of units that are coming back to our branches and.
And what's the overall duration of the portfolio right. So we look at it a bunch of different ways and we just haven't really seen any any material change in and in those numbers.
Okay, great. Thanks, and then just lastly on the guidance bridge for 2021, you guys called out the synergies and pricing.
Is there any are you starting to see any benefit from cross sell opportunities or can you quantify that at any point I think you've talked about the historical cash.
Overlap between them.
The the.
Like the C customers and overlapping with the with some of your storage customers.
But has that been the needle mover at this point.
It's starting to be coordinated.
Again the.
The kind of the systems integration and automation, which will make the transactional aspect of that a lot easier, but it started effectively the day, we closed the merger and Thats. It's most apparent on these big projects.
We teamed up for support of the Super Bowl like we never would have been able to do before these large vaccination rollout schemes, we're absolutely leveraging both teams and sales force or so.
It's happening very nationally and quickly at the top of the stack if you will of larger projects.
And as we kind of prosecute the of course of this year get the ERP cutover start to automate more and more of the.
Across the leads and cross selling.
Just going to continue to see more of that I mean think about that as one of the key drivers to lift if you will the storage market share, which is around 25% now up more in line with our office share call. It around 45%. So we've got this internal.
Engine. If you will of leads we just need to marry them up and capture and make sure.
We are providing both storage and office.
Great. Thank you.
The next question is from Phil <unk> with Jefferies. Please go ahead.
Hey, good morning, everyone.
Some of the best practices, you're implementing and the that's rollout for storage. How are you thinking about <unk> growth in 2021 is it kind of more in line with that 3%.
Cadence we've seen in the last few years and then from a longer term opportunity to how should we think about that going forward.
Yes, I think for for next year kind of that 3% rate on the storage side.
As a good bogey.
Start to deliver new products of higher rates.
It takes a while for that the roll through the portfolio.
And then any longer term targets that we should think about is this like a mid single digit growth going forward with some of the good stuff you guys are implementing.
While we've quantified the vast opportunity in gloves right, but.
Let us do our work and the will come back to you with more specifics probably the second half of the year as we really understand and quantify you guys know we do our work, we'll make sure we roll it out.
And of methodical way.
Getting the supply chain right on all of this.
It sounds easy, but it's extremely complicated.
So we will we'll lay this out and come back to you and talk about <unk>.
Both of the opportunity.
As well as the time it takes to achieve that.
Got it and then we're hearing tight container mark tight container market conditions has that had the impact on pricing for you guys and is that an opportunity to pick up some share of just given your scale.
Yes.
Bill This is Tim I'd say, it's a net benefit in the short term.
We're active in that market every day, obviously and I mentioned in my remarks, we are making some targeted new fleet investments some of which are containers and we are able to land of fleet in Q2 and Q3. So it is.
There are short term constraints, but it is not an impediment to our growth even in even in the relatively short term.
It doesn't hurt.
Right now we are probably the largest marginal supplier of inland containers in the U S and certainly there is some modest benefit to that but I wouldn't I wouldn't.
Make too much out of it.
On that similar vein.
Brad and Tim I mean, we're hearing higher logistics and transportation costs and certain bottlenecks for some of the other companies we cover.
Do you guys pass that through and then from a opportunity for growth just given your branch density and scale how are you.
You guys positioned in that backdrop.
Yes.
The logistics side and you've seen margins continue to expand in that space. So we've mentioned before we think this is the real opportunity for the company.
The leverage each other the best practices as well as truck fleet and.
And drive both top line growth on the.
The logistics side as well as we've mentioned there is pretty significant in sourcing opportunities on the bottom line, particularly on the modular side. So.
It's in the other one of those.
Nick levers in this portfolio.
Okay, great. Thanks, a lot guys.
Yeah.
The next question is from Stanley Elliott with Stifel. Please go ahead.
Good morning, everyone. Thank you all for taking the question.
Are we thinking about the <unk> piece and so much has changed over this past year.
Have you been able to introduce new sorts of products within the portfolio to the point, where maybe kind of the initial target that we've talked about of the apps might actually be a bigger pie.
On a go forward basis.
Yes.
Yeah, we've always call qualified if you will the $400 million target of apps value deliver per month.
Supportable with the existing of obsolete.
Our first and foremost.
Endeavor is to get everyone to that 400 level and we've got a.
A significant portion of our reps now already writing complete Msas riding the tide kind of 400 level, we do implement new products all the time of the probably the most notably this year, we've been rolling out more like the cubicle solution.
You will.
More focus or.
Well suited if you will for large complexes.
So yes, we will.
We will keep our entire team focus on getting the 400 with what we have and we will obviously continue to implement new fabs.
Not just an office because we alluded to before in storage.
One of the guidance you mentioned that it was organic you are tracking very well against your free cash flow targets of.
And then also kind of it to where you wanted to be from a leverage perspective.
Is the M&A kind of realistic opportunity here or any sort of portfolio shifting when we think about kind of how this 2021 might unfold.
Yes, M&A is absolutely realistic now.
Okay, Great guys. Thank you Ralph.
Yes, it's always appreciate sort of the growth strategy for both companies I mean mobile mini was the steady acquirer over the last two years.
Tuck in acquisitions and well Scott obviously.
We've seen M&A to be highly accretive.
So as I mentioned in my remarks, there are no financial or operational constraints and it is difficult to predict the timing those tend to be fairly opportunistic.
And the beauty is we don't have to do anything to deliver.
Outstanding trajectory.
Great guys. Thank you.
The next question is from Brent Thielman with D. A Davidson. Please go ahead.
Thank you good morning, congrats on a great quarter great year.
I wanted to follow up of one of the prior question that was more around the storage side of the business. The some of the supply constraints.
Strength in the industry.
Something similar on the modular building side, just the cost of materials steel lumber moving up and I Wonder I don't think Thats an issue for you obviously, because you've got a large fleet big balance sheet.
Wonder if that's the constraint per cent of the smaller industry participants and then the lever for rate over the near term.
Yes, Brian it's Tim.
Yes, we'd agree with you we monitor all of the domestic manufacturers.
The good pulse for how busy they are.
And you're right, we're sitting around 70% modular utilization and one of the things. We've always said is that we would much rather taking older unit of refurbish. It in house that is a core competency of well Scott that I don't think we advertise quite as much. It's a big competitive advantage to be able to manage these units not over a 10 or 15 year.
Life, but like a 20 to 30 year life, and we do that because of our in house expertise and refurbishment capability, we've got enough idle inventory to grow the business for several years.
Before we need to go out and do.
Any large scale of domestic modular fleet purchases and we do have international sources of supply for our flex product, we do bring those inflect pack flat back in containers.
It's the most innovative modular solution in the marketplace right now.
So I think that's actually a net of net positive for the overall supply demand balance in the market.
And we're happy to see it.
Yes, I might add okay, and then on.
Yeah.
Alright.
Yeah, just real quick I think the the other advantage I think that.
We've touched on historically is obviously scale. So I mean, when you talked about the smaller competitor.
Our ability to reposition assets as Tim mentioned, we want to repair first but our ability to reposition and take advantage of scale.
As such a huge differentiator when it comes to some of the smaller competitors.
Absolutely.
Yes.
The second question I wanted to come back to slide 15, just because of the modular side of the business in such a massive change.
In terms of the trend and deliveries up 3% versus down mid teens in the preceding quarter.
I just wanted to get a better understanding.
Obviously, it's an improvement in the storage side, but why you may not seeing that same trend on that side of the business.
Yes.
Okay.
Excluding the seasonal units is one caveat there. So we're trying to just zero in on the core and I wouldn't read too much into a brand I mean, the storage had a fantastic Q4 actual unit on rent volumes were up year over year.
With a.
So over a 15% sequential increase from Q3 into Q4. When you include the seasonal units. So no concern there. If you looked at the order numbers last quarter, you would've seen the reverse and asked okay. Why is modular lagging a little bit I think the punch line here is both are seeing improvements right. So I wouldn't get too lost in the relative.
The percentages.
Your line is coming out of Q4, we've seen sequential improvements.
There are probably a little more optimistic about the market backdrop today than we would have been 90 days ago.
I might just add too on the storage side, you've got there is a significant amount of business that you are looking at the prior year that was the where the retail remodels and Thats extremely high volume short duration rentals that.
Is why although you see the decline in Activations, you see the improvement year over year in units on rent. So you've got a lot of units that didn't go on rent, but you also of a lot of units that didn't come back so that duration.
That we have on the storage side is very very similar to the the modular side. So when you look at it from an overall basis.
Excluding seasonal it's actually very much in line with what we would've anticipated.
Okay. Thank you.
Just add we do expect as we look forward that remodel business.
It's just pushing out.
It's absolutely just the deferral so.
We're active with the all of our large customers in the.
Supportive of their remodels whenever they are ready to go.
Thank you.
The next question is from Sam England with Baird. Please go ahead.
Hi, guys. Thanks for taking the questions and the first one I was just wondering if you could give us a sense of the delta between the current pricing that you're achieving in the pricing of legacy units coming back of rent.
The side, if you exclude <unk> I was just wondering trying to get an idea of the pricing can budgets opportunity.
Yes, Tim just high level, it's going to be very similar to the convergence opportunity. We've highlighted on the <unk> slide for the.
<unk> growth is driving 40, 50% of of the double digit rate growth.
The core pricing is driving the balance.
There is a bit of portfolio on rent pricing optimization, we do.
Our play in that as well, but the biggest driver will be.
The core rates on new units delivered.
Okay, Great got it and then the next one could you talk a bit about price.
Greg with National accounts in particular have you had any early success on <unk>.
Ross selling with national accounts.
That wasn't really the lack between you and many.
Yes, I mentioned a couple of before Covid.
Like the large event the Super Bowl.
The <unk>.
The response to the large retailers.
As well as some other general contractors in support of Covid.
We're just really getting organized Sam though to the to be Frank to really.
We need to go back and spend time, we're investing in the voice of the customer survey, we're going to spend time with some of our large <unk>.
<unk> to really understand of how we can provide more and more full turnkey.
Everything they need day, one on the job.
Everything of that will stay there.
For three years and everything we can pick up and bring back.
At the end of the duration so.
We're not missing any opportunities. This is all of this longer term upside.
Okay, Great and then maybe just one more quick one and sorry, if you mentioned it but I just wondered if you've seen any impacts from the adverse weather recently.
Over the course of Q1.
Yes, yes, absolutely we have.
Youll see again keep in mind you can.
Think of of Hurricane as well right in the past these events don't move the needle at the top at the top.
Of the house.
Certainly the first and foremost all of our employees are safe through this we haven't lost any fleet of branches, but we absolutely have short term volume disruptions.
Any one of these events typically followed by a period of volume opportunity as volume increases and supportive right. So.
Yes.
I am just the most satisfied right now that we've got everyone's safe.
Okay, great. Thanks, very much guys I'll pass the Abi.
The next question is from Andy Wittmann with Baird. Please go ahead.
Okay, great. Thanks, guys.
The the delivery information of thought was really helpful. In the.
Because of the straight context of course since we didn't have order data this quarter I thought I would ask about the order book and you guys of referenced it but I was just wondering Tim maybe if you could just talk about the status of the over of the order book and the two primary segments as.
Well as the experience that you had in the quarter on returns I think in the third quarter. You mentioned that return of activity was way down something like 19%. So I was wondering if you could address what you saw in the fourth quarter on the excellent.
Yeah, I'll start there Andy and then go back to the order of order outlook could obviously informs our overall outlook for the year.
In terms of return activity.
That year over year decline moderated pretty significantly in Q4, we were return activity was down.
All of it mid single digits.
Across the across the business so.
Sure.
Normalizing a bit I think as we head into into 2021.
Obviously, those big return declines in Q2, Q3 really did help mitigate some of the unit on rent.
Impact that we could have seen from the delivery shock in Q2. So that is one of the ways that the portfolio is almost self insulating anyway.
In terms of order activity.
We didn't put it in the deck and probably won't going forward just because there is more noise there than there is in deliveries when the delivery goes out it's going to be of unit on rent right. So it's very difficult to argue with that but we're seeing we're seeing strong year over year increases right.
Starting the year.
It is what it is kind of informing our 3% to 5% delivery growth assumption across the business for 2021, and we always try to ground.
Our forecast as well as our capital allocation in the new demand leading indicators that we see so sitting here today, it's a call.
All of it.
The low mid single digits year over year order growth heading into the year.
We're using that data to inform our outlook for the year.
That's all I had today guys have a good day and the good weekend.
Thanks, Tim.
The final question is from Sean <unk> with Deutsche Bank. Please go ahead.
Hey, Brad and Tim Great job of both operationally and on the M&A side, and what was the very difficult year.
Just in terms of M&A are you seeing any larger scale opportunities out there whether it's on the storage side or are there.
For the right businesses, where you would contemplate maybe of transaction when you could potentially see of short term increase in net leverage of people are trending back to your target given that your free cash flow generation is now accelerating.
As Sean the.
The comment on the.
<unk> of our self or our competitors.
As we've said before we've got the capacity and capability to continue to pursue accretive M&A.
It's also factual that given our scale.
On the storage side targets largest targets would be like the seventh our size.
On the storage side and on the modular office side like.
Sales with our size so.
There is nothing of the magnitude of the.
Well, Scott and mobile lending coming together to completely transform the industry.
What's the space, we've got the capability and capacity to do it.
We also have the very busy book, if you will right now the just get these to come companies seamlessly integrated and start unlocking all of the value drivers.
We're starting to highlight earlier in my prepared comments.
That's very helpful. Thank you very much.
We have now reached the end of today's call I will turn the call back over to Nick.
Thank you.
Thank you all for your interest in Will's got mobile of many if you have additional questions. After today's call. Please contact me. Thank you.
Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.
Yes.
[music].
Okay.
Okay.