UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) | |||||
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended | |||||
OR | |||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ___ to ___ | |||||
Commission File Number: | |||||
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices)
(480 ) 894-6311
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
The | ||||||||
| OTC Markets Group Inc. | ||||||||
(1) Issued in connection with the registrant's acquisition of Modular Space Holdings, Inc. in August 2018, which are exercisable for one share of the registrant's common stock at an exercise price of $15.50 per share.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ☐ | |||||
Non-accelerated filer ☐ | Smaller reporting company | ||||
Emerging growth company | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the common shares held by non-affiliates of the registrant, computed as of June 30, 2021 (the last business day of the registrant’s most recently completed second quarter), was approximately $5.5 billion.
Shares of Common Stock, par value $0.0001 per share, outstanding: 223,277,733 shares at February 21, 2022.
Documents Incorporated by Reference
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WillScot Mobile Mini Holdings Corp.
Annual Report on Form 10-K
Table of Contents
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Cautionary Note Regarding Forward Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act. The words “estimates,” “expects,” “anticipates,” “believes,” “forecasts,” “plans,” “intends,” “may,” “will,” “should,” “shall,” “outlook,” “guidance” and variations of these words and similar expressions identify forward-looking statements, which are generally not historical in nature and relate to expectations for future financial performance or business strategies or objectives. Forward-looking statements are subject to a number of risks, uncertainties, assumptions and other important factors, many of which are outside our control, which could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. Although we believe that these forward-looking statements are based on reasonable assumptions, we can give no assurance that any such forward-looking statement will materialize. Important factors that may affect actual results or outcomes include, among others:
•our ability to successfully acquire and integrate new operations;
•the effect of global or local economic conditions in the industries and markets in which the Company operates and any changes therein, including financial market conditions and levels of end market demand;
•operational, economic, political and regulatory risks;
•the impact of public health crises, such as the global pandemic related to COVID-19, including the financial condition of the Company’s customers and suppliers and employee health and safety;
•risks associated with cybersecurity and IT systems disruptions, including our ability to manage the business in the event a disaster shuts down our management information systems;
•effective management of our rental equipment;
•trade policies and changes in trade policies, including the imposition of tariffs, their enforcement and downstream consequences;
•our ability to effectively compete in the modular space, portable storage and tank and pump industries;
•our ability to effectively manage our credit risk, collect on our accounts receivable, or recover our rental equipment;
•the effect of changes in state building codes on our ability to remarket our buildings;
•foreign currency exchange rate exposure;
•fluctuations in interest rates and commodity prices;
•significant increases in the costs and restrictions on the availability of raw materials and labor;
•fluctuations in fuel costs or oil prices, a reduction in fuel supplies, or a sustained decline in oil prices;
•our reliance on third party manufacturers and suppliers;
•risks associated with labor relations, labor costs and labor disruptions;
•impairment of our goodwill, intangible assets and indefinite-life intangible assets;
•various laws and regulations, including those governing government contracts, corruption and the environment;
•changes in the competitive environment of our customer base as a result of the global, national or local economic climate in which they operate and/or economic or financial disruptions to their industry;
•our ability to adequately protect our intellectual property and other proprietary rights that are material to our business;
•natural disasters and other business disruptions such as pandemics, fires, floods, hurricanes, earthquakes and terrorism;
•our ability to establish and maintain the appropriate physical presence in our markets;
•property, casualty or other losses not covered by our insurance;
•our ability to close our unit sales transactions;
•our ability to maintain an effective system of internal controls and accurately report our financial results;
•evolving public disclosure, financial reporting and corporate governance expectations;
•our ability to achieve our environmental, social and governance goals;
•our ability to use our net operating loss carryforwards and other tax attributes;
•our ability to recognize deferred tax assets such as those related to our tax loss carryforwards and, as a result, utilize future tax savings;
•unanticipated changes in tax obligations, adoption of a new tax legislation, or exposure to additional income tax liabilities;
•our ability to access the capital and credit markets or the ability of key counterparties to perform their obligations to us:
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•our ability to service our debt and operate our business;
•our ability to incur significant additional amounts of debt, which could further exacerbate the risks associated with our substantial indebtedness;
•covenants that limit our operating and financial flexibility;
•uncertainty regarding the phase-out of LIBOR;
•our stock price volatility; and
•other factors detailed under the section entitled "Risk Factors."
Any forward-looking statement speaks only at the date which it is made, and we undertake no obligation, and disclaim any obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
PART I
ITEM 1. Business
Unless the context otherwise requires, “we,” “us,” “our” and the “Company” refers to WillScot Mobile Mini Holdings Corp. ("WillScot Mobile Mini") and its subsidiaries.
Our Company
Headquartered in Phoenix, Arizona, we are a leading business services provider specializing in innovative flexible work space and portable storage solutions. We service diverse end markets across all sectors of the economy from a network of approximately 275 branch locations and additional drop lots throughout the United States (“US”), Canada, Mexico, and the United Kingdom ("UK"). We are also a leading provider of specialty containment solutions in the US.
With roots dating back more than 60 years, we lease modular space and portable storage units (our “lease fleet”) to customers in the commercial and industrial, construction, education, energy and natural resources, government, and other end markets. We offer our customers an extensive selection of “Ready to Work” solutions. As part of our "Ready to Work" solutions, we offer value-added products and services, such as the rental of steps, ramps, and furniture packages, damage waivers, and other amenities to improve the overall customer experience. These turnkey solutions offer customers flexible, low-cost, and timely solutions to meet their flexible work space and storage needs on an outsourced basis.
On July 1, 2020, WillScot Corporation ("WillScot") combined with Mobile Mini, Inc. ("Mobile Mini") in a stock-for-stock merger (the "Merger"), and WillScot changed its name to WillScot Mobile Mini Holdings Corp. WillScot Mobile Mini is the holding company for the Williams Scotsman and Mobile Mini families of companies. The Company operates in four reportable segments as follows: North America Modular Solutions ("NA Modular"), North America Storage Solutions ("NA Storage"), United Kingdom Storage Solutions ("UK Storage"), and Tank and Pump Solutions ("Tank and Pump"). Prior to the third quarter of 2021, the NA Modular segment aligned with the WillScot legacy business prior to the Merger, and the NA Storage, UK Storage, and Tank and Pump segments aligned with the Mobile Mini segments prior to the Merger. During the third quarter of 2021, the majority of the portable storage product business within the NA Modular segment was transitioned to the NA Storage segment, and associated revenues, expenses, and operating metrics beginning in the third quarter of 2021 were transferred to the NA Storage segment. Within this Annual Report on Form 10-K, we have presented certain financial information on a pro forma basis and supplemental pro forma financial statements within Management’s Discussion and Analysis of Financial Condition and Results of Operations to include Mobile Mini's results as if the Merger and related financing transactions had occurred on January 1, 2019, as we believe this is a better representation of the go-forward operations of the combined company, and we believe this information is useful to investors in order for them to better understand the combined historical financial results of the legacy businesses for comparative purposes.
Products and Services
Modular Space Solutions
Our modular space units meet a broad range of customer needs. Our modular units are typically made of steel and aluminum frames, as well as traditional building materials, and range from standalone portable units as small as 24 square feet to large complex units that can be coupled together or stacked to create versatile work spaces in excess of 10,000 square feet. In all cases, we deploy modular units to customers rapidly from our extensive branch network using our hybrid in-house and outsourced logistics and service infrastructure. We specialize in turnkey ‘Ready to Work’ solutions, which means our units can arrive fully equipped with air conditioning, heating, and filtration units, electrical and Ethernet ports, plumbing and utility hookups, as well as our proprietary line of furnishings and appliances, which we together refer to as Value-Added Products and Services (“VAPS”). Our units are transported by truck, either towed (if fitted with axles and hitches) or mounted on flat-bed trailers.
Modular space units have attractive economic characteristics, and our ability to lease and maintain our assets’
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profitability over economic lives, which often exceed 20 years, is a unique capability and competitive advantage. We utilize standard fleet maintenance procedures across the branch network, monitor fleet condition and allocate capital expenditures centrally, and ensure all units meet consistent quality and condition requirements, regardless of unit age, prior to delivery to a customer. Modular leasing is complemented by new unit sales and sales of rental units. In connection with our leasing and sales activities, we provide services including delivery and installation, maintenance and ad hoc services, and removal services at the end of lease transactions.
Panelized and Stackable Offices. Our FlexTM panelized and stackable offices are the next generation of modular space technology and offer maximum flexibility and design configurations. These units provide a modern, innovative design, smaller footprint, ground level access, and interchangeable panels, including all glass panels that allow customers to configure the space to their precise requirements. These units have the ability to expand upwards (up to three stories) and outwards, providing maximum versatility.
Single-Wide Modular Space Units. Single-wide modular space units include mobile offices and sales offices. These units offer maximum ease of installation and removal and are deployed across the broadest range of applications in our fleet. These units typically have “open interiors,” which can be modified using movable partitions, and include tile floors, air conditioning, heating, and filtration units, partitions and toilet facilities.
Section Modulars and Redi-Plex. Section modulars are two or more units combined into one structure. Redi-Plex complexes offer advanced versatility for large, open floor plans or custom layouts with private offices. Redi-Plex is built with clearspan construction, which eliminates interference from support columns and allows for up to sixty feet of open building width and building lengths that increase in twelve-foot increments based on the number of units coupled together. Our proprietary design meets a wide range of national and state building, electrical, mechanical, and plumbing codes, which creates versatility in fleet management. Examples of section modular units include hospital diagnostic annexes, special events headquarters, temporary data centers, and larger general commercial offices.
Classrooms. Classroom units are generally double-wide units or Flex panelized units adapted specifically for use by school systems or universities. Classroom units usually feature teaching aids, air conditioning, heating, and filtration units, windows and, if requested, toilet facilities.
Ground Level Offices and Container Offices. We also offer steel ground level offices from 10 to 40 feet in length and 8 or 10 feet in width. Many of these units are converted to office use from International Organization for Standardization ("ISO") certified shipping containers. These offices are available in various configurations, including all-office floor plans or office and storage combination units that provide a 10‑ or 15‑foot office with the remaining area available for storage. Ground level offices provide the advantage of ground accessibility for ease of access and high security in an all‑steel design. These office units are equipped with electrical wiring, air conditioning, heating, filtration units, phone jacks, carpet or tile, high security doors, and windows with security bars or shutters. Some of these offices are also equipped with sinks, hot water heaters, cabinets, and toilet facilities.
Other Modular Space. We offer a range of other specialty products that vary across regions and provide flexibility to serve demands for local markets. Examples include workforce accommodation units with dining facilities used to house workers, often in remote locations, blast-resistant units, and toilet facilities to complement office and classroom units.
Portable Storage Solutions
Portable Storage Containers. Our portable storage containers offer an assortment of differentiated features such as patented locking systems, premium and multiple door options, optional climate control, and numerous configuration options. Standard portable storage containers are made from weather‑resistant corrugated steel and are available in lengths ranging from 5 to 48 feet, widths of either 8 feet or 10 feet, and a variety of configuration options. Doors can be placed at the front, front and back, or the sides of containers. Other options include partitions and shelving. Storage containers can be equipped with our patented Tri‑Cam Locking System®, which features a waist‑level opening lever and interlocking bars to provide easy access for the owner without sacrificing security. We also offer ContainerGuardLock®, an optional security device, which features a hidden six‑pin tumbler system and is made from drill‑resistant hardened steel. We believe these steel storage containers are a cost‑effective alternative to mass warehouse storage, with a high level of security to protect our customers' goods.
Steel containers have a long useful life with no technical obsolescence. Our portable storage containers generally have estimated useful lives of 30 years from the date we build or acquire and remanufacture them, with average residual values in excess of 50%. We maintain our steel containers on a regular basis by removing rust, painting them with rust inhibiting paint, plug‑welding holes, and occasionally replacing the wooden floor or a rusted steel panel. Repainting the outside of storage units is the most common maintenance item. A properly maintained container is essentially in the same condition as when it was initially remanufactured.
The remanufacturing process begins with the purchase of used ISO containers from leasing companies, shipping lines, and brokers. These containers were originally built to ISO standards and are 8 feet wide, up to 9.5 feet high and 20, 40 or 45 feet long. After acquisition, we remanufacture and modify these ISO containers. Remanufacturing typically involves cleaning, removing rust and dents, repairing floors and sidewalls, painting, adding our signs, and further customizing units by adding our proprietary easy opening door system and our patented locking system. Modification typically involves splitting some containers into differing lengths.
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VAPS
We offer a thoughtfully curated portfolio of VAPS that make modular space and portable storage units more productive, comfortable, secure, and “Ready to Work” for our customers. We lease furniture, steps, ramps, basic appliances, internet connectivity devices, and other items to our customers for use in connection with our products. We also offer our lease customers a damage waiver program that protects them in case the leased unit is damaged. For customers who do not select the damage waiver program, we bill them for the cost of repairs above and beyond normal wear and tear. Importantly, management believes that our scale, branch network, supply chain, and sales performance management tools give us a significant advantage in delivering “Ready to Work” solutions and growing VAPS revenue relative to our competitors.
Delivery, Installation and Removal
We operate a hybrid in-house and outsourced logistics and service infrastructure that provides delivery, site work, installation, disassembly, unhooking and removal, and other services to our customers for an additional fee as part of our leasing and sales operations. Revenue from delivery, site work, and installation results from the transportation of units to a customer's location, as well as site work required prior to installation, and installation of the units which have been leased or sold. Typically, modular units are placed on temporary foundations constructed by our in‑house service technicians or subcontractors. These in‑house service technicians or subcontractors also generally install any ancillary products and VAPS. We also derive revenue from disassembling, unhooking, and removing units once a lease expires. We believe that our logistics and service capabilities are unrivaled in the industry, differentiate us from competitors, and enhance our value proposition to our customers.
Tank and Pump Solutions
Our Tank and Pump Solutions business offers a broad range of liquid and solid specialty containment equipment and services complemented by an assortment of pumps, filtration units, and waste hauling services. In addition, ancillary products for rental and for sale are available, such as hoses, pipes, filters, and spill containment. Our principal products and services within our Tank and Pump Solutions business include steel tanks, stainless steel tank trailers, roll‑off boxes, vacuum boxes, dewatering boxes, pumps and filtration equipment, and value‑added services.
Our fleet of steel tanks offers flexible sizes and other options such as weir, gas buster, and open top steel tanks for applications ranging from temporary storage of chemicals, water, and other liquids, thorough mixing, agitation, and circulation of stored liquids with other products, and removal of gas from fluids circulated in the wellbore—such as mud used during drilling operations and settling of solids in liquids prior to filtration or discharge. Our stainless-steel tankers meet Department of Transportation specifications for use in the storage and transportation of chemical, caustics, and other liquids and are offered insulated or non‑insulated with level indication and vapor recovery capability. Roll‑off boxes provide simple, leak‑proof storage and transportation of solid industrial byproducts and are utilized for a variety of containment applications where it is necessary to maintain the homogeneity of the contents. Roll-tarps or rolling metal lids are available to protect the contents from the elements during transport or storage. Vacuum roll‑off boxes are also offered to pair with a vacuum truck for containment, storage, or transportation of pressurized contents. Dewatering boxes are configured to provide for the draining of excess liquid from slurry or sludge which reduces storage, transportation, and disposal costs. Upon completion of dewatering, the container is generally picked up by a roll‑off truck for content disposal. Vacuum dewatering boxes are also offered. In addition, we offer a variety of pumps and filtration equipment that can be used primarily for liquid circulation and filtration in municipal and industrial applications.
Additional services performed by our specialty containment employees include transportation of containers for waste management between multiple locations or in-plant, waste management oversight and service provision by an on-site dedicated team, system design including assessment of pumping, filtration and temporary storage needs, and field services to correctly install and connect customer containment equipment.
Product Leases
We primarily lease, rather than sell, our modular and portable storage units to customers, which results in a highly diversified and predictable recurring revenue stream. For the year ended December 31, 2021, over 90% of new lease orders were on our standard lease agreement, pre-negotiated master lease, or national account agreements. The initial lease periods vary, and our leases are customarily renewable on a month-to-month basis after their initial term. For the year ended December 31, 2021, the average effective duration of our consolidated lease portfolio for modular space and portable storage units was over 31 months. As a result, our lease revenue is highly predictable due to its recurring nature and the underlying stability and diversification of our lease portfolio.
For the year ended December 31, 2021, our average minimum contractual lease term at the time of delivery in our NA Modular segment for modular space units was 11 months. However, given that our customers value flexibility, they consistently extend their leases or renew on a month-to-month basis such that the average effective duration of our NA Modular segment lease portfolio was over 35 months. Customers are responsible for the costs of delivery and set-up, dismantling and pick-up, customer-specified modifications, costs to return custom modifications back to standard configuration at end of lease, and any loss or damage beyond normal wear and tear. Our leases generally require customers to maintain liability and property insurance covering the units during the lease term and to indemnify us from losses caused by the negligence of the customer or their employees.
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Rental contracts with customers within our NA Storage and UK Storage segments are generally based on a 28‑day rate and billing cycle. The rental continues until cancelled by the customer or us. On average, steel storage containers on rent in our NA Storage and UK Storage segments for the year ended December 31, 2021 had been in place for over 31 months, and the steel ground level offices on rent for the year ended December 31, 2021 had been in place for over 15 months. Rental contracts provide that the customer is responsible for the cost of delivery and pickup and specify that the customer is liable for any damage done to the unit beyond ordinary wear and tear. Customers may purchase a damage waiver to avoid damage liability in certain circumstances, which provides an additional source of recurring revenue. Customer possessions stored within a portable storage unit are the responsibility of that customer.
Rental contracts with Tank and Pump Solutions customers typically offer daily, weekly, or monthly rates. Certain larger customers have multi-year agreements that limit rate increases during the term of the contract. The rental duration varies widely by application, and the rental continues until the unit is returned in clean condition to us. On average, contracts in our Tank and Pump Solutions segments for the year ended December 31, 2021 had been in place for over 8 months. Rental contracts specify that the customer is responsible for carrying commercial general liability insurance, is liable for any damage to the unit beyond ordinary wear and tear, and for all materials the customer contains in rented equipment. The customer is contractually responsible for the cost of delivery and pickup, as well as thoroughly emptying and cleaning the equipment before return.
Demand for our products varies by end market. Construction customers typically reflect higher demand during months with more temperate weather, while demand from large retailers is stronger from September through December, when more space is needed to store holiday inventories. Retail customers usually return these rented units in December and early in the following year, but also undertake ongoing rolling store renovations which present consistent recurring demand throughout the year. In our Tank and Pump Solutions business, demand from customers is typically higher in the middle of the year from March to October, driven by the timing of customer maintenance projects.
As of December 31, 2021, we had approximately 390,000 total units including over 162,000 modular space units, over 213,000 portable storage units, over 13,000 tank and pump units, and other value-added products representing fleet net book value of $3.1 billion. Approximately 111,000 of our modular space units, or 68% and 180,000 of our portable storage units, or 84% were on rent as of December 31, 2021, and tank and pump Original Equipment Cost ("OEC") utilization was 73.5% as of December 31, 2021.
Product Sales
We complement our core leasing business by selling both new and used units, allowing us to leverage our scale, achieve purchasing benefits, and redeploy capital employed in our lease fleet. Generally, we purchase new units from a broad network of third-party manufacturers. We only purchase new modular space units for resale when we have obtained firm purchase orders (which normally are non-cancelable and include up-front deposits) for such units. Buying units directly for resale adds scale to our purchasing, which is beneficial to our overall supplier relationships and purchasing terms. New unit sales are a natural extension of our leasing operations in situations where customers have long-lived or permanent projects, making it more cost-effective to purchase rather than to lease a standard unit, and our customers benefit from our product expertise and delivery and installation capabilities.
In the normal course of managing our business, we also sell idle, used rental units at fair market value and units that are already on rent if the customer expresses interest in owning, rather than continuing to rent, the unit. The sale of units from our rental equipment has historically been both a profitable and cost-effective method to finance the replenishment and upgrade of our lease fleet, as well as to generate free cash flow during periods of lower rental demand and utilization. Our sales business may include modifying or customizing units to meet customer requirements. We also offer delivery, installation, and removal-related services for an additional fee as part of our sales operations.
Customers
Our customers operate in a diversified set of end markets, including construction, commercial and industrial, retail and wholesale trade, energy and natural resources, education, government and institutions, and healthcare. Core to our operating model is the ability to redeploy standardized assets across end markets, as we did in 2020 and 2021 to service emerging demand in the healthcare and government sectors related to COVID‑19, as well as expanded space requirements related to social distancing. We track several market leading indicators in order to predict demand, including those related to our two largest end markets, the commercial and industrial segment and the construction segment, which collectively accounted for approximately 47% and 40% of our revenues, respectively, for the year ended December 31, 2021. In order to optimize the use of fleet assets across our branch network, we centrally manage fleet rebalancing across our end markets. This allows us to serve 15 distinct end markets in which no one customer accounted for more than 2% of revenues for the year ended December 31, 2021.
For the year ended December 31, 2021, our top 10 customers accounted for approximately 5% of revenues, and our top 50 customers accounted for less than 13% of revenues, reflecting low customer concentration and significant project diversification within our portfolio.
Our logistics and service infrastructure is designed to meet or exceed our customers’ expectations by reacting quickly, efficiently, and with consistent service levels. As a result, we have established strong relationships with a diverse customer
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base, ranging from large multinational companies to local sole proprietors. We served over 85,000 unique customers in 2021. We believe that our customers prefer our modular space and portable storage products over fixed, on-site built space because they are a quick, flexible, cost-effective, and low-risk solution for temporary or permanent expansion or storage.
Our strategy involves operating standardized rental equipment and "Ready to Work" solutions that can be redeployed across our diversified customer base and branch network in 15 discrete end markets. Key customer end markets include:
Construction and Infrastructure
We provide office and storage space to a broad array of contractors associated with non-residential buildings and non-building infrastructure. Our client portfolio includes many of the largest general contractors and engineering, architecture, procurement, and construction companies in North America, as well as home builders, developers, and subcontractors. Examples include highway, street, bridge, and tunnel contractors; water, sewer, communication, and power line contractors; and special construction trades, including glass, glazing, and demolition. Our construction and infrastructure customer base is characterized by a wide variety of contractors that are associated with original construction as well as capital improvements in the private, institutional, and municipal arenas. Units are used as offices, break rooms, accommodations, security offices, and other applications.
Commercial and Industrial
Customers in this category use our products as their primary office or retail space, to expand their existing commercial workspace, to increase their storage capabilities, or as temporary space for festivals, sporting, and other events. Customers in this category span a variety of industries ranging from commercial offices; chemicals and other manufacturing; agriculture, forestry and fishing; arts, media, hotels, and entertainment; and other industrial end markets.
The commercial and industrial segment also includes customers in retail and wholesale trade. These include department, drug, grocery, and strip mall stores, logistics, warehousing and distribution services, as well as restaurants, service stations, and dry cleaners. Our customers in retail and wholesale trade include big‑box retailers who have storage needs during renovations or other large on-site projects. On a stand‑alone basis, retail and wholesale trade customers comprised approximately 11% of fiscal year 2021 rental revenue.
Energy and Natural Resources
Our products are leased to companies involved in electricity generation and transmission, utilities, up- mid- and down-stream oil and gas, mining exploration and extraction, and other related sectors. Units are used as temporary offices, break rooms, accommodations, security offices, and other applications.
Education
Rapid shifts in populations within regions, as well as recent needs to expand square footage per student in in-person education settings, often necessitate quick expansion of education facilities, particularly in elementary and secondary schools and universities and colleges. Regional and local governmental budgetary pressures, classroom size reduction legislation, refurbishment of existing facilities, and the expansion of charter schools have made modular classrooms a convenient and cost-effective way to expand capacity in education settings. In addition, our products are used as classrooms when schools are undergoing large scale modernization, which allows continuous operation of a school while modernization progresses.
Government and Institutions
Government customers consist of national, state, provincial, and local public sector organizations. Modular space and portable storage solutions are particularly attractive to focused niches such as healthcare facilities, small municipal buildings, courthouses, military installations, national security buildings, and offices during building modernization, as well as disaster relief.
Competitive Strengths
We believe that the following competitive strengths have been instrumental to our success and position us for future growth:
North American Leader in Turnkey Modular Space and Portable Storage Solutions
The Mobile Mini Merger brought together WillScot’s leading modular space capabilities and Mobile Mini’s leading portable storage solutions to create an industry-leading business services provider specializing in innovative flexible work space and portable storage solutions. We benefit from complementary capabilities, a diverse customer base with over 85,000 customers across different end markets, and a geographic footprint of approximately 275 branch locations and additional drop lots.
Our broad and complementary network serves the largest North American metropolitan areas with local teams who are experts in their respective markets. Our cost‑effective coverage model serves smaller customers at the local and regional level, while also addressing the needs of larger national customers looking for a full suite of high-quality services that can be provided on a consistent basis throughout North America. Since geographic proximity to customers is a competitive advantage in the modular space and portable storage industry, we believe that our extensive branch network allows us to better serve existing customers and attract new customers.
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We believe our extensive scale results in significant operational benefits, such as optimization of fleet yield and utilization, efficient capital allocation, superior service capabilities, and the ability to offer consistent "Ready to Work" solutions across all of our branch locations.
VAPS
We deliver "Ready to Work" solutions through our growing offering of VAPS, such as the rental of steps, ramps, furniture packages, damage waivers, and other amenities. This thoughtfully curated portfolio of VAPS makes modular space and portable storage units more productive, comfortable, and secure for our customers and allows us to generate higher revenue per transaction and return on capital, and differentiates us from our competitors. These turnkey solutions offer customers flexible, low‑cost, capital efficient, and timely solutions to meet their space needs on an outsourced basis.
VAPS have been a substantial source of revenue growth in our NA Modular segment. We have been able to successfully drive a material increase in customer VAPS spend into our recently acquired businesses, which generates highly tangible revenue synergies. We believe our ability to drive VAPS growth following our historical acquisitions highlights the value proposition our VAPS provide to our customers.
During 2021, we introduced a similar cross-selling opportunity within ground level offices in the NA Storage segment. We are also introducing an innovative "Ready to Work" storage solution with VAPS such as integral tool racking, storage desks and charging stations, shelving, lighting and locks.
Sophisticated Logistics and Service Capabilities
Building from the largest branch network in the industry, we operate a sophisticated hybrid in-house and outsourced logistics and service infrastructure that we believe is highly differentiated from our competitors and enhances the value proposition we provide to customers. Precise scheduling of installations and removals, same-day delivery capabilities on certain products, and ability to mobilize large volumes of equipment in any geography serviced by our branch network are all unique capabilities that differentiate WillScot Mobile Mini, particularly among more demanding customer segments. We believe that continuing to further optimize our logistics and service capabilities through the deployment of technology and in-sourcing our services is an opportunity for further cost efficiency and differentiation with our customers.
Investments in Technology
We believe our technology serves as a primary differentiator relative to our competition and is a key component of our customer value proposition. Initiatives underway to further leverage our state of the art SAP enterprise resource planning platform will result in further operating efficiencies and enhance the overall customer experience. Effective use of real‑time information allows us to monitor and optimize the utilization of our fleet, allocate our fleet to the highest demand markets, optimize pricing, and determine the best allocation of our capital to invest in fleet and branches.
We are able to dynamically price and approach customer accounts in a strategic and statistically informed manner. We also believe our ability to leverage this data helps us to increase our market share and effectively manage supply and demand dynamics in our fleet in order to maximize cash flow in all phases of the economic cycle, including identifying opportunities where underutilized lease fleet can be sold to generate cash.
Similarly, technology is continuing to develop related to our fleet to offer an enhanced experience for our customers. Unit tracking, customer service portals, and other customer‑facing technological benefits differentiate our offering from competitors who have not invested in these capabilities. We believe we possess superior technology infrastructure relative to our competition and we intend to extend this advantage further by leveraging our infrastructure investments.
Diversified Revenue Base by End Market, Product, Service and Geography
We have established strong relationships with a diverse customer base, ranging from large national accounts to small local businesses. Our customers operate in a diversified set of end markets, including commercial and industrial, construction, education, energy and natural resources, government, and other end markets. For the year ended December 31, 2021, the top 50 customers for WillScot Mobile Mini accounted for less than 13% of total revenues. We believe that the diversity of our customer end markets reduces our exposure to changes related to a given customer, shifts within an industry or geographic region, and end market industry seasonality, while also providing significant opportunities to grow our business. Furthermore, the nature of our products is such that their use is generally agnostic to industry. This flexibility insulates utilization from exposure to industry‑specific shocks, provided there are other needs and applications for these products within a reasonable distance. Accordingly, our business has been able to support front‑line workers and other essential businesses during the COVID‑19 crisis by providing temporary testing sites, treatment centers, exam rooms, hospital swing space, temperature screening checkpoints, office space to support social distancing, and storage for related supplies.
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The following chart illustrates the breakdown of our customers and revenue by end markets as of December 31, 2021. In order to optimize the use of fleet assets across our branch network, we centrally manage fleet rebalancing across our end markets. This allows us to serve 15 distinct end markets in which no customer accounted for more than 2% of revenue for the year ended December 31, 2021.
| REVENUE MIX BY END MARKET | CUSTOMER CONCENTRATION | ||||
Proven Track Record Realizing Acquisition Synergies and Deploying Best Practices
We have a strong track record of integrations generating significant synergies with our acquisitions of Mobile Mini, Modular Space Holdings, Inc. ("ModSpace"), Onsite Space LLC ("Tyson"), and Acton Mobile Holdings LLC ("Acton"). During the year ended December 31, 2021, the Company acquired certain assets and liabilities of seven regional modular space and storage businesses and quickly integrated these assets into our leasing portfolio and branch network. Opportunities such as these allow us to reach new customers, expand our product and service offering, and provide further opportunities for revenue and cost synergies. See “Risk Factors—We may be unable to successfully acquire and integrate new operations, which could cause our business to suffer."
Our Asset Base Provides Highly Attractive Asset-Level Returns with Long Useful Lives
The combination of long, predictable lease durations, long asset lives, and attractive unit economics underpins the compelling cash generation capability in our business model. As such, we have made significant investments in our lease fleet and consolidated several competitors. For the year ended December 31, 2021, our modular space and portable storage lease fleet consisted of over 129 million square feet of relocatable space, comprising over 162,000 office units and over 213,000 steel container units.
We generate an attractive internal rate of return ("IRR") in our modular space portfolio driven by the long economic life of our fleet, exceeding 20 years on average, inclusive of any capital expenditure ("capex") required to maintain the fleet to its value maximizing earning potential. On average, the IRR for a modular unit, including VAPS, is over 25%.
Similarly, portable storage containers are able to generate an IRR of approximately 30%. These units require minimal maintenance capex. The stability of cash flows combined with strong economic returns make both modular space and portable storage containers highly attractive specialty rental asset classes, and our logistics and service capabilities and investments in technology further enhance the returns we can generate from these assets.
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The following chart illustrates the breakdown of the net book value ("NBV") of our rental equipment between the various modular space product types, portable storage and VAPS as of December 31, 2021.
Our Business Generates Predictable Recurring Cash Flow Due to Our Long-Term Leases and Flexible Capex Requirements
Our recurring revenue, combined with our flexible capex requirements and efficient use of working capital has allowed us to generate substantial free cash flow, both in periods of growth and economic downturn. The long term nature of our leases, with average lease durations in excess of 31 months as of December 31, 2021, produces strong operating income and predictable cash flow.
We exercise control and discretion over capex, due to the longevity and relative simplicity of our products, the ability to invest only where needed and when needed to meet demand, and the ability to sell excess fleet during lower utilization periods. During periods of economic stress, we have the ability to substantially reduce capex throughout the portfolio in order to maximize cash flow, resulting in a counter‑cyclical free cash flow profile. See discussion of “COVID‑19 impact on business" within our "Recent Developments" section below.
Our Industry
We primarily operate within the modular space, portable storage, and specialty containment markets. Our services also span across a variety of related sectors, including furniture rental, transportation and logistics, facilities rental services, job site services and commercial real estate.
Modular Space Market
The modular space market is fragmented. Modular space units are non-residential structures designed to meet federal, provincial, state, and local building codes and, in most cases, are designed to be relocatable. Modular space units are constructed offsite, utilizing manufacturing techniques to prefabricate single or multi-story whole building solutions in deliverable modular sections. Units are typically constructed of steel, wood and conventional building materials and can be permanent or relocatable.
The modular space market has evolved in recent years as businesses and other potential customers increasingly recognize the value of modular space. The key growth drivers in this market are similar to portable storage and include:
Growing need and demand for space: driven by general economic activity, including gross domestic product growth, industrial production, mining and natural resources activity, non-residential construction, urbanization, public and education spending, and the scale and frequency of special events.
Shift from traditional fixed, on-site built space to modular space solutions: driven by several advantages as compared with fixed, on-site built space, including:
•Quick to install: the pre-fabrication of modular space units allows them to be put in place rapidly, providing potential long-term solutions to needs that may have materialized quickly.
•Flexibility: flexible assembly design allows modular space units to be built to suit a customer’s needs while offering customers the ability to adjust their space as their needs change.
•Cost effectiveness: modular space units provide a cost-effective solution for temporary and permanent space requirements and allow customers to improve returns on capital in their core business.
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•Quality: the pre-fabrication of modular space units is based on a repeatable process in a controlled environment, resulting in more consistent quality.
•Mobility: modular space units can easily be disassembled, transported to a new location and re-assembled.
•Environmentally friendly: relocatable buildings promote the reuse of facilities, on an as-needed basis, by the occupants.
Portable Storage Market
The portable storage market, like the modular space market, is highly fragmented and remains primarily local in nature. Portable storage units are typically ground‑level entry, windowless storage containers made of heavy exterior metals for secure storage and water tightness. Portable storage units can be built to specification or can be remanufactured from existing storage products, such as ISO shipping containers. Remanufacturing typically involves cleaning, removing rust and dents, repairing floors and sidewalls, painting, and adding company logos or signs as well as our patented Tri‑Cam Locking System®.
Portable storage units continue to find new applications as business needs change and develop. Demand for portable storage is driven by a number of factors, including:
•Versatility: portable storage units can be easily customized to suit customer specifications. While standard applications include locking double‑door systems to facilitate loading. However, custom entrances, such as rolling or sliding doors, can be added for personnel access.
•Affordability: portable storage provides customers with a flexible and low‑cost storage alternative to permanent warehouse space and fixed‑site self‑storage.
•Safety: units can be easily outfitted with fire and water‑resistant surfaces and materials. ISO containers are often wind and leak‑proof by virtue of their uses in logistics and shipping. Nearly all units are made from steel, which is a low‑cost, durable material.
•Security: a variety of enhanced locking mechanisms are available for portable storage units, including our patented Tri‑Cam Locking System® and ContainerGuardLock®. These features offer additional protection for high‑value goods and inventory.
•Convenience: portable storage units provide immediate ground‑level access for consumers and can be easily transported in large quantities via truck, rail, or cargo ship.
•Aesthetics: portable storage units can be easily painted and decorated with company colors and logos and are less conspicuous than other portable storage alternatives.
Specialty Containment Market
This market is served by our Tank and Pump Solutions business. In the specialty containment sector, we service different markets: the industrial market, comprised mainly of chemical facilities and refineries, also known as the “downstream” market and, to a lesser extent, companies engaged in the exploration and production of oil and natural gas, or the “upstream” market. Additionally, we serve a diversified group of customers engaged in projects in the construction, pipeline, and mining markets. Downstream customers utilize tank and pump equipment and services to manage and remove liquid and solid waste generated by ongoing operating activities as well as turn‑around projects and large‑scale expansion projects. Upstream customers, who we estimate represent approximately 2% of tank and pump revenues for the year ended December 31, 2021, tend to rent steel tanks to store and transport water and propellant used in well hydraulic fracturing. Other customers utilize a wide variety of our products differentiated by the type of project in which they are engaged.
Other Related Markets
In the normal course of providing our “Ready to Work” solutions, we perform services that are characteristic of activities in other industries. For example, we coordinate a broad network of third-party and in-house transportation and service resources to support the timely movement of our products to, as well as maintenance on, customer sites. Additionally, we design, source, lease, and maintain a broad offering of ancillary products, including furniture, which render our modular units immediately functional in support of our customers’ needs. We have developed networks of third‑party service providers that we coordinate to expand the breadth of capabilities that our customers can source through us. These third‑party‑managed services represent incremental revenue and margin opportunities for us and simplify the number of vendor touchpoints for our customers.
We also provide technical expertise and oversight for customers regarding building design and permitting, site preparation, and expansion or contraction of installed space based on changes in project requirements. Further, we have the capability to compete in adjacent markets, such as commercial and institutional housing, which have received less focus historically in the modular space market. We believe that this broad service capability differentiates us from other rental and business services providers and clearly differentiates us in the marketplace.
Competition
Although our competition varies significantly by local market, the modular space and portable storage industry is highly competitive and fragmented as a whole. We believe that participants in our industry compete on the basis of customer
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relationships, product quality and availability, delivery speed, VAPS and service capabilities, pricing, and overall ease of doing business. We typically compete with one or more local providers in all of our markets, as well as with a limited number of national and regional companies.
Our competitors include lessors of storage units, mobile offices, van trailers, and other structures used for portable storage, as well as traditional commercial office space and conventional fixed self-storage facilities. Some of our competitors may have greater market share in certain geographic regions. Significant modular space and portable storage competitors include McGrath RentCorp, PODS, United Rentals, ATCO Structures & Logistics, BOXX Modular, and 1-800-PACK-RAT in North America, and Wernick Hire and Elliott in the UK. Numerous other regional and local companies compete in individual markets.
Our Tank and Pump Solutions business offers liquid and solid containment products. The liquid and solid containment industry is also highly fragmented, consisting principally of local providers, with a handful of regional and national providers. We compete based on factors including quality and breadth of equipment, technical applications expertise, knowledgeable and experienced sales and service personnel, on‑time delivery and proactive logistics management, geographic areas serviced, rental rates, and customer service. Our competitors include United Rentals, Rain For Rent, Adler Tanks, Sprint/Republic Services, and numerous other smaller competitors.
Our Business and Growth Strategies
We intend to maintain a leading market position and increase our revenue and profitability by pursuing the following strategies, all of which we have demonstrated in our historical operating performance:
Expand Penetration of Value-Added Products and Services
As of December 31, 2021, we estimate that we have an organic revenue growth opportunity of over $150 million as the average VAPS rate of our units on rent in our NA Modular segment converges over time to the VAPS price and penetration levels achieved on our most recently delivered units. We believe this growth opportunity could be substantially larger if we successfully penetrate more of our modular space orders, and expand our VAPS offering for portable storage units.
Optimize Rate Across Fleet
We continue to advance multiple pricing strategies across our fleet to drive revenue growth. Leveraging our expertise developed in NA Modular, we plan to implement dynamic pricing, customer segmentation, and contract standardization in our other segments. Our long history of success, demonstrated by 17 consecutive quarters of double-digit rate growth as of December 31, 2021 in the US within our NA Modular segment, gives us confidence that we can successfully deploy this strategy. The turnover of our fleet, with average lease durations of nearly three years, creates natural and recurring opportunities to capture incremental price increases. As the market leader in our industry, we offer the broadest fleet portfolio, the most differentiated turnkey VAPS, and the most consistent service capabilities across the largest branch network to help our customers be 'Ready to Work'.
Enhance Market Penetration Between Segments
The combination of WillScot and Mobile Mini created a leading business services provider specializing in innovative flexible work space and portable storage solutions. At the outset of the Merger, we recognized that there was 80% end-market overlap and 40% customer overlap, a clear strategic opportunity for our complementary product lines. By offering a combined product suite, we simplify our customers' procurement needs and enable productivity from start to finish for projects. We believe cross-selling will also increase utilization and yield of our combined fleet. Our sales force is optimally positioned to improve efficiency by leveraging our management information systems and using real-time information to monitor and optimize conversion of customer opportunities across our core segments. In turn, we expect that our broadened and enhanced fleet will attract new customers, increase customer retention, and increase margins and return on invested capital.
Generate Cash Flow Through Operational Efficiencies, Cost Reductions, and Technology
We are implementing many initiatives designed to improve operations and increase profitability. We continually assess our branch operating footprint, vendor base, and operating structure to maximize revenue generation while minimizing costs. The Merger provides us with increased scale, numerous operational best practices from both the legacy WillScot and legacy Mobile Mini businesses, and a state-of-the-art SAP ERP platform, all of which we believe will significantly improve our operating efficiency over time. We have a proven track record of efficiently integrating acquisitions and quickly eliminating operational redundancies while maintaining acquired customer relationships.
Deploy Capital to Strategically Support Organic Growth and Optimize Returns
We maintain a disciplined focus on our return on capital and invest opportunistically across multiple uniquely attractive asset classes, prioritizing our investments to where we see the strongest potential returns. We continually assess both our existing lease fleet and customer demand for opportunities to deploy capital more efficiently. We manage our maintenance capex and growth capex to align with the economic conditions in which we operate. Within our existing lease fleet, we examine the potential cash and earnings generation of an asset sale versus continuing to lease the asset. In addition, we examine the relative benefits of organic expansion opportunities versus expansion through acquisition to obtain a favorable return on capital.
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Leverage Scale and Organic Initiatives with Accretive Acquisitions
Our markets for modular space and portable storage solutions are fragmented. We estimate that approximately 55% of the modular market and approximately 70% of the portable storage market in North America are supplied by regional and local competitors. We have the broadest network of operating branches in North America, as well as a scalable corporate center and information technology systems, which position us to continue to acquire and integrate other companies while expanding the products and services available and offered to acquired customers. During 2021, the Company acquired certain assets and liabilities of several smaller entities, which consisted primarily of 15,700 storage units and 5,800 modular units. We expect to pursue acquisitions opportunistically that will provide further scale efficiencies and allow us to improve returns generated by the acquired assets.
Use Free Cash Flow to Drive Value Creation
Our free cash flow generation has accelerated rapidly in recent years, and we expect this trend to continue as we execute our strategy. While we see numerous organic and inorganic opportunities to re-invest in our core businesses, we believe we can generate surplus free cash flow with which we can both reduce leverage and return capital to shareholders over time. We view this as an additional powerful value creation lever, and we are committed to deploying this capital as productively as possible in the interests of our shareholders.
Human Capital Management
As of December 31, 2021, we employed approximately 4,700 people worldwide, the majority of which are full time. Of these employees, approximately 4,320 are employed in North America (the US, Canada and Mexico), and approximately 380 are employed in the UK. We have collective bargaining agreements in portions of our Mexico-based operations representing approximately 1% of our worldwide employees. Approximately 87% of employees work in our approximately 275 branch locations and additional drop lots, while 13% of employees serve in various corporate functions. We have not experienced a strike or significant work stoppage, and we consider our relations with the labor unions and employees to be good.
Our Chief Human Resources Officer ("CHRO") along with other members of our executive leadership team, and with guidance from our board of directors, develops and executes our human capital strategy. This includes attracting, hiring, developing, retaining and engaging talent to deliver our strategy, designing employee compensation and benefits programs, and developing and integrating our inclusion and diversity ("I&D") initiatives.
Whether at a branch location or onsite with our customers, our people give us a competitive advantage versus our peers and competitors in the industry. That differentiation begins with our values. Our values are lived through our employees, acknowledged by our vendors and aligned to the needs of our customers and communities. Our values provide the basis for our approach to human capital management as well as how we treat our stakeholders.
Company Values
•Dedicated to Health & Safety: We are subject to certain environmental, health and safety regulations as well as other laws and regulations in countries, states or provinces, and localities in which we operate. Our health and safety programs are designed around global standards with appropriate variations addressing the multiple jurisdictions and regulations, specific hazards and unique working environments of our operations. We take responsibility for our own well being and for those around us.
•Committed to Inclusion & Diversity: We are stronger together when we celebrate our differences and strive for inclusiveness. We believe that a rich culture of inclusion and diversity enables us to create, develop and fully leverage the strengths of our workforce to exceed customer expectations and meet our growth objectives. We encourage collaboration and support the diverse voices and thoughts of our employees and communities.
•Driven to Excellence: We measure success through our results and achievement of our goals. We continuously improve ourselves and our products and services in pursuit of maximizing shareholder value.
•Trustworthy & Reliable: We hold ourselves accountable to do the right thing.
•Devoted to Our Customers: We anticipate the growing needs of our customers and strive to exceed their expectations and make it easy to do business with us.
•Community Focused: We actively engage in the communities we serve and deliver sustainable solutions.
Elements of Our Human Capital Strategy
The disruption in the labor force in 2020 continued into 2021. Many of our industry competitors have met these changes with little more than short-term compensation increases. We have taken a more holistic approach designed to meet our employees where they are at any stage within their lives. Our employee value proposition is simple: every day our employees deliver excellent service to our customers, and we are committed to delivering an employee experience that creates opportunity and ensures dignity for every employee.
Our involuntary turn over remains manageable at 23%, and the average tenure of our drivers remains strong at five years, during a period where demand for drivers is increasingly high. We believe that our strategy with the cornerstones of opportunity and personal dignity gives us an advantage over other companies. Our offerings are designed to benefit employees and their families, and we continue to develop best in class programs and services that are aligned to deliver
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targeted business outcomes that best fuel our growth trajectory. Through our acquisitions, we believe that we have extended these benefits to a broader employee population while raising the operating standards in our industry. The following highlights a few of our programs.
Employee Engagement
We are committed to keeping our employees informed and engaged in Company news and events, while helping them connect to our strategy and values. We share information through a range of channels including direct email and text capabilities, an employee intranet, televisions in our branches and quarterly all-employee town halls. We actively engage with our employees in topics that impact their experiences at work. We work with an outside vendor to administer an annual employee engagement survey along with regular pulse surveys to give our teams an active voice on topics that impact them directly. Their feedback is leveraged to shape policies, processes and other aspects of our workplace.
Learning and Development
Human capital development underpins our efforts to execute our strategy and continue to develop our people, products and services. We continually invest in our employees’ career growth and provide all employees with a wide range of personal and professional development experiences, both formal and informal, for all stages of their career journey.
Our formal offerings include tuition reimbursement, a diverse curriculum of over 6,000 learning courses, vocational training, and leadership development experiences. We have organized a proprietary foundational leadership development program, which combines skill building with an opportunity to put skills into practice. Since 2015, over 500 of our team members have participated in this program. In 2019, we partnered with a leading graduate business school to launch a targeted executive education program. And in 2021, we launched our new driver apprentice program to provide development opportunities to employees interested in becoming a Commercial Driver's License ("CDL") Class A driver for the Company. This new program also created internal development opportunity for current employees to become trainers.
Continual learning and career development is advanced through our in-depth succession planning process where we look across the organization to ensure diversity and inclusion are at the forefront of our human capital management. We then transition into goal planning and development conversations with employees that are supported by our library of personal and professional development courses, customized training engagements and seminars, conferences, and other training events where employees are encouraged to attend in connection with their job duties and developmental goals.
Inclusion and Diversity
We encourage and empower the diverse voices and contributions of our stakeholders to drive increased market share and global value. In 2021, we established and held the first meeting of our Inclusion & Diversity Council and launched five Inclusiveness Resource Teams ("IRTs"): Women of WSMM ("WOW"), Black Organization for Leadership & Direction ("BOLD"), Veterans United, Hispanos, and People Respecting that Identity and Sexuality Matters ("PRISM"). IRTs are voluntary, employee-led groups that foster an inclusive and diverse workplace aligned with our values and strategy. These groups were established to support our employees and provide opportunities for exposure, development and contribution to the organization.
The tone for I&D in our Company starts at the top with our executives and is bolstered with support from our board of directors. The Inclusion & Diversity Council is a cross-functional team of leaders, including our CEO, CHRO, and divisional senior vice presidents, that acts as a steering committee to help guide our I&D efforts globally. We expect to achieve the Company’s aspirations by (i) having regular board oversight of the Company’s I&D efforts, and (ii) improving I&D initiatives throughout the complete lifecycle of employee engagement (from recruitment, through development and advancement). We have trained hundreds of leaders in our organization on unconscious bias and provided I&D e-learning opportunities to our employees. Our CEO and CFO have I&D metrics as part of their compensation and performance targets.
Rewards, Health & Well Being
We crafted our total rewards strategy with a strategic focus on the health and well being of our employees. We do this, in part, by ensuring competitive pay at every level of the organization. We employ human capital consultant data to set and maintain pay ranges and pay levels across the organization. Incentives are designed to reward eligible employees commensurate with Company performance. Depending on the position, incentives may be either individually based (sales commissions), group-based (regional performance bonuses), or Company-based (corporate and executive employees).
Executive compensation is reviewed and analyzed via an independent third-party consultant and approved by the compensation committee of our board of directors. The consultant takes peer group data and general market data into account, when providing pay guidance, to ensure executive pay is both competitive and reasonable, based on the prevailing market standards.
Our approach to our benefits begins with a centralized focus on the employee. We use high deductible healthcare plans to promote positive consumer behaviors and pay approximately 70% of the cost of the employee premiums. We mitigate the burden to the employee from these plans by seeding their health savings accounts (“HSA”) at the beginning of each year, covering between 35% and 50% of employee deductibles. We also provide a biometric screening incentive in the form of an additional HSA contribution. HSA incentives are used to promote behaviors as needed, such as compliance with federal, state and local COVID-19 requirements and guidance. We have an employee assistance program to provide counseling sessions for every employee as they are needed.
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Wellness does not end with physical and mental health. We also offer several ways for our employees to feel prepared financially. Along with our 401(k) matching, we offer several educational services employees can use to strengthen their financial acumen. Additionally, we provide short-term disability pay at 100% of annualized wages for approved cases, and support can last up to 26 weeks. We offer paid parental leave for those employees who expand their families, as well. Regardless of the hurdles our employees face we are prepared to support them through their major life events and times of need.
Our employees are doing their part to support each other as well. The Minions of Kindness Fund is an employee-led 501(c)(3) organization that uses employee donations to support WillScot Mobile Mini employees in times of distress.
Our Approach to Environmental, Social and Governance
We are committed to upholding high standards when it comes to our environmental, social and governance ("ESG") responsibilities, as well as the safety of our employees and our business partners. The principal products we provide to our customers are long-lived, reusable and relocatable assets that produce minimal waste. For decades, we have committed ourselves to circular economic practices to reuse as many of the assets as possible. Our board of directors, at the direction of its nominating and corporate governance committee, is actively involved in the development of our ESG strategy and approach. Over the next several years, we will focus on numerous goals in the areas of ESG:
Focus Areas
•Environmental - Our commitment to environmentally sound business practices includes three key areas of focus:
◦reducing greenhouse gas emissions as part of our operations;
◦reducing the amount of waste we deliver to landfills; and
◦improving the energy efficiency of our products.
•Social - We are committed to socially responsible business practices throughout our operations. We have focused especially on improving diversity, equity, and inclusion throughout our organization, and on improving the communities in which we work. Our five areas of focus in this regard are to:
◦improve inclusion and diversity across the organization (as described above);
◦focus on community partnering across all of our locations;
◦remain diligent in placing safety first, always;
◦improve health and wellness opportunities for all our employees (as described above); and
◦improve customer engagement and relations.
•Governance
◦Continue to align our corporate governance structure with our ESG strategy
◦Improve the diversity of our Board and management
In the near term, we are pursuing the following five key strategic initiatives to drive increased benefits for our stakeholders.
•Materials: Reduce, reuse, recycle with our modular and storage units and VAPS
•Climate: Reducing greenhouse gas emissions from our owned trucking and yard fleet
•Health & Safety: Health & Safety First at our branches, on the road and at our customer sites
•Inclusion: Ensuring every employee has the opportunity to thrive and seek upward mobility
•Community: Leveraging our scale to lift up all 275+ of our communities and amplify our impact
Environmental
Circular Business Model (Materials)
We lease commercial grade office and storage units that are designed to be reused, relocated and reconfigured and have refurbishment capabilities for our office units. These assets are cycled to different customers seven times over their 20-year lifetime with a minimal refresh or get ready before each new cycle. We then layer on refurbishment, which can extend the asset life by another 10 years. With the cost of refurbishment at only 20-30% of the cost of a new unit, it’s more capital efficient to refurbish our units and it extends the life significantly. Our newest office space, called FLEX, is a panelized product which means that the panels, or walls, can be reconfigured and reused, thus eliminating wood waste.
We also have modernization facilities to put our storage assets, which we acquire used, into service as a storage unit.
Value Added Products (“VAPs”) adds another dimension to our circular story because we are able to reuse, repair, and maintain VAPs that come off rent, which helps drive better margins and growth. In addition, putting VAPs into our circular business model significantly reduces material usage both for us and for our customers, who otherwise buy and dispose of their VAPs at the end of the project.
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Circular by design, our lease and renew business model helps us to reduce material usage, emissions and costs, while helping our customers with their ESG goals.
GHG Emissions (Climate)
Compared to other industrial companies, our greenhouse gas footprint and risk is small, but we can still produce positive impacts that directly align with cost efficiency and customer benefits. To reduce greenhouse gas emissions and other air quality impacts from our diesel-fueled delivery and setup fleet, we have begun replacing older diesel truck engines with modern, efficient engines, and are working to test delivery trucks fueled by renewable natural gas. Over time, these efforts will help to reduce our fuel costs and risks, while also helping us secure contracts with like-minded customers.
Social
Safety
Protection of people and the environment is a core value at WillScot Mobile Mini. It is a key component of our Sales, People and Operational Excellence priorities. These priorities are the driving force that shapes who we are and what we do. WillScot Mobile Mini fosters an environment in which our employees feel empowered and choose to make the safest and best decisions possible. Safety extends beyond our branches and yards and includes travel on roads and highways and our activities at customer sites.
Today, we are operating at high levels of safety and low levels of injury. Our Total Recordable Incident Rate (“TRIR”) is 0.82 incidents per labor hour, compared to the 2.5 incidents per labor hour rate for the construction industry as reported by the Bureau of Labor Statistics. We are using technology to assist our drivers and other team members in the safety arena. In 2020, we created an assessment tool, our “Safety Save” application, that tracks leadership safety engagement and measures the number of safety engagements as our team members complete them. Any employee is encouraged to complete a safety assessment on an observation of a task, tool, behavior or other condition during working duties. Use of the Safety Save application is just one manner we use to manage safety leadership at all levels. Further, we use and are expanding a vehicle/truck-based camera system used to improve driving behaviors.
Lastly, we maintain a safety assessment program that drives increased focus to our Health & Safety core value, by providing increased visibility. Our goal is to help each team member succeed and enjoy a safe working experience. We know no business can exist without people. Who we are as people ultimately defines what we are as a business, and safety is everyone’s responsibility.
COVID-19 Safety Protocols
We remain dedicated to protecting the health and safety of our employees and customers and have adjusted our business to meet various country, state, and local requirements. We are considered an “essential business” and our employees are considered “essential workers.” We have continued to service our customers throughout the pandemic, while implementing robust health and safety protocols to protect our visitors, employees and customers.
We follow US Centers for Disease Control and Prevention, OSHA and/or applicable country, state and local guidelines at the locations where we operate. To comply with public health guidance and reduce the risk of COVID-19 transmission, unvaccinated visitors, customers and employees are required, prior to commencing work at our facilities and offices each day, to check their temperature and complete a daily symptom certification that is documented and reviewed by our COVID team members. We provide masks and hand sanitizer to our visitors, customers, and employees, as well as require adherence to appropriate social distancing practices. We have also enhanced cleaning/sanitization protocols at our locations.
COVID-19 testing for employees is covered by our health insurance and we actively track key COVID metrics. Additionally, we are providing an incentive to our employees that choose to get vaccinated, as well as paid time off for vaccination and any side effects. We also meet all client requirements for site access or general compliance with their required COVID protocols. We remain flexible to the situation, and keep our employees informed of the current best guidance, as provided by professionals and experts.
Community
Community engagement is at the heart of our business. Due to our scale, we bring new engagement opportunities to our entire workforce in two ways. We recently launched our giving platform called "Give Where You Live" where employees can partner with the local charity of their choice across all 275 of our locations in the way that is most meaningful to them. We encourage our employees to give their time, talent and/or treasure locally to our core four causes of Shelter, Hunger, Education, and Health & Wellness. We have expanded our existing Company match program and have created a volunteer rewards program to encourage increased volunteerism globally. Our IRTs support our community-focused values through volunteer opportunities that are meaningful to the populations that they represent. We also have Company-wide partnerships like Habitat for Humanity, where we are able to provide giving opportunities in the normal course of business, like the temporary use of our storage containers at Habitat build sites. We know that when we give where we live, we can make a difference.
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Governance
Good governance enables everything we do. After the WillScot Mobile Mini merger, our combined board of directors created a roadmap to transition the company’s governance practices. We modified our charter to establish an ESG initiative, and to provide oversight for that initiative. Our audit committee and enterprise risk management committee each review the board of directors’ and the Company’s activities to assess risks and develop plans to mitigate those risks. These committees consider a variety of potential risks that may affect the Company over the next three years, including climate change, truck fleet emissions, labor law changes, diversity, and zoning laws.
Intellectual Property
We operate primarily under the WillScot and Mobile Mini brands. We protect our products and services through the use of trademarks and patents, none of which are individually material to our business. Our trademarks and patents are registered or pending applications for registrations in the US Patent and Trademark Office and various non‑US jurisdictions. On our Modular fleet, we maintain a patent for the design of our Flex units in the US and other patents in the US and non-US jurisdictions concerning various assembly and panel components. We believe that Flex represents innovative and versatile purpose built modular space solutions in the industry, which has helped us expand commercially into new end markets. On our Storage fleet, we have patented our proprietary Tri‑Cam Locking System®, ContainerGuardLock® and other continued improvements in locking technology in the markets in which we operate, as well as in Europe and China. We believe that continued innovation differentiates WillScot Mobile Mini with our customers and represents a source of long-term competitive advantage.
Significant Developments
Mobile Mini Merger
On July 1, 2020, we closed the Merger at which time Mobile Mini became a wholly-owned subsidiary of WillScot. Concurrent with the closing of the Merger, we changed our name to WillScot Mobile Mini Holdings Corp. We believe that the Merger is resulting in strategic and financial benefits by combining the two industry leaders in the complementary modular space and portable storage solutions markets. During the second quarter of 2021, we executed the successful integration of the two companies' enterprise resource planning ("ERP") operating and financial systems.
Reportable Segments
We operate in four reportable segments as follows: North America Modular Solutions ("NA Modular"), North America Storage Solutions ("NA Storage"), United Kingdom Storage Solutions ("UK Storage") and Tank and Pump Solutions ("Tank and Pump"). The reporting segments are aligned with how we operate and analyze our business results. Prior to the third quarter of 2021, the NA Modular segment represented the activities of WillScot historical segments prior to the Merger, and the NA Storage, UK Storage and Tank and Pump segments represented the segments reported by Mobile Mini prior to the Merger. During the third quarter of 2021, the majority of the portable storage product business within the NA Modular segment was transitioned to the NA Storage segment, and associated revenues, expenses, and operating metrics were transferred to the NA Storage segment beginning in the third quarter of 2021.
Asset Acquisitions
During the third and fourth quarters of 2021, we acquired the assets and liabilities of seven regional storage and modular companies, which consisted primarily of 15,700 storage units and 5,800 modular units for $147.2 million in cash. We recorded rental equipment of $142.1 million as a result of these acquisitions.
Financing Activities
On March 26, 2021, we redeemed $65.0 million of our 6.125% senior secured notes due 2025 (the "2025 Secured Notes") at a redemption price of 103.0%, plus accrued and unpaid interest. This repayment was funded by internally generated cash flow and lower cost borrowings under the ABL Credit Agreement, dated July 1, 2020, by and among Williams Scotsman Holdings Corp. (“Holdings”), Williams Scotsman International, Inc. (“WSII”), the guarantors party thereto, the lenders party thereto, and Bank of America, N.A., as administrative agent and collateral agent (as amended from time to time, the “2020 ABL Facility”). Upon redemption in the first quarter of 2021, we recorded a loss on extinguishment of debt in the consolidated statement of operations of $3.2 million comprised of a redemption premium of $1.9 million and write off of unamortized deferred financing fees of $1.3 million.
On June 16, 2021, we redeemed an additional $58.5 million of our 2025 Secured Notes at a redemption price of 103.0%, plus accrued and unpaid interest. This repayment was funded by internally generated cash flow and lower cost borrowings under the 2020 ABL Facility. Upon redemption in the second quarter of 2021, we recorded a loss on extinguishment of debt in the consolidated statement of operations of $2.8 million comprised of a redemption premium of $1.8 million and write off of unamortized deferred financing fees of $1.0 million.
Share and Warrant Repurchases
On March 1, 2021, in connection with an underwritten secondary offering of shares of our Common Stock offered by Sapphire Holding S.à r.l. (“Sapphire Holdings”), our largest shareholder at that time and an entity controlled by TDR Capital
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LLP (“TDR Capital”), we repurchased and cancelled 2,750,000 shares of our Common Stock directly from Sapphire Holdings for $73.7 million at a per share price equal to the per share price paid by the underwriters in the concurrent offering. On June 29, 2021, in connection with a second underwritten secondary offering of shares of our Common Stock offered by Sapphire Holdings, we repurchased and cancelled an additional 3,900,000 shares of our Common Stock directly from Sapphire Holdings for $108.2 million at a per share price equal to the per share price paid by the underwriters in the concurrent offering. On September 9, 2021, in connection with a third underwritten secondary offering of shares of our Common Stock offered by Sapphire Holdings, we repurchased and cancelled an additional 2,379,839 shares of our Common Stock directly from Sapphire Holdings for $67.1 million at a per share price equal to the per share price paid by the underwriters in the concurrent offering.
During the year ended December 31, 2021, we repurchased and cancelled 3,055,000 of the 2015 Private Warrants (as defined below) for $25.5 million. In addition, during the year ended December 31, 2021, 9,655,000 of the 2015 Private Warrants were exercised on a cashless basis, resulting in the issuance of 2,939,898 shares of Common Stock. As a result of these transactions, no 2015 Private Warrants were outstanding as of December 31, 2021.
During the year ended December 31, 2021, we repurchased and cancelled 254,373 of the 2018 Warrants for $2.9 million. In addition, during the year ended December 31, 2021, 5,397,695 of the 2018 Warrants were exercised on a cashless basis, resulting in the issuance of 2,835,968 shares of Common Stock. At December 31, 2021, 4,078,173 of the 2018 Warrants were outstanding.
During the year ended December 31, 2021, we repurchased and cancelled 12,878,490 shares of Common Stock and stock equivalents for $365.9 million, including the shares repurchased from Sapphire Holdings and all repurchased warrants. In October 2021, our Board of Directors replaced the existing share repurchase program with a new share repurchase program that authorizes us to repurchase up to $1.0 billion of our outstanding shares of Common Stock and stock equivalents. As of December 31, 2021, we had $956.7 million of the $1.0 billion share repurchase authorization remaining. Given the predictability of our free cash flow, we believe that repurchases will be a reoccurring capital allocation priority.
Amendment to 2020 ABL Facility and Supplemental Indentures
In connection with an internal tax-related reorganization (the "Reorganization") involving indirect wholly-owned subsidiaries of the Company, on December 23, 2021, WSII merged with and into its direct wholly-owned subsidiary, Williams Scotsman, Inc., a Maryland corporation (“WSI”), with WSI as the surviving entity of such merger. The purpose of the Reorganization was to simplify the Company's legal entity structure following numerous acquisitions and to reduce related franchise taxes and other administrative costs and had no impact on our underlying business operations.
In connection with the Reorganization, on December 23, 2021, WSI, the guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee and as collateral agent (in such capacities, the “Trustee”), entered into (i) a Supplemental Indenture (the “2025 Notes Supplemental Indenture”) in relation to that certain Indenture, dated as of June 15, 2020, (as amended, amended and restated, supplemented or otherwise modified from time to time, the “2025 Notes Indenture”), by and among WSII (as successor to Picasso Finance Sub, Inc.), as issuer, the guarantors from time to time party thereto and the Trustee in respect of WSII’s 6.125% Senior Secured Notes due 2025 and (ii) a Supplemental Indenture (the “2028 Notes Supplemental Indenture” and together with the 2025 Notes Supplemental Indenture, the “Supplemental Indentures”) in relation to that certain Indenture, dated as of August 25, 2020, (as amended, amended and restated, supplemented or otherwise modified from time to time, the “2028 Notes Indenture” and together with the 2025 Notes Indenture, the “Indentures”), by and among WSII (as successor to Picasso Finance Sub, Inc.), as issuer, the guarantors from time to time party thereto and the Trustee in respect of WSII’s 4.625% Senior Secured Notes due 2028, pursuant to which WSI assumed all of WSII’s obligations and rights under each Indenture, and the guarantors party to each Supplemental Indenture confirmed their respective guarantees under each Indenture. Prior to its entry into the Supplemental Indentures, WSI was a guarantor under each Indenture and jointly and severally liable for WSII’s obligations under each Indenture.
Additionally, in connection with the Reorganization, on December 16, 2021, WSII and certain other subsidiaries of the Company entered into a third amendment (the “Third Amendment”) to the 2020 ABL Facility which, among other things, permits (i) the merger of WSII with and into WSI, and (ii) WSI to assume the duties and obligations of the Administrative Borrower (as defined in the 2020 ABL Facility) under the Loan Documents (as defined in the 2020 ABL Facility) in connection with the Reorganization.
Following the Reorganization and the entry into the Supplemental Indentures and the Third Amendment, there is no change to the consolidated operating cash flows of the obligors under the Indentures and the 2020 ABL Facility or the consolidated assets of such obligors pledged as collateral under the Indentures and the 2020 ABL Facility.
COVID-19 impact on business
Since the outbreak of COVID‑19 was designated as a global pandemic by the World Health Organization (the “WHO”) in March 2020, our operations have generally continued to operate normally with additional safety protocols in place as we have been considered an essential business in most jurisdictions. The global macroeconomic backdrop and impact on our end markets has evolved rapidly since the beginning of 2020. However, overall our lease portfolio and financial results have proven to be durable and consistent despite the severity of the economic contraction in 2020 and the current expansion in 2021.
Importantly, because of the long durations of our leases, the majority of our gross profit in any given period is from units already out on rent. This gives us significant visibility into our future cash flows, which allows us to plan ahead and adjust
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our capital expenditures and cost structure for varying demand levels. Our portfolio of units already out on rent at the onset of the pandemic was resilient and largely not impacted, despite the unprecedented swings in economic activity in 2020.
Activity levels in the fourth quarter of 2020 and the first half of 2021 stabilized, and our volume of new lease activations grew significantly in the second quarter of 2021 as economic activity rebounded sharply with modular deliveries across our NA Modular and NA Storage segments up a combined 9% over pro forma 2020 levels and storage product deliveries across these two segments up a combined 39% over pro forma 2020 levels and on par with 2019 pro forma activity levels. This recovery continued in the third quarter of 2021 and for the three months ended September 30, 2021, both modular and storage product deliveries across our NA Modular and NA Storage segments were up a combined 6% over 2020 levels. Economic activity for the three months ended December 31, 2021 remained strong against a more stable fourth quarter of 2020 with storage product deliveries across our NA Modular and NA Storage segments up a combined 6% over 2020 levels and modular product deliveries essentially flat with 2020 levels. Overall, while new lease activation volumes over the past eight quarters were impacted in line with the swings in economic activity, our lease revenue streams were stable and remain on an attractive upward long-term trajectory, a result of the diversification in our end markets, our long lease durations, and the success of the organic growth initiatives that we are executing.
Available Information
Our website address is www.willscotmobilemini.com. We make available, free of charge through our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the United States Securities and Exchange Commission (the “SEC”). The SEC maintains an internet website at www.sec.gov that contains reports, proxy and information statements and other information regarding WillScot Mobile Mini.
Regulatory and Environmental Compliance
We are subject to certain environmental, transportation, anti-corruption, import control, health and safety, and other laws and regulations in countries, states or provinces, and localities in which we operate. We incur significant costs in our business to comply with these laws and regulations. However, from time to time we may be subject to additional costs and penalties as a result of non-compliance. The discovery of currently unknown matters or conditions, new laws and regulations, or different enforcement or interpretation of existing laws and regulations could materially harm our business or operations in the future.
We are subject to laws and regulations that govern and impose liability for activities that may have adverse environmental effects, including discharges into air and water and handling and disposal of hazardous substances and waste. As of the date of this filing, no environmental matter has been material to our operations. Based on our management’s assessment, we believe that any environmental matters relating to us of which we are currently aware will not be material to our overall business or financial condition.
The jurisdictions in which we operate are also subject to anti-bribery laws and regulations, such as the US Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”). These regulations prevent companies and their officers, employees, and agents from making payments to officials and public entities of foreign countries to facilitate obtaining new contracts. Violations of these laws and regulations may result in criminal sanctions and significant monetary penalties.
Certain of our units are subject to regulation in certain states under motor vehicle and similar registrations and certificate of title statutes. Management believes that the Company has complied, in all material respects, with all motor vehicle registration and similar certificate of title statutes in states where such statutes clearly apply to modular space units. We have not taken actions under such statutes in states where we have determined that such statutes do not apply to modular space units. However, in certain states, the applicability of such statutes to modular space units is not clear beyond doubt. If additional registration and related requirements are deemed to be necessary in such states or if the laws in such states or other states were to change to require us to comply with such requirements, we could be subject to additional costs, fees, and taxes as well as administrative burdens in order to comply with such statutes and requirements. Management does not believe that the effect of such compliance will be material to our business or financial condition.
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ITEM 1A. Risk Factors
Risks Relating to Our Business
We may be unable to successfully acquire and integrate new operations, which could cause our business to suffer.
We have historically achieved a significant portion of our growth through acquisitions, and we will continue to consider potential acquisitions on a selective basis. There can be no assurance that we will be able to identify suitable acquisition opportunities in the future or that we will be able to consummate any such transactions on terms and conditions acceptable to us.
Additionally, we cannot predict if or when acquisitions will be completed, and we may face significant competition for acquisition targets. Acquisitions involve numerous risks, including (a) difficulties in integrating the operations, technologies, management information systems, products and personnel of the acquired companies; (b) diversion of management’s attention from normal daily operations of the business; (c) loss of key employees; (d) difficulties in entering markets in which we have no or limited prior experience and where our competitors in such markets have stronger market positions; (e) difficulties in complying with regulations, such as antitrust and environmental regulations, and managing risks related to an acquired business; (f) an inability to timely obtain financing, including any amendments required to existing financing agreements; (g) an inability to implement uniform standards, controls, procedures and policies; (h) undiscovered and unknown problems, defects, liabilities or other issues related to any acquisition that become known to us only after the acquisition, particularly relating to rental equipment on lease that are unavailable for inspection during the diligence process; and (i) loss of key customers or suppliers.
In connection with acquisitions, we may assume liabilities or acquire damaged assets, some of which may be unknown to us at the time of such acquisitions.
We assess the condition and regulatory certification of an acquired fleet as part of our acquisition due diligence. In some cases, fleet condition or regulatory certification may be difficult to determine due to the fleet being on lease at the time of acquisition and/or inadequate certification records. Fleet acquisitions may therefore result in a rectification cost that we may not have factored into the acquisition price, impacting our ability to deploy units and the profitability of the fleet we acquired.
We must continue to take actions to realize the combined cost synergies that we forecast for the acquisition. We may incur more costs than we anticipated to achieve the forecast synergies (thus reducing the net benefit of the cost synergies), realize synergies later than we expected or fail altogether to achieve a portion of the cost savings we anticipated. Any of these events could cause reductions in our earnings per share, impact our ability to borrow funds under our credit facility, decrease or delay the accretive effect of the acquisitions that we anticipated and negatively impact our stock price.
Acquisitions are inherently risky, and we cannot provide assurance that any future acquisitions will be successful or will not materially adversely affect our business, results of operations and financial condition. If we do not manage new markets effectively, some of our new branches and acquisitions may lose money or fail, and we may have to close unprofitable branches. Closing a branch in such circumstances would likely result in additional expenses that would cause our operating results to suffer. To manage growth successfully, we will need to continue to identify additional qualified managers and employees to integrate acquisitions within our established operating, financial and other internal procedures and controls. The efficient integration of any acquired operations will also require the integration of technology infrastructure systems and a transition to new systems when required. An inability to integrate these systems following an acquisition, or an inability to scale our existing infrastructure or systems to support such acquired operations, might impact our ability to respond effectively to changing customer expectations, manage our business, scale our solutions effectively or impact our customer service levels, which could put us at a competitive disadvantage and negatively impact our financial results. We will also need to effectively motivate, train and manage our employees. Failure to successfully integrate recent and future acquisitions and new branches into existing operations could materially adversely affect our results of operations and financial condition.
Global or local economic movements could have a material adverse effect on our business.
Our business, which operates in the US, Canada, Mexico and the UK, may be negatively impacted by economic movements or downturns in the local markets in which we operate or global markets generally. These adverse economic conditions may reduce commercial activity, cause disruption and extreme volatility in global financial markets and increase rates of default and bankruptcy. Reduced commercial activity has historically resulted in reduced demand for our products and services. For example, reduced commercial activity in the construction, energy and natural resources sectors in certain markets in which we operate, particularly the US and Canada, has negatively impacted our business in the past. Disruptions in financial markets could negatively impact the ability of our customers to pay their obligations to us in a timely manner and increase our counterparty risk. If economic conditions worsen, we may face reduced demand and an increase, relative to historical levels, in the time it takes to receive customer payments. If we are not able to adjust our business in a timely and effective manner to changing economic conditions, our business, results of operations and financial condition may be materially adversely affected.
Moreover, the level of demand for our products and services is sensitive to the level of demand within various sectors, particularly the commercial and industrial, construction, education, energy and natural resources, and government end
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markets. Each of these sectors is influenced not only by the state of the general global economy, but also by a number of more specific factors as well. For example, a decline in global or local energy prices may materially adversely affect demand for modular buildings within the energy and resources sector. The levels of activity in these sectors and geographic regions may also be cyclical, and we may not be able to predict the timing, extent or duration of the activity cycles in the markets in which we or our key customers operate. A decline or slowed growth in any of these sectors or geographic regions could result in reduced demand for our products and services, which may materially adversely affect our business, results of operations and financial condition.
Our operations are exposed to operational, economic, political and regulatory risks.
We operate in the US, Canada, Mexico and the UK. For the year ended December 31, 2021, approximately 87.2%, 6.1%, 0.8%, and 5.9% of our revenue was generated in the US, Canada, Mexico and the UK, respectively. For the year ended December 31, 2021, approximately 61.4%, 26.8%, 5.9%, and 5.9% of our revenue was derived from our NA Modular Solutions business, NA Storage Solutions business, UK Storage Solutions business and Tank and Pump Solutions business, respectively.
Our operations in any of these countries could be affected by foreign and domestic economic, political and regulatory risks, including (a) regulatory requirements that are subject to change and that could restrict our ability to assemble, lease or sell products; (b) inflation, recession, and fluctuations in foreign currency exchange and interest rates; (c) trade protection measures, including increased duties and taxes and import or export licensing requirements; (d) compliance with applicable antitrust and other regulatory rules and regulations relating to potential acquisitions; (e) different local product preferences and product requirements; (f) pressures on management time and attention due to the complexities of overseeing multi-national operations; (g) challenges in maintaining staffing; (h) different labor regulations and the potential impact of collective bargaining; (i) potentially adverse consequences from changes in, or interpretations of, tax laws; (j) potentially adverse consequences from change in, or interpretation of, securities laws and other financial reporting regulations; (k) political and economic instability; (l) enforcement of remedies in various jurisdictions; (m) the risk that the business partners upon whom we depend for technical assistance will not perform as expected; (n) compliance with applicable export control laws and economic sanctions laws and regulations; (o) price controls and ownership regulations; (p) obstacles to the repatriation of earnings and cash; (q) differences in business practices that may result in violation of Company policies, including, but not limited to, bribery and collusive practices; and (r) reduced protection for intellectual property in some countries. Additionally, any sustained international conflict may have a negative economic or other impact on the markets we serve, our operations and financial results. These and other risks may materially adversely affect our business, results of operations and financial condition.
Our operations may be adversely impacted by public health crises such as the global pandemic associated with COVID-19.
We are subject to risks related to public health crises, such as the global pandemic associated with COVID-19, which could significantly impact general commercial activity related to our supply chain and customer base and which could have a material adverse effect on our business, financial condition, or result of operations. To the extent that the COVID-19 pandemic continues or worsens, or any future public health crisis emerges, governments may impose additional restrictions, including work restrictions, and supply chains may be interrupted, slowed, or rendered inoperable. As a result, it may be challenging to obtain and process raw materials and labor resources necessary to support our business needs. We may need to recognize material charges in future periods for impairments of our rental equipment, property, plant, and equipment and/or intangible assets. Furthermore, our employees, suppliers or customers could become ill, quarantined or otherwise unable to work and/or travel due to health reasons or governmental restrictions. The COVID-19 global pandemic has affected and may continue to affect our industry and the industries in which our customers operate, and there may be an adverse impact on customer demand for our rentals. We also have been, and will be, adversely impacted by project delays, early returns of equipment on rent with customers and payment delay, or non-payment, by customers who are significantly impacted by COVID-19. If our customers’ businesses continue to be affected, they might delay or reduce purchases from or payments to us, which could adversely affect our business, financial condition or results of operations.
In addition, increased volatility and diminished expectations for the global economy, coupled with the prospect of decreased business and consumer confidence and increased unemployment resulting from the COVID-19 pandemic or any future public health crises may precipitate an economic slowdown and recession. If the economic climate deteriorates, our ability to continue to grow our business organically or through additional acquisitions and integration of acquired businesses, as well as the financial condition of customers, suppliers and lenders, could be adversely affected, resulting in a negative impact on the business, financial condition, results of operations and cash flows of our Company.
The situation surrounding COVID-19 remains fluid. A lack of public acceptance of vaccines could lead people to continue to self-isolate and not participate in the economy at pre-pandemic levels for a prolonged period of time. Further, even if vaccines are widely accepted, there can be no assurance that the vaccine will ultimately be successful in limiting or stopping the spread of COVID-19 and its variants. Therefore, it remains difficult to predict the potential impact of the virus on our results of operations and financial position. The potential effects of COVID-19 also could impact many of our risk factors, as discussed herein, including, but not limited to our exposure to operational, economic, political and regulatory risks; risks related to global or local economic movements; changes in trade policies; and labor disruptions. However, given the evolving health, economic, social, and governmental environments, the potential impact that COVID-19 could have on our risk factors that are further
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described herein remains uncertain. Any future pandemics could similarly negatively impact our operations and financial results.
Several governmental entities have enacted or may enact enforceable government mandates with respect to employee vaccinations against COVID-19. Any requirement to mandate COVID-19 vaccination of our workforce or require our unvaccinated employees to be tested weekly could result in employee attrition and difficulty securing future labor needs, which could adversely affect our business, financial condition or results of operations.
Any failure of our management information systems could disrupt our business operations both in the field and back office, which could result in decreased lease or sale revenue and increase overhead costs.
We rely heavily on information systems across our operations. We also utilize third-party cloud providers to host certain of our applications and to store data. Our ability to effectively manage our business depends significantly on the reliability and capacity of these systems. The failure of our management information systems to perform as anticipated could damage our reputation with our customers, disrupt our business or result in, among other things, decreased lease and sales revenue and increased overhead costs. Any such failure could harm our business, results of operations and financial condition. In addition, the delay or failure to implement information system upgrades and new systems effectively could disrupt our business, distract management’s focus and attention from business operations and growth initiatives and increase our implementation and operating costs, any of which could materially adversely affect our operations and operating results. Moreover, the integration of any acquisition may create unforeseen challenges for our management information systems which could result in unforeseen expenditures and other risks, including difficulties in managing facilities and employees in different geographic areas.
We believe we have implemented appropriate measures to mitigate potential risks; however, like other companies, our information technology systems may be vulnerable to a variety of interruptions due to our own error or events beyond our control. The measures that we employ to protect our systems may not detect or prevent cybersecurity breaches, natural disasters, terrorist attacks, telecommunication failures, computer viruses, hackers, phishing attacks, and other security issues. We have previously been the target of an attempted cyber-attack and have from time to time experienced threats to our data and systems, computer virus attacks and phishing attempts, and we may be subject to breaches of the information systems that we use. We have not experienced a material cybersecurity breach. We have programs in place that are intended to detect, contain and respond to data security incidents and that provide employee awareness training regarding phishing, malware, and other cyber risks to protect against cyber risks and security breaches. However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventative measures. In addition, because our systems contain information about individuals and other businesses, the failure to maintain the security of the data we hold, whether the result of our own error or the malfeasance or errors of others, could harm our reputation or give rise to legal liabilities leading to lower revenue, increased costs, regulatory sanctions and other potential material adverse effects on our business, results of operations and financial condition.
Effective management of our fleet is vital to our business, and our failure to properly safeguard, design, manufacture, repair, maintain and manage our fleet could harm our business and reduce our operating results and cash flows.
Our modular space and portable storage units have long economic lives and managing our fleet is a critical element to our leasing business. Rental equipment asset management requires designing and building long-lived products that anticipate customer needs and changes in legislation, regulations, building codes and local permitting in the various markets in which we operate. In addition, we must cost-effectively maintain and repair our fleet to maximize the economic life of the products and the proceeds we receive from product sales. As the needs of our customers change, we may incur costs to relocate or retrofit our assets to better meet shifts in demand. If the distribution of our assets is not aligned with regional demand, we may be unable to take advantage of sales and leasing opportunities in certain regions, despite excess inventory in other regions. If we are not able to successfully manage our lease assets, our business, results of operations and financial condition may be materially adversely affected.
If we do not appropriately manage the design, manufacture, repair and maintenance of our product fleet, or if we delay or defer such repair or maintenance or suffer unexpected losses of rental equipment due to theft or obsolescence, we may be required to incur impairment charges for equipment that is beyond economic repair or incur significant capital expenditures to acquire new rental equipment to serve demand. These failures may also result in personal injury or property damage claims, including claims based on poor indoor air quality and termination of leases or contracts by customers. Costs of contract performance, potential litigation and profits lost from termination could materially adversely affect our future operating results and cash flows. If a significant number of leased units are returned in a short period of time, a large supply of units would need to be remarketed. Our failure to effectively remarket a large influx of units returning from leases could materially adversely affect our financial performance.
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Trade policies and changes in trade policies, including the imposition of tariffs, their enforcement and downstream consequences, may materially adversely affect our business, results of operations, and outlook.
Tariffs and/or other developments with respect to trade policies, trade agreements and government regulations may materially, adversely affect our business, financial condition and results of operations. For example, the US government has imposed tariffs on steel, aluminum and lumber imports from certain countries, which could result in increased costs to us for these materials. Without limitation, (i) tariffs currently in place and (ii) the imposition by the federal government of new tariffs on imports to the US could materially increase (a) the cost of our products that we are offering for sale or lease, (b) the cost of certain products that we source from foreign manufacturers, and (c) the cost of certain raw materials or products that we utilize. We may not be able to pass such increased costs on to our customers, and we may not be able to secure sources of certain products and materials that are not subject to tariffs on a timely basis. Although we actively monitor our procurement policies and practices to avoid undue reliance on foreign-sourced goods subject to tariffs, when practicable, such developments may materially adversely affect our business, financial condition and results of operations.
We face significant competition in the modular space, portable storage and tank and pump industries. Such competition may result in pricing pressure or an inability to maintain or grow our market share. If we are unable to compete successfully, we could lose customers and our revenue and profitability could decline.
Although our competition varies significantly by market, the modular space, portable storage, and the tank and pump solutions industries are highly competitive, in general, and the portable storage and tank and pump solutions industries are highly fragmented. We compete on the basis of a number of factors, including customer relationships, product quality and availability, delivery speed, VAPS and service capabilities, pricing, and overall ease of doing business. We may experience pricing pressures in our operations as some of our competitors seek to obtain market share by reducing prices, and we may face reduced demand for our products and services if our competitors are able to provide new or innovative products or services that better appeal to customers. In most of our end markets, we face competition from national, regional and local companies who have an established market position in the specific service area, and we expect to encounter similar competition in any new markets that we may enter. In certain markets, some of our competitors may have greater market share, less debt, greater pricing flexibility, more attractive product or service offerings, better brand recognition or superior marketing and financial resources. Increased competition could result in lower profit margins, substantial pricing pressure and reduced market share. Price competition, together with other forms of competition, may materially adversely affect our business, results of operations and financial condition.
If we do not manage our credit risk effectively, collect on our accounts receivable, or recover our rental equipment from our customers, it could materially adversely affect our business, financial condition and results of operations.
We perform credit evaluation procedures on our customers on each transaction and require security deposits or other forms of security from our customers when we identify a significant credit risk. Failure to manage our credit risk and receive timely payments on our customer accounts receivable may result in the write-off of customer receivables and loss of units if we are unable to recover our rental equipment from our customers’ sites. If we are not able to manage credit risk, or if a large number of customers should have financial difficulties at the same time, our credit and rental equipment losses would increase above historical levels. If this should occur, our business, financial condition, results of operations and cash flows may be materially adversely affected.
Changes in state building codes could adversely impact our ability to remarket our buildings, which could have a material adverse impact on our business, financial condition and results of operations.
Building codes are generally reviewed, debated and, in certain cases, modified on a national level every three years as an ongoing effort to keep the regulations current and improve the life, safety and welfare of the buildings' occupants. All aspects of a given code are subject to change, including, but not limited to, such items as structural specifications for earthquake safety, energy efficiency and environmental standards, fire and life safety, transportation, lighting and noise limits. On occasion, state agencies have undertaken studies of indoor air quality and noise levels with a focus on permanent and modular classrooms. This process leads to a systematic change that requires engagement in the process and recognition that past methods will not always be accepted. New modular construction is very similar to conventional construction where newer codes and regulations generally increase cost. New governmental regulations may increase our costs to acquire new rental equipment, as well as increase our costs to refurbish existing equipment.
Compliance with building codes and regulations entails risk as state and local government authorities do not necessarily interpret building codes and regulations in a consistent manner, particularly where applicable regulations may be unclear and subject to interpretation. These regulations often provide broad discretion to governmental authorities that oversee these matters, which can result in unanticipated delays or increases in the cost of compliance in particular markets. The construction and modular industries have developed many “best practices” which are constantly evolving. Some of our peers and competitors may adopt practices that are more or less stringent than ours. When, and if, regulators clarify regulatory standards, the effect of the clarification may be to impose rules on our business and practices retroactively, at which time we may not be in compliance with such regulations and we may be required to incur costly remediation. If we are unable to pass
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these increased costs on to our customers, our business, financial condition, operating cash flows and results of operations could be negatively impacted.
Our operations face foreign currency exchange rate exposure, which may materially adversely affect our business, results of operations and financial condition.
We hold assets, incur liabilities, earn revenue and pay expenses in certain currencies other than the US Dollar, primarily the Canadian Dollar, the Mexican Peso and the British Pound. Our consolidated financial results are denominated in US Dollars, and therefore, during times of a strengthening US Dollar, our reported revenue in non-US Dollar jurisdictions will be reduced because the local currency will translate into fewer US Dollars. Revenue and expenses are translated into US Dollars at the average exchange rate for the period. In addition, the assets and liabilities of our non-US Dollar subsidiaries are translated into US Dollars at the exchange rates in effect on the balance sheet date. Foreign currency exchange adjustments arising from certain intercompany obligations with and between our domestic companies and our foreign subsidiaries are marked-to-market and recorded as a non-cash loss or gain in each of our financial periods in our consolidated statements of operations. Accordingly, changes in currency exchange rates will cause our foreign currency translation adjustment in the consolidated statements of comprehensive income (loss) to fluctuate. In addition, fluctuations in foreign currency exchange rates will impact the amount of US Dollars we receive when we repatriate funds from our non-US Dollar operations.
Fluctuations in interest rates and commodity prices may also materially adversely affect our revenues, results of operations and cash flows.
Although we have converted a portion of our senior secured revolving credit facility borrowings into fixed-rate debt through interest rate swaps, a significant portion of our borrowings under the facility remain variable rate debt. Fluctuations in interest rates may negatively impact the amount of interest payments, as well as our ability to refinance portions of our existing debt in the future at attractive interest rates. In addition, certain of our end markets, as well as portions of our cost structure, such as transportation costs, are sensitive to changes in commodity prices, which can impact both demand for and profitability of our services. These changes could impact our future earnings and cash flows, assuming other factors are held constant.
Significant increases in the costs and restrictions on the availability of raw materials and labor could increase our operating costs significantly and harm our profitability.
We incur labor costs and purchase raw materials, including steel, lumber, siding and roofing, paint, glass, fuel and other parts and materials to perform periodic repairs, modifications and refurbishments to maintain physical conditions of our units and in connection with get-ready, delivery and installation of our units. The volume, timing and mix of such work may vary quarter-to-quarter and year-to-year. Generally, increases in labor and raw material costs will increase the acquisition costs of new units and also increase the repair and maintenance costs of our fleet. We also maintain a truck fleet to deliver units to and return units from our customers, the cost of which is sensitive to maintenance and fuel costs and rental rates on leased equipment. During periods of rising prices for labor or raw materials, and in particular, when the prices increase rapidly or to levels significantly higher than normal, we may incur significant increases in our acquisition costs for new units and higher operating costs that we may not be able to recoup from customers through changes in pricing, which could materially adversely affect our business, results of operations and financial condition. If raw material prices decline significantly, we may have to write down our raw materials inventory values. If this happens, our results of operations and financial condition could decline.
In addition, the availability of raw materials components fluctuates from time to time due to factors outside of our control, including trade laws and tariffs, natural disasters, global pandemics like COVID-19 and resulting supply chain disruptions, and may impact our ability to meet the production demands of our customers. If the costs of raw materials increase or the availability thereof is restricted, it could adversely affect our financial condition, operating results and cash flows.
Fluctuations in fuel costs or oil prices, a reduction in fuel supplies, or a sustained decline in oil prices may have a material adverse effect on our business and results of operations.
In connection with our business, to better serve our customers and limit our capital expenditures, we often move our fleet from branch to branch. In addition, the majority of our customers arrange for delivery and pickup of our units through us. Accordingly, we could be materially adversely affected by significant increases in fuel prices that result in higher costs to us for transporting equipment. In the event of fuel and trucking cost increases, we may not be able to promptly raise our prices to make up for increased costs. A significant or prolonged price fluctuation or disruption of fuel supplies could have a material adverse effect on our financial condition and results of operations.
Additionally, oil prices can be volatile and are subject to fluctuations in supply and demand, market uncertainty and a variety of additional factors that are beyond our control. If oil prices remain volatile for an extended period of time or there is a sustained decline in demand for oil, demand for our Tank and Pump Solutions products from refineries and companies engaged in the exploration and production of oil and natural gas could be adversely impacted, which would in turn have an adverse effect on our results of operations and financial condition.
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Third parties may fail to manufacture or provide necessary components for our products properly or in a timely manner.
We are often dependent on third parties to manufacture or supply components for our products. We typically do not enter into long-term contracts with third-party suppliers. We may experience supply problems as a result of financial or operating difficulties or the failure or consolidation of our suppliers. We may also experience supply problems as a result of shortages and discontinuations resulting from product obsolescence or other shortages or allocations by suppliers. Unfavorable economic conditions may also adversely affect our suppliers or the terms on which we purchase products. In the future, we may not be able to negotiate arrangements with third parties to secure products that we require in sufficient quantities or on reasonable terms. If we cannot negotiate arrangements with third parties to produce our products or if the third parties fail to produce our products to our specifications or in a timely manner, our business, results of operations and financial condition may be materially adversely affected.
We are subject to risks associated with labor relations, labor costs and labor disruptions.
We are subject to the costs and risks generally associated with labor disputes and organizing activities related to unionized labor. It is possible that strikes, public demonstrations or other coordinated actions and publicity may disrupt our operations. We may incur increased legal costs and indirect labor costs as a result of contractual disputes, negotiations or other labor-related disruptions. We have collective bargaining agreements with employees in portions of our Mexico-based operations, which accounted for approximately 1% of our total employees as of December 31, 2021. These operations may be more highly affected by labor force activities than others, and all collective bargaining agreements must be renegotiated annually. Other locations may also face organizing activities or effects. Labor organizing activities could result in additional employees becoming unionized. Furthermore, collective bargaining agreements may limit our ability to reduce the size of work forces during an economic downturn, which could put us at a competitive disadvantage. We believe a unionized workforce outside of Mexico would generally increase our operating costs, divert attention of management from servicing customers and increase the risk of work stoppages, all of which could have a material adverse effect on our business, results of operations or financial condition.
Our ability to profitably execute our business plan depends on our ability to attract, develop and retain qualified personnel. Certain of our key executives, managers and employees have knowledge and an understanding of our business and our industry, and/or have developed meaningful customer relationships, that cannot be duplicated readily. Our ability to attract and retain qualified personnel is dependent on, among other things, the availability of qualified personnel and our ability to provide a competitive compensation package, including the implementation of adequate drivers of retention and rewards based on performance, and work environment. Failure to retain qualified key personnel may materially adversely affect our business, results of operations and financial condition. The departure of any key personnel and our inability to enforce non-competition agreements could have a negative impact on our business.
Moreover, labor shortages, the inability to hire or retain qualified employees and increased labor costs could have a material adverse effect on our ability to control expenses and efficiently conduct our operations. We may not be able to continue to hire and retain the sufficiently skilled labor force necessary to operate efficiently and to support our operating strategies. Labor expenses could also increase as a result of continuing shortages in the supply of personnel.
If we determine that our goodwill, intangible assets, and indefinite-life intangible assets have become impaired, we may incur impairment charges, which may adversely impact our operating results.
We have a substantial amount of goodwill and indefinite-life intangible assets (trade names), which represents the excess of the total purchase price of our acquisitions over the fair value of the assets acquired, and other intangible assets. As of December 31, 2021, we had approximately $1,178.8 million and $460.7 million of goodwill and intangible assets, net, respectively, in our consolidated balance sheet, which represented approximately 20.4% and 8.0% of total assets, respectively, and primarily arose through our acquisition of Mobile Mini.
We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis and when events occur or circumstances change that indicate that the fair value of the reporting unit or intangible asset may be below its carrying amount. Fair value determinations require considerable judgment and are sensitive to inherent uncertainties and changes in estimates and assumptions regarding revenue growth rates, EBIT margins, capital expenditures, working capital requirements, tax rates, terminal growth rates, discount rates, exchange rates, royalty rates, benefits associated with a taxable transaction and synergistic benefits available to market participants. Impairment may result from, among other things, deterioration in the performance of the business, adverse market conditions, stock price and adverse changes in applicable laws and regulations, including changes that restrict our activities. Declines in market conditions, a trend of weaker than anticipated financial performance for our reporting units or declines in projected revenue, a decline in our share price for a sustained period of time, an increase in the market-based weighted average cost of capital or a decrease in royalty rates, among other factors, are indicators that the carrying value of our goodwill or indefinite-life intangible assets may not be recoverable. These risks may be heightened by the COVID-19 pandemic. In the event impairment is identified, a charge to earnings would be recorded which may materially adversely affect our financial condition and results of operations.
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We are subject to various laws and regulations, including those governing government contracts, corruption and the environment. Obligations and liabilities under these laws and regulations may materially harm our business.
Our operations are subject to an array of governmental regulations in each of the jurisdictions in which we operate. For example, our activities in the US are subject to regulation by several federal and state government agencies, including the Occupational Safety and Health Administration, and by federal and state laws. Our operations and activities in other jurisdictions are subject to similar governmental regulations. Similar to conventionally constructed buildings, the modular business industry is also subject to regulations by multiple governmental agencies in each jurisdiction relating to, among others, environmental, zoning and building standards, and health, safety and transportation matters. These regulations affect our Storage Solutions and Tank and Pump Solutions customers, most of whom use our storage units to store their goods on their own properties for various lengths of time. If local zoning laws or planning permission regulations in one or more of our markets no longer allow our units to be stored on customers' sites, our business in that market will suffer. Noncompliance with applicable regulations, implementation of new regulations or modifications to existing regulations may increase costs of compliance, require a termination of certain activities or otherwise materially adversely affect our business, results of operations and financial condition.
US Government Contract Laws and Regulations
Our government customers include the US government, which means we are subject to various statutes and regulations applicable to doing business with the US government. These types of contracts customarily contain provisions that give the US government substantial rights and remedies, many of which are not typically found in commercial contracts and which are unfavorable to contractors, including provisions that allow the government to unilaterally terminate or modify our federal government contracts, in whole or in part, at the government’s convenience. Under general principles of US government contracting law, if the government terminates a contract for convenience, the terminated company may generally recover only its incurred or committed costs and settlement expenses and profit on work completed prior to the termination. If the government terminates a contract for default, the defaulting company may be liable for any extra costs incurred by the government in procuring undelivered items from another source.
In addition, US government contracts and grants normally contain additional requirements that may increase our costs of doing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions. These requirements include, for example: (a) specialized disclosure and accounting requirements unique to US government contracts; (b) financial and compliance audits that may result in potential liability for price adjustments, recoupment of government funds after such funds have been spent, civil and criminal penalties, or administrative sanctions such as suspension or debarment from doing business with the US government; (c) public disclosures of certain contract and company information; and (d) mandatory socioeconomic compliance requirements, including labor requirements, non-discrimination and affirmative action programs and environmental compliance requirements.
If we fail to comply with these requirements, our contracts may be subject to termination, and we may be subject to financial and/or other liability under our contracts or under the Federal Civil False Claims Act (the "False Claims Act"). The False Claims Act’s “whistleblower” provisions allow private individuals, including present and former employees, to sue on behalf of the US government. The False Claims Act statute provides for treble damages and other penalties, and if our operations are found to be in violation of the False Claims Act, we could face other adverse action, including suspension or prohibition from doing business with the US government. Any penalties, damages, fines, suspension or damages could adversely affect our ability to operate our business and our financial results.
Department of Transportation and Titling Regulations
We operate in the US pursuant to operating authority granted by the US Department of Transportation (the “DOT”). Our drivers must comply with the safety and fitness regulations of the DOT, including those relating to drug and alcohol testing and hours of service. Such matters as equipment weight and dimensions are also subject to government regulations. Our safety record could be ranked poorly compared to peer firms. A poor safety ranking may result in the loss of customers or difficulty attracting and retaining qualified drivers which could affect our results of operations. Should additional rules be enacted in the future, compliance with such rules could result in additional costs.
Additionally, we are subject to, and may be required to expend funds to ensure compliance with a variety of laws, regulations, and ordinances related to unit titling, stamping, and registration rules and procedures, and notification requirements to agencies and law enforcement relating to unit transfers, particularly when acquiring new assets and operations. Many of these laws and regulations are frequently complex and subject to interpretation, and failure to comply with present or future regulations or changes in interpretations of existing laws or regulations may result in impairment or suspension of our operations and the imposition of penalties and other liabilities. At various times, we may be involved in disputes with local governmental officials regarding the development and/or operation of our units. We may be subject to similar types of regulations by governmental agencies in new markets. In addition, new legal or regulatory requirements or changes in existing requirements may delay or increase the cost of acquiring and integrating new units, which may adversely impact our ability to conduct business.
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Anti-Corruption Laws and Regulations
We are subject to various anti-corruption laws that prohibit improper payments or offers of payments to foreign governments and their officials by a US person for the purpose of obtaining or retaining business. We operate in countries that may present a more corruptible business environment than the US. Such activities create the risk of unauthorized payments or offers of payments by one of our employees or agents that could be in violation of various laws, including the FCPA. We have implemented safeguards and policies to discourage these practices by our employees and agents. However, existing safeguards and any future improvements may prove to be ineffective and employees or agents may engage in conduct for which we might be held responsible.
If employees violate our policies or we fail to maintain adequate record-keeping and internal accounting practices to accurately record our transactions, we may be subject to regulatory sanctions. Violations of the FCPA or other anti-corruption laws may result in severe criminal or civil sanctions and penalties, including suspension or debarment from US government contracting, and we may be subject to other liabilities which could materially adversely affect our business, results of operations and financial condition. We are also subject to similar anti-corruption laws in other jurisdictions.
Environmental Laws and Regulations
We are subject to a variety of national, state, regional and local environmental laws and regulations. Among other things, these laws and regulations impose limitations and prohibitions on the discharge and emission of, and establish standards for the use, disposal and management of, regulated materials and waste and impose liabilities for the costs of investigating and cleaning up, and damages resulting from, present and past spills, disposals or other releases of hazardous substances or materials. In the ordinary course of business, we use and generate substances that are regulated or may be hazardous under environmental laws. We have an inherent risk of liability under environmental laws and regulations, both with respect to ongoing operations and with respect to contamination that may have occurred in the past on our properties or as a result of our operations. For example, we own, transport and rent tanks and boxes in which waste materials are placed by our customers. Although we have a policy which, with certain limited exceptions, requires customers to return tanks and containers clean of any substances, they may fail to comply with these obligations. Additionally, we may provide waste hauling services, which involves environmental risks during transport. While we endeavor to comply with all regulatory requirements, from time to time, our operations or conditions on properties that we have acquired have resulted in liabilities under these environmental laws. We may in the future incur material costs to comply with environmental laws or sustain material liabilities from claims concerning noncompliance or contamination. Under certain environmental laws, we could be held responsible for all of the costs relating to any contamination at, or migration to or from, our or our predecessors' past or present facilities. These laws often impose liability even if the owner, operator or lessor did not know of, or was not responsible for, the release of such hazardous substances. We have no reserves for any such liabilities.
We are also required to obtain environmental permits from governmental authorities for certain of our operations. If we violate or fail to obtain or comply with these laws, regulations, or permits, we could be fined or otherwise sanctioned by regulators. We could also become liable if employees or other parties are improperly exposed to hazardous materials.
In addition, ongoing governmental review of hydraulic fracturing (“fracking”) and its environmental impact could lead to changes to this activity or its substantial curtailment, which could adversely affect our revenue and results of operations. Approximately 2% of our consolidated rental revenue for the year ended December 31, 2021 was related to customers involved in the upstream exploration and production of oil and natural gas. A portion of this revenue involves rentals to customers that use the fracking method to extract natural gas. The US Environmental Protection Agency has issued regulations or guidance regarding certain aspects of the process. Other federal, state and local governments and governmental agencies also investigate and/or regulate fracking. Additional governmental regulation could result in increased costs of compliance or the curtailment of fracking in the future, which would adversely affect our revenue and results of operations.
We cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted, or what environmental conditions may be found to exist at our facilities or at third party sites for which we may be liable. Enactment of stricter laws or regulations, stricter interpretations of existing laws and regulations or the requirement to undertake the investigation or remediation of currently unknown environmental contamination at sites we own or third-party sites may require us to make additional expenditures, some of which could be material. Responding to governmental investigations or other actions may be both time-consuming and disruptive to our operations and could divert the attention of our management and key personnel from our business operations. The impact of these and other investigations and lawsuits could have a material adverse effect on our financial statements.
Our customer base includes customers operating in a variety of industries which may be subject to changes in their competitive environment as a result of the global, national or local economic climate in which they operate and/or economic or financial disruptions to their industry.
Our customer base includes customers operating in a variety of industries, including commercial and industrial, construction, education, energy and natural resources, government, retail and other end markets. Many of these customers, across this wide range of industries, are facing economic and/or financial pressure from changes to their industry resulting from the global, national and local economic climate in which they operate and industry-specific economic and financial disruptions, including, in some cases, consolidation and lower sales revenue from physical locations, resulting from the impact of the COVID-19 pandemic and the related changes in political, social and economic conditions. These and any future
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changes to any of the industries in which our customers operate could cause them to rent fewer units from us or otherwise be unable to satisfy their obligations to us. In addition, certain of our customers are facing financial pressure and such pressure, from COVID-19 or other factors, may result in consolidation in some industries and/or an increase in bankruptcy filings by certain customers. Each of these facts and industry impacts, individually or in the aggregate, could have a materially adverse effect on our operating results.
We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business.
Our ability to compete effectively depends in part upon protection of our rights in trademarks, copyrights and other intellectual property rights we own or license, including patents to the Mobile Mini locking system. Our use of contractual provisions, confidentiality procedures and agreements, and trademark, copyright, unfair competition, trade secret and other laws to protect our intellectual property and other proprietary rights may not be adequate. Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information and patents, or to defend against claims by third parties that our services or our use of intellectual property infringe their intellectual property rights. Any litigation or claims brought by or against us could result in substantial costs and diversion of resources. A successful claim of trademark, copyright or other intellectual property infringement against us could prevent us from providing services, which could harm our business, financial condition or results of operations. In addition, a breakdown in our internal policies and procedures may lead to an unintentional disclosure of our proprietary, confidential or material non-public information, which could in turn harm our business, financial condition or results of operations.
Our operations could be subject to natural disasters and other business disruptions, which could materially adversely affect our information systems, future revenue, financial condition, cash flows and increase our costs and expenses.
Our operations could be subject to natural disasters and other business disruptions such as pandemics, fires, floods, hurricanes, earthquakes and terrorism, which could adversely affect our information systems, future revenue, financial condition, and cash flows and increase our costs and expenses. See "Our operations may be adversely impacted as a result of COVID-19." In addition, the occurrence and threat of terrorist attacks may directly or indirectly affect economic conditions, which could adversely affect demand for our products and services. In the event of a major natural or man-made disaster, we could experience loss of life of our employees, destruction of facilities or business interruptions, any of which may materially adversely affect our business. If any of our facilities or a significant amount of our rental equipment were to experience a catastrophic loss, it could disrupt our operations, delay orders, shipments and revenue recognition and result in expenses to repair or replace the damaged rental equipment and facility not covered by asset, liability, business continuity or other insurance contracts. Also, we could face significant increases in premiums or losses of coverage due to the loss experienced during and associated with these and potential future natural or man-made disasters that may materially adversely affect our business. In addition, attacks or armed conflicts that directly impact one or more of our properties could significantly affect our ability to operate those properties and thereby impair our results of operations.
In general, any of these events could cause consumer confidence and spending to decrease or result in increased volatility in the global economy and worldwide financial markets. Any such occurrence could materially adversely affect our business, results of operations and financial condition.
Our operations are dependent, in part, on our ability to establish and profitably maintain the appropriate physical presence in the markets we serve.
Our operations depend, in part, on our ability to develop and optimize our branch network and market coverage while maintaining profitability. Our ability to optimize our branch network and market coverage requires active management of our real estate portfolio in a manner that permits locations and offerings to evolve over time, which to the extent it involves the relocation of existing branch locations or the opening of additional branch locations will depend on a number of factors, including our identification and availability of suitable locations; our success in negotiating leases on acceptable terms; and our timely development of new branch locations, including the availability of construction materials and labor and the absence of significant construction and other delays based on weather or other events. These factors could potentially increase the cost of doing business and the risk that our business practices could result in liabilities that may adversely affect our business, results of operations and financial condition.
We have in the past, and we intend in the future, to expand our operations into new geographic markets. This expansion could require financial resources that would not therefore be available for other aspects of our business. In addition, this expansion could require the time and attention of management, leaving less time to focus on existing business. If we fail to manage the risks inherent in our geographic expansion, we could incur capital and operating costs without any related increase in revenue, which would harm our operating results.
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We may incur property, casualty or other losses not covered by our insurance.
We are partly self-insured for a number of different risk categories, such as property, general liability (including product liability), workers' compensation, automobile claims, crime, and cyber liability, with insurance coverage for certain catastrophic risks. The types and amounts of insurance may vary from time to time based on our decisions with respect to risk retention and regulatory requirements. The occurrence of significant claims, a substantial rise in costs to maintain our insurance, or the failure to maintain adequate insurance coverage could have an adverse impact on our financial condition and results of operations.
Failure to close our unit sales transactions as we project could cause our actual revenue or cash flow for a particular fiscal period to differ from expectations.
Sales of new and used modular space and portable storage units to customers represented approximately 5.7% of WillScot Mobile Mini's revenue during the year ended December 31, 2021. Sale transactions are subject to certain factors that are beyond our control, including permit requirements, the timely completion of prerequisite work by others and weather conditions. Accordingly, the actual timing of the completion of these transactions may take longer than we expect. As a result, our actual revenue and cash flow in a particular fiscal period may not consistently correlate to our internal operational plans and budgets. If we are unable to accurately predict the timing of these sales, we may fail to take advantage of business and growth opportunities otherwise available, and our business, results of operations, financial condition and cash flows may be materially adversely affected.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results, which could lead to a loss of investor confidence in our financial statements and have an adverse effect on our stock price.
Effective internal controls are necessary for us to provide reliable and accurate financial statements and to effectively prevent fraud. We devote significant resources and time to comply with the internal control over financial reporting requirements of the Sarbanes-Oxley Act of 2002 as amended (the "Sarbanes-Oxley Act"). There is no assurance that material weaknesses or significant deficiencies will not occur or that we will be successful in adequately remediating any such material weaknesses and significant deficiencies. We may in the future discover areas of our internal controls that need improvement. We cannot be certain that we will be successful in maintaining adequate internal control over our financial reporting and financial processes. Furthermore, as we grow our business, including through acquisition, our internal controls will become more complex, and we will require significantly more resources to ensure our internal controls remain effective. Additionally, the existence of any material weakness or significant deficiency would require management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies, and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner. The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations, subject us to investigations from regulatory authorities or cause stockholders to lose confidence in our reported financial information, all of which could materially and adversely affect us.
We are subject to evolving public disclosure, financial reporting and corporate governance expectations and regulations that impact compliance costs and risks of noncompliance.
We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory organizations, including the SEC and Nasdaq, as well as evolving investor expectations around disclosures, financial reporting, corporate governance and environmental and social practices. These rules and regulations continue to evolve in scope and complexity, and many new requirements have been created in response to laws enacted by the US and foreign governments, making compliance more difficult and uncertain. The increase in costs to comply with such evolving expectations, rules and regulations, as well as any risk of noncompliance, could adversely impact us.
We may be unable to achieve our environmental, social and governance goals.
We are dedicated to corporate social responsibility and sustainability and face pressures from our employees, customers, and stockholders to make significant advancements in environmental, social and governance matters. In part to address these concerns, we established certain goals as part of our ESG strategy. Achievement of our goals is subject to risks and uncertainties, many of which are outside of our control, and it is possible that we may fail to achieve these goals or that our colleagues, customers, or stockholders might not be satisfied with our efforts. These risks and uncertainties include, but are not limited to: our ability to execute our operational strategies and achieve our goals within the currently projected costs and the expected timeframes; the availability and cost of renewable energy and other materials; compliance with, and changes or additions to, global and regional regulations, taxes, charges, mandates or requirements relating to climate-related goals; labor-related regulations and requirements that restrict or prohibit our ability to impose requirements on third-party contractors; the actions of competitors and competitive pressures; an acquisition of or merger with another company that has not adopted similar goals or whose progress towards reaching its goals is not as advanced as ours; and the pace of regional and global recovery from the COVID-19 pandemic. A failure to meet our goals could adversely affect public perception of our business, employee morale or customer or stockholder support.
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Further, an increasing percentage of employees, customers, and stockholders considers sustainability factors in making employment, business and investment decisions. If we are unable to meet our goals, we may lose employees, and have difficulty recruiting new employees, investors, customers, or partners, our stock price may be negatively impacted, our reputation may be negatively affected, and it may be more difficult for us to compete effectively, all of which would have an adverse effect on our business, operating results, and financial condition.
Risks Relating to Income Tax
Our ability to use our net operating loss carryforwards and other tax attributes may be limited.
As of December 31, 2021, we had US net operating loss (“NOL”) carryforwards of approximately $1,232.7 million and $632.9 million for US federal income tax and state tax purposes, respectively, available to offset future taxable income, prior to consideration of annual limitations that Section 382 of the Internal Revenue Code of 1986 may impose. The US NOL carryforwards begin to expire in 2022 for state and federal if not utilized. In addition, we had foreign NOLs of $3.9 million as a result of operations in Canada and Mexico. Our Mexico and Canada NOL carryforwards begin to expire in 2026 and 2032, respectively, if not utilized.
Our US NOL and tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under Section 382 of the Internal Revenue Code and corresponding provisions of US state law, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its US NOLs and other applicable tax attributes before the ownership change, such as research and development tax credits, to offset its income after the ownership change may be limited. Similar provisions apply with respect to certain state and non-US jurisdictions which could limit our ability to offset taxable income. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. We have tax attributes subject to the foregoing provisions primarily from the Merger.
Lastly, we may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If we determine that an ownership change has occurred and our ability to use our historical NOL and tax credit carryforwards is materially limited, it may result in increased future tax obligations and income tax expense.
Some of the tax loss carryforwards could expire, and if we do not have sufficient taxable income in future years to use the tax benefits before they expire, the benefit may be permanently lost. In addition, the taxing authorities could challenge our calculation of the amount of our tax attributes, which could reduce certain of our recognized tax benefits. Further, tax laws in certain jurisdictions may limit the ability to use carryforwards upon a change in control.
We may be unable to recognize deferred tax assets such as those related to our tax loss carryforwards and, as a result, lose future tax savings, which could have a negative impact on our liquidity and financial position.
We recognize deferred tax assets primarily related to deductible temporary differences based on our assessment that the item will be utilized against future taxable income and the benefit will be sustained upon ultimate settlement with the applicable taxing authority. Such deductible temporary differences primarily relate to tax loss carryforwards and business interest expense limitations. Tax loss carryforwards arising in a given tax jurisdiction may be carried forward to offset taxable income in future years from such tax jurisdiction and reduce or eliminate income taxes otherwise payable on such taxable income, subject to certain limitations. Deferred interest expense exists primarily within our US operating companies, where interest expense was not previously deductible as incurred but may become deductible in the future subject to certain limitations. We may have to write down, through income tax expense, the carrying amount of certain deferred tax assets to the extent we determine it is not more likely than not that we will realize such deferred tax assets under US Generally Accepted Accounting Principles ("GAAP").
Unanticipated changes in our tax obligations, the adoption of a new tax legislation, or exposure to additional income tax liabilities could affect profitability.
We are subject to income taxes in the US, Canada, Mexico and the UK. Our tax liabilities are affected by the amounts we charged for inventory, services, funding and other transactions on an intercompany basis. We are subject to potential tax examinations in these jurisdictions. Tax authorities may disagree with our intercompany charges, cross-jurisdictional transfer pricing or other tax positions and assess additional taxes. We regularly assess the appropriateness of our tax positions based on all the facts including on-going tax examinations and the applicable tax laws. However, there can be no assurance that we will accurately predict the outcomes of our tax positions or the challenges of applicable taxing authorities during tax examinations, and the amounts that we ultimately pay upon resolution of examinations could be materially different from the amounts we previously included in our income tax provision and, therefore, could have a material impact on our results of operations and cash flows. In addition, our future effective tax rate could be adversely affected by changes to our operating structure, changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation allowance of deferred tax assets, changes in tax laws and the discovery of new information in the course of our tax return preparation process. Changes in tax laws or regulations, including changes in the US related to the treatment of accelerated depreciation
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expense, carry-forwards of net operating losses, and taxation of foreign income and expenses may increase tax uncertainty and adversely affect our results of operations.
Risks Relating to Our Capital Structure
Global capital and credit market conditions could materially and adversely affect our ability to access the capital and credit markets or the ability of key counterparties to perform their obligations to us.
In the future we may need to raise additional funds to, among other things, refinance existing indebtedness, fund existing operations, improve or expand our operations, respond to competitive pressures or make acquisitions. If adequate funds are not available on acceptable terms, we may be unable to achieve our business or strategic objectives or compete effectively. Our ability to pursue certain future opportunities may depend in part on our ongoing access to debt and equity capital markets. We cannot assure you that any such financing will be available on terms satisfactory to us or at all. If we are unable to obtain financing on acceptable terms, we may have to curtail our growth by, among other things, curtailing the expansion of our fleet of units or our acquisition strategy. Additionally, future credit market conditions could increase the likelihood that one or more of our lenders may be unable to honor their commitments under our credit facility, which could have an adverse effect on our financial condition and results of operations.
Economic disruptions affecting key counterparties could also materially adversely affect our business. We monitor the financial strength of our larger customers, derivative counterparties, lenders, vendors, service providers and insurance carriers on a periodic basis using publicly-available information to evaluate our exposure to those who have or who we believe may likely experience significant threats to their ability to adequately perform their obligations to us. The information available will differ from counterparty to counterparty and may be insufficient for us to adequately interpret or evaluate our exposure and/or determine appropriate or timely responses.
Our leverage may make it difficult for us to service our debt and operate our business.
As of December 31, 2021, we had $2,760.1 million of total indebtedness, excluding deferred financing fees, consisting of $1,644.5 million of borrowings under our 2020 ABL Facility, $526.50 million of our 2025 Secured Notes, $500.0 million of our 2028 Secured Notes and $89.1 million of finance leases. Our leverage could have important consequences, including (a) making it more difficult to satisfy our obligations with respect to our various debt and liabilities; (b) requiring us to dedicate a substantial portion of our cash flow from operations to debt payments, thus reducing the availability of cash flow to fund internal growth through working capital and capital expenditure on our existing fleet or a new fleet and for other general corporate purposes; (c) increasing our vulnerability to a downturn in our business or adverse economic or industry conditions; (d) placing us at a competitive disadvantage compared to our competitors that have less debt in relation to cash flow and that, therefore, may be able to take advantage of opportunities that our leverage would prevent us from pursuing; (e) limiting our flexibility in planning for or reacting to changes in our business and industry; (f) restricting us from pursuing strategic acquisitions or exploiting certain business opportunities or causing us to make non-strategic divestitures; restricting us from pursuing strategic acquisitions or exploiting certain business opportunities or causing us to make non-strategic divestitures; (g) requiring additional monitoring, reporting and borrowing base requirements under our 2020 ABL Facility if borrowings significantly increase or if certain liquidity thresholds are not satisfied; and (h) limiting our ability to borrow additional funds or raise equity capital in the future and increasing the costs of such additional financings.
Our ability to meet our debt service obligations or to refinance our debt depends on our future operating and financial performance, which will be affected by our ability to successfully implement our business strategy as well as general economic, financial, competitive, regulatory and other factors beyond our control. If our business does not generate sufficient cash flow from operations, or if future borrowings are not available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs, we may need to refinance all or a portion of our indebtedness on or before its maturity, sell assets, reduce or delay capital investments or seek to raise additional capital, any of which could have a material adverse effect on our operations. In addition, we may not be able to affect any of these actions, if necessary, on commercially reasonable terms or at all. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of our existing or future debt instruments may limit or prevent us from taking any of these actions. If we default on the payments required under the terms of certain of our indebtedness, that indebtedness, together with debt incurred pursuant to other debt agreements or instruments that contain cross-default or cross-acceleration provisions, may become payable on demand, and we may not have sufficient funds to repay all of our debts. As a result, our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, would have an adverse effect, which could be material, on our business, financial condition and results of operations, as well as on our ability to satisfy our debt obligations.
Despite our current level of indebtedness, we and our subsidiaries will still be able to incur significant additional amounts of debt, which could further exacerbate the risks associated with our substantial indebtedness.
We and our subsidiaries may be able to incur substantial additional debt in the future, including in connection with capital leases. Although the credit agreement that governs our credit facility and the indentures that govern our outstanding notes contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances, the amount of debt that we could incur in compliance with
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these restrictions could be substantial. In addition, the credit agreement that governs our credit facility and the indentures do not prevent us from incurring other obligations that do not constitute indebtedness under those agreements. If we add debt to our and our subsidiaries’ existing debt levels, the risks associated with our substantial indebtedness described above, including our possible inability to service our debt, will increase.
We are subject to and may, in the future become subject to, covenants that limit our operating and financial flexibility and, if we default under our debt covenants, we may not be able to meet our payment obligations.
The credit agreement that governs our credit facility and the indentures that govern our outstanding notes, as well as any instruments that govern any future debt obligations, contain covenants that impose significant restrictions on the way our subsidiaries can operate, including restrictions on the ability to (a) incur or guarantee additional debt and issue certain types of stock; (b) create or incur certain liens; (c) make certain payments, including dividends or other distributions, with respect to our equity securities; (d) prepay or redeem junior debt; (e) make certain investments or acquisitions, including participating in joint ventures; (f) engage in certain transactions with affiliates; (g) create unrestricted subsidiaries; (h) create encumbrances or restrictions on the payment of dividends or other distributions, loans or advances to, and on the transfer of, assets to the issuer or any restricted subsidiary; (i) sell assets, consolidate or merge with or into other companies; (j) sell or transfer all or substantially all our assets or those of our subsidiaries on a consolidated basis; and (k) issue or sell share capital of certain subsidiaries.
Although these limitations are subject to significant exceptions and qualifications, these covenants could limit our ability to finance future operations and capital needs and our ability to pursue acquisitions and other business activities that may be in our interest. Our subsidiaries’ ability to comply with these covenants and restrictions may be affected by events beyond our control. These include prevailing economic, financial and industry conditions. If any of our subsidiaries default on their obligations under our credit facility or our secured notes, then the relevant lenders or holders could elect to declare the debt, together with accrued and unpaid interest and other fees, if any, immediately due and payable and proceed against any collateral securing that debt. If the debt under our credit facility, the indentures or any other material financing arrangement that we enter into were to be accelerated, our assets may be insufficient to repay in full such indebtedness.
The credit agreement that governs our credit facility also requires our subsidiaries to satisfy specified financial maintenance tests in the event that we do not satisfy certain excess liquidity requirements. Deterioration in our operating results, as well as events beyond our control, including increases in raw materials prices and unfavorable economic conditions, could affect the ability to meet these tests, and we cannot assure that we will meet these tests. If an event of default occurs under our credit facility, the lenders could terminate their commitments and declare all amounts borrowed, together with accrued and unpaid interest and other fees, to be immediately due and payable. Borrowings under other debt instruments that contain cross-acceleration or cross-default provisions also may be accelerated or become payable on demand. In these circumstances, our assets may not be sufficient to repay in full that indebtedness and our other indebtedness then outstanding.
The amount of borrowings permitted at any time under our credit facility is subject to compliance with limits based on a periodic borrowing base valuation of the collateral thereunder. As a result, our access to credit under the credit facility is subject to potential fluctuations depending on the value of the borrowing base of eligible assets as of any measurement date, as well as certain discretionary rights of the agent in respect of the calculation of such borrowing base value. As a result of any change in valuation, the availability under the credit facility may be reduced, or we may be required to make a repayment of the credit facility, which may be significant. The inability to borrow under the credit facility or the use of available cash to repay the credit facility as a result of a valuation change may adversely affect our liquidity, results of operations and financial position.
The uncertainty regarding the phase-out of LIBOR may negatively impact our operating results.
LIBOR, the interest rate benchmark used as a reference rate on our variable rate debt, including our credit facility and interest rate swaps, is expected to be phased out after 2021, when private-sector banks are no longer required to report the information used to set the rate. Without this data, LIBOR may no longer be published, or the lack of quality and quantity of data may cause the rate to no longer be representative of the market, though the ICE Benchmark Administration, in its capacity as administrator of US dollar LIBOR, announced that it intends to extend publication of USD LIBOR (other than one-week and two-month tenors) until June 30, 2023. At this time, no consensus exists as to what rate or rates may become accepted alternatives to LIBOR, and it is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR and whether one-month, three-month, six‑month, and twelve-month USD LIBOR rates will continue to be published until June 2023. The US Federal Reserve, in connection with the Alternative Reference Rates Committee ("ARRC"), a steering committee comprised of large US financial institutions, is considering replacing US dollar LIBOR with the Secured Overnight Financing Rate ("SOFR"). SOFR is a more generic measure than LIBOR and considers the cost of borrowing cash overnight collateralized by US Treasury securities. Given the inherent differences between LIBOR and SOFR or any other alternative benchmark rate that may be established, there are many uncertainties regarding a transition from LIBOR, including but not limited to the need to amend all contracts with LIBOR as the referenced rate and how this will impact our cost of variable rate debt and derivative financial instruments. We will also need to consider new contracts and if they should reference an alternative benchmark rate or include suggested fallback language, as published by the ARRC. The consequences of these developments with respect to LIBOR cannot be entirely predicted and
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span multiple future periods but could result in an increase in the cost of our variable rate debt or derivative financial instruments which may be detrimental to our financial position or operating results.
On December 6, 2021, our indirect subsidiary entered into a LIBOR Transition Amendment to our credit facility for the application of a successor rate for borrowings denominated in Pounds Sterling from a LIBOR-based rate to a SONIA (Sterling Overnight Index Average)-based rate and borrowings denominated in Euros from a LIBOR-based rate to a EURIBOR (Euro Interbank Offered Rate)-based rate, subject to certain adjustments specified in our credit facility. It is not currently possible to predict the effect of any establishment of alternative reference rates or any other reforms to LIBOR that may be enacted.
The historical market price of WillScot Mobile Mini’s Common Stock has been volatile and the market price of our Common Stock may continue to be volatile and the value of your investment may decline.
The historical market price of our Common Stock has been volatile and the market price of our Common Stock may continue to be volatile moving forward. Volatility may cause wide fluctuations in the price of our Common Stock on Nasdaq. The market price of our Common Stock is likely to be affected by (a) changes in general conditions in the economy, geopolitical events or the financial markets; (b) variations in our quarterly operating results; (c) changes in financial estimates by securities analysts; (d) our share repurchase or dividend policies; (e) other developments affecting us, our industry, customers or competitors; (f) changes in demand for our products or the prices we charge due to changes in economic conditions, competition or other factors; (g) general economic conditions in the markets where we operate; (h) the cyclical nature of our customers’ businesses and certain end markets that we service; (i) rental rate changes in response to competitive factors; (j) bankruptcy or insolvency of our customers, thereby reducing demand for our used units; (k) seasonal rental patterns; (l) acquisitions or divestitures and related costs; (m) labor shortages, work stoppages or other labor difficulties; (n) possible unrecorded liabilities of acquired companies; (o) possible write-offs or exceptional charges due to changes in applicable accounting standards, goodwill impairment, or divestiture or impairment of assets; (p) the operating and stock price performance of companies that investors deem comparable to us; (q) the number of shares available for resale in the public markets under applicable securities laws; (r) the composition of our shareholder base; and (s) other unspecified circumstances that may be company specific circumstances or overall industry and market driven.
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
Our primary corporate headquarters is located in Phoenix, Arizona. We operate approximately 275 branch locations and additional drop lots across the US, Canada, Mexico, and the UK. Collectively, we lease approximately 85% of our branch properties and own the remaining balance.
Our management believes that none of our properties, on an individual basis, is material to our operations, and that our properties are well maintained and suitable for their intended use. We further believe that these locations generally have adequate capacity and can accommodate seasonal demands, changing product mixes and additional growth.
Subject to certain exceptions, substantially all of our owned real and personal property in the US and Canada is encumbered under our credit facility and our secured notes. We do not believe that the encumbrances will materially detract from the value of our properties, or materially interfere with their use in the operation of our business.
ITEM 3. Legal Proceedings
The Company is involved in various lawsuits, claims and legal proceedings that arise in the ordinary course of business. The Company assesses these matters on a case-by-case basis as they arise and establishes reserves as required. As of December 31, 2021, with respect to these outstanding matters, the Company believes that the amount or range of reasonably possible loss will not, either individually or in the aggregate, have a material adverse effect on the consolidated financial position, results of operations, or cash flows. However, the outcome of such matters is inherently unpredictable and subject to significant uncertainties.
ITEM 4. Mine Safety Disclosures
Not applicable.
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PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common Stock
Our Common Stock is listed on the Nasdaq Capital Market under the symbol “WSC.” Our certificate of incorporation authorizes the issuance of 500,000,000 shares of Common Stock with a par value of $0.0001 per share. The Company had 223,939,527 shares of Common Stock issued and outstanding as of December 31, 2021. The outstanding shares of the Company's Common Stock are duly authorized, validly issued, fully paid and non-assessable.
Preferred Stock
Our certificate of incorporation authorizes the issuance of 1,000,000 shares of Preferred Stock with a par value of $0.0001 per share. As of December 31, 2021, no shares of Preferred Stock were issued and outstanding, and no designation of rights and preferences of preferred stock had been adopted.
2018 Warrants
On August 15, 2018, WillScot issued warrants (the "2018 Warrants") to the former ModSpace shareholders as part of the acquisition of ModSpace. Our 2018 Warrants are listed on an OTC Markets Group, Inc. Pink Open Market under the symbol "WSCTW." Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
Each 2018 Warrant entitles the holder thereof to purchase one share of our Common Stock at an exercise price of $15.50 per share, subject to potential adjustment. The 2018 Warrants were not exercisable or transferable until February 11, 2019 and expire on November 29, 2022. As of December 31, 2021, 4,078,173 of the 2018 Warrants were outstanding.
Holders
As of December 31, 2021, there were 44 holders of record of our Common Stock, no holders of record of our Preferred Stock, and 23 holders of record of our 2018 Warrants. The number of holders of record does not include a substantially greater number of “street name” holders or beneficial holders whose Common Stock or warrants are held of record by banks, brokers and other financial institutions.
Dividend Policy
To date, we have not declared or paid dividends on our Common Stock. We have strong recurring cash flows, which gives us flexibility in how we allocate capital, and we review the appropriate mix of growth investments, debt reduction, and returns to shareholders on an ongoing basis. Declaration or payment of dividends, if any, in the future, will be at the discretion of our Board of Directors and will depend on our then current financial condition, results of operations, capital requirements and other factors deemed relevant by the Board of Directors.
Securities Authorized for Issuance under Equity Compensation Plans
On February 5, 2018, we filed a registration statement on Form S-8, registering 4,000,000 shares of Common Stock, relating to awards to be undertaken in the future, with such vesting conditions, as applicable, to be determined in accordance with the WillScot Corporation 2017 Incentive Award Plan (the "2017 Incentive Award Plan"). On July 2, 2020, we filed a registration statement on Form S-8 registering 6,488,988 shares of Common Stock (including 1,488,988 shares that remained available under the 2017 Incentive Award Plan), relating to awards to be undertaken in the future, with such vesting conditions, as applicable, to be determined in accordance with the WillScot Mobile Mini 2020 Incentive Award Plan (the "2020 Incentive Plan"). The following types of awards can be issued under the 2020 Incentive Plan: non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance compensation awards and stock bonus awards. See Note 16 in Part II, Item 8 herein for additional information.
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The following table sets forth information as of December 31, 2021 with respect to compensation plans under which equity securities are authorized for issuance:
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants, and rights | Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected the first column) | ||||||||||||||
Equity compensation plans approved by security holders | 3,195,304 | (1) | $ | 13.60 | (2) | 4,627,837 | |||||||||||
Equity compensation plans not approved by security holders | N/A | N/A | N/A | ||||||||||||||
| Total | 3,195,304 | $ | 13.60 | 4,627,837 | |||||||||||||
(1) Includes (a) 0.5 million stock options, (b) 1.0 million restricted stock units and 1.8 million performance-based restricted stock units based on relative total stockholder return ("TSR") attainment levels at December 31, 2021, and (c) 0.04 million restricted stock awards issued to non-employee directors.
(2) The weighted-average exercise price is reported for the outstanding stock options reported in the first column. There are no exercise prices for the restricted stock units, performance-based restricted stock units or restricted stock awards in the first column.
In connection with the Merger, on July 2, 2020, we converted Mobile Mini's outstanding fully vested stock options to 7,361,516 WillScot Mobile Mini stock options using a conversion ratio of 2.405 as contemplated by the Agreement and Plan of Merger, dated as of March 1, 2020, as amended on May 28, 2020 (as so amended, the “Merger Agreement”), by and among WillScot, Mobile Mini, and Picasso Merger Sub, Inc. As of December 31, 2021, 1,527,643 options were outstanding and exercisable; each option is exercisable for one share of Common Stock. The weighted average exercise price of the outstanding options was $14.66 as of December 31, 2021. These options are not included in the table above as they were not issued under the incentive award plans.
Repurchases
In October 2021, our Board of Directors replaced the existing share repurchase program with a new share repurchase program that authorizes us to repurchase up to $1.0 billion of our outstanding shares of Common Stock and equivalents. The stock repurchase program does not obligate us to purchase any particular number of shares, and the timing and exact amount of any repurchases will depend on various factors, including market pricing and conditions, business, legal, accounting, and other considerations. As of December 31, 2021, $956.7 million of the $1.0 billion share repurchase authorization remained available for use.
The following table summarizes our purchase of Common Stock and equivalents during the fourth quarter of 2021:
| Period | Total Number of Shares and Equivalents Purchased (in thousands) | Average Price Paid per Share | Total Numbers of Shares and Equivalents Purchased as part of Publicly Announced Plan (in thousands) | Maximum Dollar Value of Shares and Equivalents that May Yet Be Purchased Under the Plan (in thousands) | ||||||||||
| October 1, 2021 - October 31, 2021 | Common Stock - 638.7 | $ | 32.82 | 638.7 | $ | 978,663 | ||||||||
| 2018 Warrants - 11.3 | $ | 31.91 | 11.3 | |||||||||||
| November 1, 2021 - November 30, 2021 | Common Stock - 224.0 | $ | 35.66 | 224.0 | $ | 970,468 | ||||||||
| 2018 Warrants - 5.3 | $ | 37.83 | 5.3 | |||||||||||
| December 1, 2021 - December 31, 2021 | Common Stock - 342.6 | $ | 40.23 | 342.6 | $ | 956,679 | ||||||||
| 2018 Warrants - 0 | N/A | N/A | ||||||||||||
| Total | 1,221.9 | $ | 29.98 | 1,221.9 | ||||||||||
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Performance Graph
The following stock price performance graph should not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Exchange Act or the Securities Act of 1933, as amended, except to the extent that we specifically incorporate this information by reference and shall not otherwise be deemed filed under such acts.
The graph below compares the cumulative total return of our Common Stock from January 1, 2017 through December 31, 2021, with the comparable cumulative return of four indices, the Russell 2000 Index, the Nasdaq US Benchmark TR Index, the S&P 400 Index and the Russell 3000 Index. We began showing the cumulative return of the S&P 400 Index and Russell 3000 Index in 2021, as the S&P 400 Index includes companies with comparable market capitalization and the Russell 3000 Index includes our peer group of issuers. The graph plots the growth in value of an initial investment in each of our common shares, the Russell 2000 Index, the Nasdaq US Benchmark Index, the S&P 400 Index and the Russell 3000 Index over the indicated time periods, and assumes reinvestment of all dividends, if any, paid on the securities. We have not paid any cash dividends and, therefore, the cumulative total return calculation for us is based solely upon share price appreciation and not upon reinvestment of cash dividends. The share price performance shown on the graph is not necessarily indicative of future price performance.
ITEM 6. [Reserved]
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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand WillScot Mobile Mini Holdings Corp. ("WillScot Mobile Mini"), formerly known as WillScot Corporation ("WillScot"), our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes thereto, contained in Part II, Item 8 of this report. The discussion of results of operations in this MD&A is presented on a historical basis, as of or for the year ended December 31, 2021 or prior periods. On July 1, 2020, in connection with the closing of the Merger, Mobile Mini, Inc. ("Mobile Mini") became a wholly-owned subsidiary of WillScot and the Company changed it's name to WillScot Mobile Mini Holdings Corp. As the Merger was completed on July 1, 2020, unless the context otherwise requires, the terms “we”, “us”, “our” “Company” and “WillScot Mobile Mini” as used in these financial statements mean WillScot and its subsidiaries when referring to periods prior to July 1, 2020 (prior to the Merger) and to WillScot Mobile Mini and its subsidiaries when referring to periods on or after July 1, 2020 (after the Merger).
The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the US (“GAAP”). We use certain pro forma calculations as non-GAAP financial information that we believe is important for purposes of comparison to the prior period due to the addition of significant acquisitions during the reported financial reporting periods. This information is also used by management to measure the performance of our ongoing operations and analyze our business performance and trends. This information is used by investors for the purposes of development of future projections and earnings growth prospects. In addition, we use certain non-GAAP financial metrics to supplement the GAAP reported results in order to highlight key operational metrics that are used by management to evaluate Company performance. Reconciliations of GAAP financial information to the disclosed non-GAAP measures are provided in the Reconciliation of Non-GAAP Financial Measures section.
Executive Summary
We are a leading business services provider specializing in innovative flexible work space and portable storage solutions. We service diverse end markets across all sectors of the economy throughout the United States ("US"), Canada, Mexico, and the United Kingdom ("UK"). We are also a leading provider of specialty containment solutions in the US with over 13,000 tank and pump units in our fleet. As of December 31, 2021, our branch network included approximately 275 branch locations and additional drop lots to service our over 85,000 customers. We offer our customers an extensive selection of “Ready to Work” modular space and portable storage solutions with over 162,000 modular space units and over 213,000 portable storage units in our fleet.
We primarily lease, rather than sell, our modular and portable storage units to customers, which results in a highly diversified and predictable recurring revenue stream. Over 90% of new lease orders are on our standard lease agreement, pre-negotiated master lease or national account agreements. The initial lease periods vary, and our leases are customarily renewable on a month-to-month basis after their initial term. Our lease revenue is highly predictable due to its recurring nature and the underlying stability and diversification of our lease portfolio. Furthermore, given that our customers value flexibility, they consistently extend their leases or renew on a month-to-month basis such that the average effective duration of our lease portfolio, excluding seasonal portable storage units, is nearly 31 months. We complement our core leasing business by selling both new and used units, allowing us to leverage scale, achieve purchasing benefits and redeploy capital employed in our lease fleet.
We remain focused on our core priorities of growing leasing revenues by increasing units on rent, both organically and through our consolidation strategy, delivering “Ready to Work” solutions to our customers with value added products and services ("VAPS"), and on continually improving the overall customer experience. During 2021, the Company acquired certain assets and liabilities of seven regional and local modular space and storage businesses, which consisted primarily of 15,700 storage units and 5,800 modular units. We also achieved a significant milestone in our integration of the WillScot and Mobile Mini businesses, consolidating onto a single ERP system in the second quarter of 2021. This full integration to SAP enabled an expedited integration of the acquisitions.
For the year ended December 31, 2021, key drivers of our financial performance included:
•Total revenues increased by $527.3 million, or 38.6%, attributable to the addition of Mobile Mini's revenues to our consolidated results once the Merger closed on July 1, 2020 and due to organic revenue growth levers in the business. Leasing revenue increased $410.7 million, or 41.0%, delivery and installation revenue increased $100.5 million, or 36.7%, rental unit sales increased $16.3 million, or 41.9%, and new unit sales revenue decreased $0.2 million, or 0.4%.
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Key leasing revenue drivers included:
–Average modular space units on rent increased 10,876 units, or 10.9%, and average portable storage units on rent increased 77,318 units, or 91.9%. Both increases were primarily driven by the Mobile Mini Merger. Average portable storage units on rent also grew as a result of organic increases in average portable storage units driven by increased economic activity in 2021 and due to units on rent acquired during 2021 from several smaller entities.
–Average modular space monthly rental rate increased $86, or 13.1%, to $744 driven by a $124, or 18.1% increase in the NA Modular segment, offset partially by the dilutive impact of lower rates due to mix on the Mobile Mini modular space units.
–Average portable storage monthly rental rate increased $12, or 9.1%, to $144 driven primarily by the accretive impact of higher rates from the Mobile Mini portable storage fleet and price increases achieved throughout 2021.
–Average utilization for modular space units decreased 10 basis points ("bps") to 70.1% and average utilization for portable storage units increased to 81.5%, from 75.6% from the same period in 2020, driven by higher utilization of the Mobile Mini portable storage units and increased demand for this product category driven by increased economic activity throughout 2021.
•NA Modular segment revenue represented 61.4% of consolidated revenue for the year ended December 31, 2021, and increased $113.0 million, or 10.7%, to $1,164.2 million driven by increased leasing revenue of $94.6 million, or 12.3%, an increased sales volumes of $7.1 million, or 9.8%, and a $11.3 million, or 5.4%, increase in delivery and installation revenues. NA Modular revenue drivers for the year ended December 31, 2021 include:
–Modular space average monthly rental rate of $809 for the year, increased 18.1% representing a continuation of the long-term price optimization initiative and VAPS penetration opportunities across our portfolio.
–Average modular space units on rent for the year decreased 2,350 units, or 2.7% driven by increased returns during 2021 and by lower, although improving, delivery demand as compared to historical levels seen pre-pandemic. However, average modular space units on rent increased 0.1% sequentially from Q3 into Q4 to 84,328, which compares to a 0.5% drop from Q3 to Q4 in 2020.
–Average modular space monthly utilization decreased 130 basis points to 67.6% for the year ended December 31, 2021, but only dropped 10 basis points sequentially from Q3 into Q4.
•Generated consolidated net income of $160.1 million for the year ended December 31, 2021, representing an increase of $84.8 million versus the year ended December 31, 2020. Net Income Excluding Gain/Loss from Warrants of $186.7 million for the year ended December 31, 2021, represented an increase of $114.8 million, or 159.7%, versus the year ended December 31, 2020, and included a $6.0 million loss on extinguishment of debt related to our financing activities in the first and second quarter of 2021 and $44.6 million of discrete costs expensed in the period related to transaction and integration activities. Discrete costs in the period included $1.4 million of transaction costs, $28.4 million of integration costs, and $14.8 million of restructuring costs, lease impairment expense and other related charges.
•Generated Adjusted EBITDA of $740.4 million for the year ended December 31, 2021, representing an increase of $210.1 million, or 39.6%, as compared to 2020. Of this increase, $181.9 million was driven by including a full year of Mobile Mini in our consolidated results, including strong year over year organic growth within the NA Storage, UK, and Tank and Pump segments, and the remainder was driven by strong organic growth across all of our segments.
–Adjusted EBITDA in our NA Modular segment, which represents the activities of WillScot prior to the Merger, increased $28.2 million, or 7.1% primarily driven by increases in leasing gross profit driven by increased pricing, including VAPS, partially offset by increased variable costs as a result of higher activity levels in the current year as compared to 2020.
–Consolidated Adjusted EBITDA Margin was 39.1% and increased 30 bps versus prior year driven by the addition of the higher margin Mobile Mini operations. This was partially offset by a 130 bps decrease in the NA Modular segment, driven by an expected higher proportion of delivery and installation revenues to total revenues and increased variable costs.
•Generated Free Cash Flow of $303.0 million for the year ended December 31, 2021, representing an increase of $140.7 million as compared to 2020. Net cash provided by operating activities increased $235.1 million to $539.9 million. Net cash used in investing activities, excluding cash acquired or used as part of acquisitions, increased $94.3 million as a result of increased capital spending to support growing demand for new project deliveries across all segments. The referenced Free Cash Flow along with additional net borrowings under the ABL was deployed to acquire storage and modular units of several smaller entities for a total of $147.2 million and to repurchase $363.6 million of our common stock and warrants. This was possible due to our resilient lease revenues and strong margin expansion, reduced interest costs due to our financing activities during the year and our strong financial position.
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In addition to using GAAP financial measurements, we use Adjusted EBITDA and Free Cash Flow, which are non-GAAP financial measures, to evaluate our operating results. As such, we include in this Annual Report on Form 10-K reconciliations to their most directly comparable GAAP financial measures. These reconciliations and descriptions of why we believe these measures provide useful information to investors as well as a description of the limitations of these measures are included in "Reconciliation of non-GAAP Financial Measures."
Significant Developments
Refer to the Significant Developments section in Part I, Item 1, Business, herein for further information about the Mobile Mini Merger, other acquisitions, financing activities, share and warrant repurchases, and the impact of COVID-19 on our business.
Business Environment and Outlook
Our customers operate in a diversified set of end markets, including construction, commercial and industrial, retail and wholesale trade, education, energy and natural resources, government and healthcare. We track several market leading indicators in order to predict demand, including those related to our two largest end markets, the commercial and industrial sector and the construction sector, which collectively accounted for approximately 85% of our revenues in the year ended December 31, 2021. Market fundamentals underlying these end markets were impacted in 2020 as a result of the COVID-19 pandemic which resulted in delivery volume declines, primarily in the second and third quarters, in response to shelter-in-place orders and other market restrictions. During 2021, market fundamentals recovered to varying degrees across our product offerings with portable storage demand back above pre-pandemic levels. Demand for modular space products as measured by new project deliveries have partially recovered from the lower demand seen in 2020, but still remained approximately 4% below pre-pandemic delivery levels in 2021. Real Gross Domestic Product ("real GDP") in the US, where the majority of our revenues are generated, is estimated to have increased by over 5.6% in 2021, and estimates from Dodge Data & Analytics suggest that non-residential construction square footage starts in the US increased by 17% as compared to 2020. Based on our analyses of industry forecasts and macroeconomic indications, we expect continued market recovery in 2022 as we saw during 2021, and expect both real GDP and non-residential construction square footage starts in the US to grow 4-7% in 2022, which would also exceed pre-pandemic levels seen in 2019.
Core to our operating model is the ability to redeploy standardized assets across end markets, and we have recently serviced emerging demand in the healthcare and government sectors related to COVID-19, as well as expanded space requirements related to social distancing. Current improving market conditions, potential market catalysts such as increased infrastructure spending, and idiosyncratic growth levers such as continued penetration of our customer base with our VAPS offering, long-term pricing tailwinds, cross-selling between our Modular and Storage segment customers, and other commercial best practice sharing between our segments provide us confidence in our continued organic growth outlook.
Components of Our Consolidated Historical Results of Operations
Revenue
Our revenue consists mainly of leasing, services and sales revenue. We derive our leasing and services revenue primarily from the leasing of modular space and portable storage units. Included in leasing revenue are VAPS, such as furniture, steps, ramps, basic appliances, internet connectivity devices, and other items our customers use in connection with our products. Delivery and installation revenue includes fees that we charge for the delivery, site work, installation, disassembly, unhooking and removal, and other services to our customers for an additional fee as part of our leasing and sales operations.
The key drivers of changes in our leasing revenue are:
•the number of units in our lease fleet;
•the average utilization rate of our lease units; and
•the average monthly rental rate per unit, including VAPS.
The average utilization rate of our lease units is the ratio of (i) the average number of units in use during a period (which includes units from the time they are leased to a customer until the time they are returned to us) to (ii) the average total number of units available for lease in our fleet during a period. Our average monthly rental rate per unit for a period is equal to the ratio of (i) our rental income for that period including VAPS but excluding delivery and installation services and other leasing-related revenues, to (ii) the average number of lease units rented to our customers during that period.
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The table below sets forth the average number of units on rent in our lease fleet, the average utilization of our lease units, and the average monthly rental rate per unit, including VAPS:
| Year Ended December 31, | |||||||||||||||||
| (in thousands, except unit numbers and rates) | 2021 | 2020 | 2019 | ||||||||||||||
| Modular space units on rent (average during the period) | 110,402 | 99,526 | 91,682 | ||||||||||||||
| Average modular space utilization rate | 70.1 | % | 70.2 | % | 72.0 | % | |||||||||||
| Average modular space monthly rental rate | $ | 744 | $ | 658 | $ | 614 | |||||||||||
| Portable storage units on rent (average during the period) | 161,466 | 84,148 | 16,878 | ||||||||||||||
| Average portable storage utilization rate | 81.5 | % | 75.9 | % | 65.8 | % | |||||||||||
| Average portable storage monthly rental rate | $ | 144 | $ | 132 | $ | 120 | |||||||||||
| Average tank and pump solutions rental fleet utilization based on original equipment cost | 72.3 | % | 61.7 | % | N/A | ||||||||||||
In addition to leasing revenue, we also generate revenue from sales of new and used modular space and portable storage units to our customers, as well as delivery, installation, maintenance, removal services and other incidental items related to accommodation services for our customers. Included in our sales revenue are charges for modifying or customizing sales equipment to customers’ specifications.
Gross Profit
We define gross profit as the difference between total revenues and cost of revenues. Cost of revenues associated with our leasing business includes payroll and payroll-related costs for branch operations personnel, material and other costs related to the repair, maintenance, storage and transportation of rental equipment. Cost of revenue also includes depreciation expense associated with our rental equipment. Cost of revenues associated with our new unit sales business includes the cost to purchase, assemble, transport and customize units that are sold. Cost of revenues for our rental unit sales consist primarily of the net book value of the unit at date of sale.
Selling, General and Administrative Expense
Our selling, general and administrative (“SG&A”) expense includes all costs associated with our selling efforts, including marketing costs, marketing salaries and benefits, as well as the salary and commissions of sales personnel. It also includes the leasing of facilities we occupy, professional fees and information systems, our overhead costs, such as salaries of management, administrative and corporate personnel, and integration costs associated with acquisitions and business combinations.
Transaction Costs
Transaction costs include discrete expenses incurred related to the Merger and other acquisitions.
Other Depreciation and Amortization
Other depreciation and amortization includes depreciation of our property, plant and equipment, as well as the amortization of our intangible assets.
Impairment Losses on Long-Lived Assets
We recognize property, plant, and equipment impairment charges when an indicator of impairment is present and the carrying value of assets exceeds the estimated undiscounted cash flows and fair value of the assets.
Lease Impairment Expense and Other Related Charges
Lease impairment expense and other related charges include impairment of right-of-use ("ROU") assets, gain or loss on the exit of a leased property generally associated with lease termination payments and rent expense for locations which have been closed but have not been abandoned or impaired.
Restructuring Costs
Restructuring costs include charges associated with exit or disposal activities that meet the definition of restructuring under Financial Accounting Standards Board ("FASB") ASC Topic 420, Exit or Disposal Cost Obligations (“ASC 420”). Our restructuring plans are generally country or region specific and are typically completed within a one-year period. Restructuring costs include one-time termination benefits related to employee separation costs. The restructuring costs incurred in 2021, 2020, and 2019 primarily generally relate to the integration of our acquisitions. Costs related to the integration of acquired businesses that do not meet the definition of restructuring under ASC 420, such as employee training costs, duplicate facility costs, and professional services expenses, are included within SG&A expense.
Currency (Gains) Losses, Net
Currency (gains) losses, net include unrealized and realized gains and losses on monetary assets and liabilities denominated in foreign currencies other than our functional currency at the reporting date.
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Other (Income) Expense, Net
Other (income) expense, net primarily consists of the gain (loss) on disposal of non-operational property, plant and equipment, other financing related costs and other non-recurring charges.
Interest Expense
Interest expense consists of the costs of external debt including the Company’s ABL credit facility, 2022 Secured Notes, 2023 Secured Notes, 2025 Secured Notes, 2028 Secured Notes, and the senior unsecured notes due November 15, 2023 (the "Unsecured Notes") and interest on obligations under finance leases.
Fair Value (Gain) Loss on Common Stock Warrant Liabilities
Fair value (gain) loss on common stock warrant liabilities consists of non-cash gains and losses recorded related to changes in the fair value of common stock warrant liabilities as the common stock warrant liabilities are marked-to-market liabilities. It also includes gains and losses recorded related to the settlement of common stock warrant liabilities.
Loss on Extinguishment of Debt
In 2021, using cash on hand and borrowings on the 2020 ABL Facility, we redeemed $123.5 million of our 2025 Secured Notes and recorded loss on extinguishment of debt. In 2020, in connection with the Merger and related financing transactions, using proceeds from the 2025 Secured Notes, we redeemed all of our 2022 Secured Notes. We also completed a private offering of our 2028 Secured Notes in August 2020 and used the offering proceeds to repay our 2023 Secured Notes. As a result of these transactions, we recorded losses on extinguishment of debt.
Income Tax Expense (Benefit)
We are subject to income taxes in the US, Canada, Mexico and the UK. Our overall effective tax rate is affected by a number of factors, such as the relative amounts of income we earn in differing tax jurisdictions, tax law changes, and certain non-deductible expenses such as compensation disallowance. The rate is also affected by discrete items that may occur in any given year, such as legislative enactments. These discrete items may not be consistent from year to year. Income tax expense (benefit), deferred tax assets and liabilities and liabilities for unrecognized tax benefits reflect our best estimate of current and future taxes to be paid.
Consolidated Results of Operations
Our consolidated statements of net income (loss) for the years ended December 31, 2021, 2020, and 2019 are presented below. The below results only include results from Mobile Mini for the periods subsequent to the Merger and do not include any incremental unrealized cost savings, revenue growth, or pro forma adjustments that management expects to result from the integration of the acquired business.
| Years Ended December 31, | 2021 vs. 2020 Change | 2020 vs 2019 Change | |||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Leasing and services revenue: | |||||||||||||||||||||||||||||
| Leasing | $ | 1,412,123 | $ | 1,001,447 | $ | 744,185 | $ | 410,676 | $ | 257,262 | |||||||||||||||||||
| Delivery and installation | 374,682 | 274,156 | 220,057 | 100,526 | 54,099 | ||||||||||||||||||||||||
| Sales revenue: | |||||||||||||||||||||||||||||
| New units | 52,882 | 53,093 | 59,085 | (211) | (5,992) | ||||||||||||||||||||||||
| Rental units | 55,210 | 38,949 | 40,338 | 16,261 | (1,389) | ||||||||||||||||||||||||
| Total revenues | 1,894,897 | 1,367,645 | 1,063,665 | 527,252 | 303,980 | ||||||||||||||||||||||||
| Costs: | |||||||||||||||||||||||||||||
| Costs of leasing and services: | |||||||||||||||||||||||||||||
| Leasing | 317,061 | 227,376 | 213,151 | 89,685 | 14,225 | ||||||||||||||||||||||||
| Delivery and installation | 306,861 | 220,102 | 194,107 | 86,759 | 25,995 | ||||||||||||||||||||||||
| Costs of sales: | |||||||||||||||||||||||||||||
| New units | 35,377 | 34,841 | 42,160 | 536 | (7,319) | ||||||||||||||||||||||||
| Rental units | 29,853 | 24,772 | 26,255 | 5,081 | (1,483) | ||||||||||||||||||||||||
| Depreciation of rental equipment | 237,537 | 200,581 | 174,679 | 36,956 | 25,902 | ||||||||||||||||||||||||
| Gross profit | 968,208 | 659,973 | 413,313 | 308,235 | 246,660 | ||||||||||||||||||||||||
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| Expenses: | |||||||||||||||||||||||||||||
| Selling, general and administrative | 511,446 | 360,626 | 271,004 | 150,820 | 89,622 | ||||||||||||||||||||||||
| Transaction costs | 1,375 | 64,053 | — | (62,678) | 64,053 | ||||||||||||||||||||||||
| Other depreciation and amortization | 78,030 | 43,249 | 12,395 | 34,781 | 30,854 | ||||||||||||||||||||||||
| Impairment losses on long-lived assets | — | — | 2,848 | — | (2,848) | ||||||||||||||||||||||||
| Lease impairment expense and other related charges | 2,888 | 4,876 | 8,674 | (1,988) | (3,798) | ||||||||||||||||||||||||
| Restructuring costs | 11,868 | 6,527 | 3,755 | 5,341 | 2,772 | ||||||||||||||||||||||||
| Currency losses (gains), net | 548 | (355) | (688) | 903 | 333 | ||||||||||||||||||||||||
| Other expense (income), net | 1,780 | (1,718) | (2,200) | 3,498 | 482 | ||||||||||||||||||||||||
| Operating income | 360,273 | 182,715 | 117,525 | 177,558 | 65,190 | ||||||||||||||||||||||||
| Interest expense | 117,987 | 119,886 | 122,504 | (1,899) | (2,618) | ||||||||||||||||||||||||
| Fair value loss (gain) on common stock warrant liabilities | 26,597 | (3,461) | 109,622 | 30,058 | (113,083) | ||||||||||||||||||||||||
| Loss on extinguishment of debt | 5,999 | 42,401 | 8,755 | (36,402) | 33,646 | ||||||||||||||||||||||||
| Income (loss) before income tax | 209,690 | 23,889 | (123,356) | 185,801 | 147,245 | ||||||||||||||||||||||||
| Income tax expense (benefit) | 49,546 | (51,451) | (2,191) | 100,997 | (49,260) | ||||||||||||||||||||||||
| Net income (loss) | 160,144 | 75,340 | (121,165) | 84,804 | 196,505 | ||||||||||||||||||||||||
| Net income (loss) attributable to non-controlling interest, net of tax | — | 1,213 | (421) | (1,213) | 1,634 | ||||||||||||||||||||||||
| Net income (loss) attributable to WillScot common shareholders | $ | 160,144 | $ | 74,127 | $ | (120,744) | $ | 86,017 | $ | 194,871 | |||||||||||||||||||
| Cash Flow Data: | |||||||||||||||||||||||||||||
| Net cash from operating activities | $ | 539,902 | $ | 304,812 | $ | 172,566 | $ | 235,090 | $ | 132,246 | |||||||||||||||||||
| Net cash from investing activities | $ | (384,047) | $ | (125,360) | $ | (152,582) | $ | (258,687) | $ | 27,222 | |||||||||||||||||||
| Net cash from financing activities | $ | (167,887) | $ | (158,958) | $ | (26,063) | $ | (8,929) | $ | (132,895) | |||||||||||||||||||
| Other Financial Data: | |||||||||||||||||||||||||||||
| Consolidated Adjusted EBITDA(a) | $ | 740,393 | $ | 530,307 | $ | 356,548 | $ | 210,086 | $ | 173,759 | |||||||||||||||||||
| Free Cash Flow(a) | $ | 303,027 | $ | 162,279 | $ | 19,984 | $ | 140,748 | $ | 142,295 | |||||||||||||||||||
| Adjusted Gross Profit(a) | $ | 1,205,745 | $ | 860,554 | $ | 587,992 | $ | 345,191 | $ | 272,562 | |||||||||||||||||||
| Net CAPEX(a) | $ | 236,875 | $ | 142,533 | $ | 152,582 | $ | 94,342 | $ | (10,049) | |||||||||||||||||||
| Balance Sheet Data (end of year): | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 12,699 | $ | 24,937 | $ | 3,045 | $ | (12,238) | $ | 21,892 | |||||||||||||||||||
| Rental equipment, net | $ | 3,080,981 | $ | 2,931,646 | $ | 1,944,436 | $ | 149,335 | $ | 987,210 | |||||||||||||||||||
| Total assets | $ | 5,773,599 | $ | 5,572,205 | $ | 2,897,649 | $ | 201,394 | $ | 2,674,556 | |||||||||||||||||||
| Total debt, excluding current portion | $ | 2,694,319 | $ | 2,453,809 | $ | 1,632,589 | $ | 240,510 | $ | 821,220 | |||||||||||||||||||
| Total shareholders’ equity | $ | 1,996,763 | $ | 2,063,873 | $ | 490,609 | $ | (67,110) | $ | 1,573,264 | |||||||||||||||||||
(a) WillScot Mobile Mini presents Adjusted EBITDA, Free Cash Flow, Adjusted Gross Profit and Net CAPEX, which are measurements not calculated in accordance with GAAP and are defined below in the section "Reconciliation of non-GAAP Financial Measures," because they are key metrics used by management to assess financial performance. Our business is capital intensive, and these additional metrics allow management to further evaluate its operating performance. See below for reconciliations of non-GAAP financial measures.
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Quarterly Consolidated Results for the Year Ended December 31, 2021
| (in thousands, except for units on rent and monthly rental rate) | Q1 | Q2 | Q3 | Q4 | Full Year | ||||||||||||||||||||||||
| Revenue | $ | 425,323 | $ | 461,102 | $ | 490,552 | $ | 517,920 | $ | 1,894,897 | |||||||||||||||||||
| Gross profit | $ | 213,380 | $ | 222,810 | $ | 253,549 | $ | 278,469 | $ | 968,208 | |||||||||||||||||||
| Adjusted EBITDA | $ | 163,585 | $ | 175,495 | $ | 190,149 | $ | 211,164 | $ | 740,393 | |||||||||||||||||||
| Net income | $ | 4,447 | $ | 20,371 | $ | 61,103 | $ | 74,223 | $ | 160,144 | |||||||||||||||||||
| Net CAPEX | $ | 30,911 | $ | 57,481 | $ | 51,954 | $ | 96,529 | $ | 236,875 | |||||||||||||||||||
| Modular space units on rent (average during the period) | 110,349 | 110,468 | 109,832 | 110,961 | 110,402 | ||||||||||||||||||||||||
| Average modular space utilization rate | 70.3 | % | 70.3 | % | 70.1 | % | 69.8 | % | 70.1 | % | |||||||||||||||||||
| Average modular space monthly rental rate | $ | 679 | $ | 736 | $ | 767 | $ | 792 | $ | 744 | |||||||||||||||||||
| Portable storage units on rent (average during the period) | 145,360 | 151,736 | 163,248 | 185,518 | 161,466 | ||||||||||||||||||||||||
| Average portable storage utilization rate | 74.4 | % | 77.7 | % | 83.9 | % | 88.4 | % | 81.5 | % | |||||||||||||||||||
| Average portable storage monthly rental rate | $ | 135 | $ | 139 | $ | 145 | $ | 153 | $ | 144 | |||||||||||||||||||
| Average tank and pump solutions rental fleet utilization based on original equipment cost | 67.4 | % | 71.2 | % | 74.8 | % | 75.5 | % | 72.3 | % | |||||||||||||||||||
| Earnings per share - basic | $ | 0.02 | $ | 0.09 | $ | 0.27 | $ | 0.33 | $ | 0.71 | |||||||||||||||||||
| Earnings per share - diluted | $ | 0.02 | $ | 0.08 | $ | 0.26 | $ | 0.32 | $ | 0.69 | |||||||||||||||||||
| Weighted average shares - basic | 228,293,197 | 228,406,812 | 225,998,202 | 223,436,603 | 226,518,931 | ||||||||||||||||||||||||
| Weighted average shares - diluted | 234,720,295 | 236,536,713 | 231,868,397 | 229,965,703 | 232,793,902 | ||||||||||||||||||||||||
Quarterly Consolidated Results for the Year Ended December 31, 2020
| (in thousands, except for units on rent and monthly rental rate) | Q1 | Q2 | Q3 | Q4 | Full Year | ||||||||||||||||||||||||
| Revenue | $ | 255,821 | $ | 256,862 | $ | 417,315 | $ | 437,647 | $ | 1,367,645 | |||||||||||||||||||
| Gross profit | $ | 106,190 | $ | 109,964 | $ | 209,564 | $ | 234,255 | $ | 659,973 | |||||||||||||||||||
| Adjusted EBITDA | $ | 89,544 | $ | 97,520 | $ | 163,559 | $ | 179,684 | $ | 530,307 | |||||||||||||||||||
| Net income (loss) | $ | 91,655 | $ | (14,130) | $ | (6,051) | $ | 3,866 | $ | 75,340 | |||||||||||||||||||
| Net income (loss) attributable to Willscot Mobile Mini | $ | 91,785 | $ | (15,473) | $ | (6,051) | $ | 3,866 | $ | 74,127 | |||||||||||||||||||
| Net CAPEX | $ | 30,540 | $ | 36,383 | $ | 33,323 | $ | 42,287 | $ | 142,533 | |||||||||||||||||||
| Modular space units on rent (average during the period) | 87,989 | 87,096 | 111,227 | 111,793 | 99,526 | ||||||||||||||||||||||||
| Average modular space utilization rate | 69.2 | % | 68.5 | % | 70.6 | % | 70.9 | % | 70.2 | % | |||||||||||||||||||
| Average modular space monthly rental rate | $ | 653 | $ | 669 | $ | 640 | $ | 670 | $ | 658 | |||||||||||||||||||
| Portable storage units on rent (average during the period) | 16,346 | 15,869 | 143,840 | 160,538 | 84,148 | ||||||||||||||||||||||||
| Average portable storage utilization rate | 64.1 | % | 62.5 | % | 73.2 | % | 81.2 | % | 75.9 | % | |||||||||||||||||||
| Average portable storage monthly rental rate | $ | 119 | $ | 120 | $ | 131 | $ | 136 | $ | 132 | |||||||||||||||||||
| Average tank and pump solutions rental fleet utilization based on original equipment cost | N/A | N/A | 58.2 | % | 65.2 | % | 61.7 | % | |||||||||||||||||||||
| Earnings (loss) per share - basic | $ | 0.84 | $ | (0.14) | $ | (0.03) | $ | 0.02 | $ | 0.44 | |||||||||||||||||||
| Earnings (loss) per share - diluted | $ | 0.05 | $ | (0.14) | $ | (0.03) | $ | 0.02 | $ | 0.25 | |||||||||||||||||||
| Weighted average shares - basic | 109,656,646 | 110,692,426 | 226,649,993 | 228,637,826 | 169,230,177 | ||||||||||||||||||||||||
| Weighted average shares - diluted | 112,672,997 | 110,692,426 | 226,649,993 | 233,625,946 | 177,268,383 | ||||||||||||||||||||||||
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Quarterly Consolidated Results for the Year Ended December 31, 2019
| (in thousands, except for units on rent and monthly rental rate) | Q1 | Q2 | Q3 | Q4 | Full Year | ||||||||||||||||||||||||
| Revenue | $ | 253,685 | $ | 263,713 | $ | 268,222 | $ | 278,045 | $ | 1,063,655 | |||||||||||||||||||
| Gross profit | $ | 103,331 | $ | 101,484 | $ | 99,308 | $ | 109,190 | $ | 413,313 | |||||||||||||||||||
| Adjusted EBITDA | $ | 83,354 | $ | 87,554 | $ | 87,424 | $ | 98,216 | $ | 356,548 | |||||||||||||||||||
| Net loss | $ | (27,574) | $ | (56,836) | $ | (1,197) | $ | (35,558) | $ | (121,165) | |||||||||||||||||||
| Net loss attributable to Willscot Mobile Mini | $ | (26,816) | $ | (56,004) | $ | (1,492) | $ | (36,432) | |||||||||||||||||||||