Willscot Mobile Mini Holdings Corp

NASDAQ:WSC

Earnings Call Transcript 2017-Q4

[Operator]

Good day, ladies and gentlemen, and welcome to the Williams Scotsman Fourth Quarter and Full Year 2017 Conference Call. [Operator Instructions] I would now like to introduce your host for today's conference, Mr. Mark Barbalato. You may begin.

[Mark Barbalato, executive]

Thank you, and good morning.

Before we begin, I'd like to remind you that we will discuss forward-looking statements, as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our Form 10-K filed with the SEC. While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today.

We would like to remind you that some of the statements and responses to your questions in this conference call may include forward-looking statements. As such, they are subject to future events and uncertainties that could cause actual results to differ materially from these statements. Williams Scotsman assumes no obligation and does not intend to update any such forward-looking statements. The press release we issued last night and the presentation for today's call are posted on the Investor Relations section of our website. A copy of the release has also been included in 8-K that we submitted to the SEC. We will make a replay of this conference call available via webcast on the company website.

For financial information that has been expressed on a non-GAAP basis, we have included reconciliations to the comparable GAAP information. Please refer to the table and slide presentation accompanying today's earnings release.

Lastly, this morning, we are filing our 10-K with the SEC for the period ending December 31, 2017. The 10-K will be available through the SEC or the Investor Relations section of our website.

Now with me today, I have Brad Soultz, our CEO; and Tim Boswell, our CFO. On today's call, Brad will provide a brief introduction to Williams Scotsman, summarize our fourth quarter and full year 2017, and touch on our markets, growth, strategies and competitive positioning, among other things. Tim will then provide additional detail on the financial results, as well as an update on our outlook for the full year, before we open up the call for questions.

With that, I'll turn the call over to Brad. Brad?

[Brad Soultz, executive]

Thank you, Mark, and good morning, everyone. Welcome to Williams Scotsman's Fourth Quarter and Full Year 2017 Earnings Conference Call. This is our first earnings call since Williams Scotsman's returned to public markets through the business combination with Double Eagle Acquisition Corp. on the 29th of November. We are excited to be here and want to thank all of you for joining us this morning.

Turning to Slide 3, I'd like to spend a few moments introducing the Williams Scotsman story, which maybe new for some of our listeners.

Williams Scotsman is a specialty rental service market leader that provides innovative modular space and portable storage solutions across North America. With over 0.5 century of history serving our customers, we've now expanded our branch network to include over 100 locations in the United States, Canada and Mexico. We're now serving more than 35,000 customers across a diverse group of end markets. We manage a comprehensive specialty rental fleet of over 95,000 units, representing $1.4 billion of gross book value.

There are 3 key attributes that differentiate Williams Scotsman.

First, we've repositioned the business strategically with our Ready to Work value proposition by expanding our offering to value-added products and services or VAPs that complement our core modular leasing operation. Customers value these solutions, and they continued to drive our growth, with highly accretive returns.

Second, over the past several years, we have invested in our people, processes and technology, and have created a scalable and differentiated operating platform, capable of asserting market leadership and capitalizing on a clear organic opportunities in our served markets.

Third, we are a pure play business, with over 90% of our adjusted gross profit derived from recurring leasing business. This business model provides a higher degree of visibility into future performance, given the underlying economics associated with our long-lived assets, combined with the average 3-year lease durations.

To sum it up, we have the right platform and the financial flexibility to grow both organically and now through acquisitions, which will further extend our leadership position in the specialty rental service space.

Moving to Slide 4, I'd like to summarize our transformational fourth quarter.

In short, during the fourth quarter, we executed several strategic transactions, on top of accelerating our organic growth. The continued strength of our organic business is evident in our fourth quarter results. Our Modular segments in the U.S. and other North America delivered adjusted EBITDA of $36 million in the quarter, which was up 19% versus the prior year period, resulting in $124 million of adjusted EBITDA for the full year.

Both of our Modular Space segments generated year-over-year growth in adjusted EBITDA, revenue, rate and Unit on Rent in the fourth quarter. Notably, average monthly rental rates in our Modular U.S. segment increased 10% year-over-year, driven by the continued expansion of the Ready to Work value proposition and our pricing initiatives. We have continued to see strength across the majority of our end markets based on industrial spending, nonresidential construction, E&P capital spending and expanding nonfarm payrolls. Looking forward, we expect that any significant expansion of infrastructure spending would only further strengthen these end markets.

In late November, we returned the company to the public markets, repositioning it as the leading Modular Space provider in North America. This was accomplished through the business combination with Double Eagle Acquisition Corp. Through this and a series of contemporaneous transactions, we were carved out of Algeco Scotsman and recapitalized, providing ample liquidity to further accelerate our growth.

In December, we announced and closed the acquisition of Acton Mobile, a business that expands our ability to provide Ready to Work solutions with greater scale. This acquisition solidifies our U.S. market leadership position, leverages our operating platform and accelerates our future growth.

More recently, in January, we announced and closed the acquisition of a smaller independent operator, Tyson Onsite, bolstering several of our markets in the Midwest. Notably, we integrated the Tyson business into our operating platform within 3 weeks of closing, further highlighting our ability to identify and execute to strategic acquisitions.

We'll refer back to these 2 acquisitions throughout the call.

With our scalable operating platform in place, a favorable economic backdrop, we expect at least a 10% organic adjusted EBITDA growth in 2018. This strong organic run rate is driven by acceleration across all of our major leasing KPIs.

Supplementing this growth now with the recent 2 acquisitions and their associated synergy potential, positions us to grow our 2018 total adjusted EBITDA to between $165 million and $175 million. Tim will discuss our 2018 guidance in more detail later.

As we turn to Slide 5, we'll take a deeper look into our results from the fourth quarter of 2017.

Starting with the charts at the top of the page, the headlines are: total revenue increased by $120 million, which is a 17% gain over the prior year period. At the same time, adjusted EBITDA of $36 million from the Modular segments grew 19% year-over-year, outpacing the revenue growth.

At the bottom of the page, supporting this growth are strong leasing KPIs in the U.S. segment. U.S. Modular Space, Average Units on Rent, increased by 6% year-over-year. That was driven by a 2% growth in our organic business, plus another 4% through the Acton acquisition. Pro forma for the Acton acquisition, Average Units on Rent for the quarter would have been 48,277, which is a better indication of the volumes with which we entered 2018.

Complementing that, the U.S. Modular Space average monthly rental rates increased by 10.2% year-over-year, driven by a 25% increase in VAPs and our pricing initiatives. This included some dilution from the acquired Acton lease portfolio. Pro forma for the Acton acquisition, U.S. Modular Space average rates in the fourth quarter would have been $527. The acceleration of our Modular segments adjusted EBITDA run-rate in the fourth quarter provides us confidence in our 2018 outlook.

As we turn to Slide 6, we'll look further into the acceleration of these underlying lease fundamentals.

To the left side of the page, we highlight our U.S. Modular Space segment. While I've already touched on Units on Rent, I'd note that our utilization improved 190 basis points to 75% as compared to the prior year period. This also includes some dilution from the acquired Acton lease portfolio.

On the bottom left of the page, as previously noted, but worth repeating, our U.S. Modular Space fourth quarter average monthly rental rate increased to $560, which is up 10.2% compared to the prior year period. Additionally, you'll note that steady quarter-to-quarter acceleration in this key metric, as well as significant absolute gains over the last 2 years. Tim will discuss the pro forma effect of Acton on our business in further detail later.

Moving to the right-hand side.

The Other North America segment, which includes Canada, Alaska and Mexico, stabilized in the third quarter of 2017. Average Units on Rent in this segment increased for the third consecutive quarter and were up 8.6% in the fourth quarter compared to the prior year period. Utilization also increased to 55.8% from 50.4% in the prior year, and average monthly rental rates increased a bit to $527 or 3.3% versus prior year. We're thrilled with the underlying organic trajectory resulting from our VAPs and pricing initiatives, as evident in our fourth quarter results.

Turning to Slide 7.

We announced and closed a highly complementary acquisition of Acton Mobile in December. Acton was a privately owned operator that had recently expanded its branch network to include 34 locations in the U.S. Acton's fleet was primarily comprised of mobile office and complex units. The fleet was on average 3 years younger than our fleet and with utilization in the high 60s, giving us additional headroom to grow volumes organically.

Acton provides us with long-term adjusted EBITDA growth opportunities by expanding our Ready to Work solution to their customers across the acquired assets, deploying Acton's fleet to our expanded customer base in our strongest markets and realizing over $10 million of cost synergies.

Approximately 80% or 28 of the Acton branches are in markets where we already have an established presence. We'll be consolidating redundant operations in these locations. Approximately 20% or 6 of the Acton branches where in markets where we previously did not have a location. These new locations will be converted to the Williams Scotsman operating platform, allowing us to better serve our expanded customer base in these markets.

Integrating these acquisitions seamlessly is possible due to the significant effort we have invested in the scalability of our operating platform in the recent years. We've used salesforce.com to manage our front-end sales activities since 2010. Although in 2017, we rolled out the service club platform, which dramatically improves our customer service capabilities, as well as provides central control and visibility over the associated operations. This follows recent investments in the price optimization platform, our ERP and our quarter capital -- quarterly capital allocation process. Finally, our Ready to Work offering is now been fully commercialized and is available through all of our locations.

Targeted investments such as these, expand the value proposition offered to our customers, allow us to capture that value in our lease rates and help us drive return on capital. They are structured to be completely scalable in order to seamlessly accommodate newly acquired businesses and the associated assets.

Now moving on to Slide 8, I'll provide more colors to our recent financial performance and our outlook for 2018.

With the right operating platform in place and a favorable economic backdrop, the Modular U.S. segment has delivered 14% organic adjusted EBITDA growth since 2015, which is outpacing revenue growth of 6%. That growth largely offset declines in Other North America segment, which has historically had higher exposure to upstream oil and gas. The Other North America segment stabilized in 2017, which allows the adjusted EBITDA from our combined Modular segments to grow 19% year-over-year, as it did in the fourth quarter of '17.

Layering in the Acton and Tyson acquisitions, we expect our 2018 total adjusted EBITDA to be between $165 million and $175 million, which is between 33% and 41% above 2017.

As I mentioned at the outset, we achieved outstanding fourth quarter results and increased run-rates heading into 2018. This was accomplished all while carving Williams Scotsman out of its former parent company, completing the reverse merger with Double Eagle Acquisition Corp. and recapitalizing our business with access to growth capital. This is consistent with what we've previously communicated to the investment community, and I'm quite proud of the team's accomplishments.

With that, I'll turn the call over to Tim Boswell who'll discuss our financial outlook for 2018, as well as details related to our fourth quarter and full year 2017 results. Tim?

[Timothy Boswell, executive]

Thanks, Brad.

Let's turn to Slide 9 and review the financial guidance that we provided via press release last week.

As Brad mentioned, we are exiting the fourth quarter with momentum in all of our core operational metrics and are on track to deliver an exciting result in 2018.

Our 2018 organic growth is in-line with what we projected in Q3 of last year. This is driven by approximately 17% year-over-year adjusted EBITDA growth from the U.S. segment, which is simply a continuation of the organic growth rate we saw in Q4.

Our North America segment stabilized in Q3 2017, and we expect overall adjusted EBITDA from this segment will increase by approximately $0.5 million in 2018.

Together, these organic growth expectations from our Modular segments are in-line with what we projected last fall.

Supplementing this organic growth, we expect that the acquisitions of Acton and Tyson to contribute approximately $34 million of adjusted EBITDA in 2018. This contribution includes approximately $4 million of costs synergies realized in 2018, with an additional $7 million of synergies to be actioned and recognized in the P&L in future periods.

We expect that our public company costs will exceed our original estimates by approximately $3 million, primarily due to professional fees incurred to facilitate our rapid transition to the public arena.

All together, we expect to deliver 2018 total revenue of between $560 million and $600 million, and 2018 adjusted EBITDA between $165 million and $175 million, which implies year-over-year growth exceeding 33%.

We'll maintain our flexible CapEx strategy, investing to support growth as our markets allow and balancing growth with long-term returns.

As a reminder, one of the key strengths of our business model is that capital spending is almost entirely discretionary in the short-term. Our 3-year average lease terms and long-lived assets allow us to cut capital spending and drive free cash flow to the extent markets do not support growth. And we have a disciplined quarterly process through which we reassess our capital allocation.

Based on the current strong market environment, we anticipate capital expenditures net of proceeds from rental unit sales to be between $70 million and $100 million.

In summary, we have a favorable economic backdrop momentum in our key organic growth indicators, clear line of sight into the contribution from our acquisitions and related synergies, and we're excited about the outlook we're able to share for 2018.

With that, I'd like to transition to Slide 11 in the financial review section of our slide deck to discuss the details of our fourth quarter and the full year 2017 results.

Given, this is our first call, I'd like to take a minute to orient everyone to the presentation of our financial statements on Slide 11 and why we focus on the results of our 2 Modular segments.

As Brad explained at the outset, Double Eagle Acquisition Corporation was a special purpose acquisition company that changed its name to WillScot Corporation upon completing our business combination with Williams Scotsman International Inc. on November 29, 2017. The business combination was accounted for as a reverse acquisition in which WSII was the accounting acquirer. As such, our financial statement presentation includes the results of WSII and its subsidiaries as our accounting predecessor for periods prior to November 29, and of WillScot Corporation, including WSII and its subsidiaries, for periods after November 29.

The chart on the right-hand side of Slide 11 shows the 2017 full year results of our 2 operating business segments and the impact of corporate and other costs. As a reminder, only the U.S. Modular and Other North America Modular results are relevant to our go-forward operations. And I refer you to our financial statements for data specific to these segments. The corporate and other costs represent legacy costs associated with the Algeco parent holding company that were incurred within the WSII legal entity. As such, these costs are reflected in our historical consolidated results. However, we do not expect to incur any legacy Algeco's costs going forward. We'll make every effort to focus on the results from our 2 Modular segments, which delivered $124 million of adjusted EBITDA, and isolate the rest of the noise in our historical financials.

Turning to Slide 12. Given the complexity of the transactions we executed in Q4, we wanted to provide a clear reconciliation of adjusted EBITDA from our Modular segments to the pretax loss from continuing operations in the quarter and for the year.

The majority of these adjustments are related to either the business combination or our legacy association with Algeco, and we expect they will reduce and simplify dramatically in coming quarters. I won't read every line here, but will call out a few highlights.

Interest expense of $107 million represents 11 months of expense incurred under the Algeco corporate structure and will reduce significantly in 2018 given our relatively low leverage. We incurred a noncash impairment of our goodwill in Canada, which dates back to the WSII's, take private transaction, in 2007. And the transaction and long-term incentive plan expenses totaled $33 million, and are all related to the spin-off from Algeco, the Carve-out of the remote accommodations business segment and the business combination.

These adjustments reconciled the $165 million pretax loss from continuing operations to the $108.8 million of consolidated adjusted EBITDA. As we discussed on the prior page, removing the corporate and other segment, isolates the results of our Modular segments, which delivered $36.1 million of adjusted EBITDA in the quarter, up 19% versus the prior year, and $123.9 million for the year. Again, we expect this reconciliation to simplify dramatically in coming quarters and emphasize that the adjusted EBITDA from our Modular segments is most indicative of our go-forward operations.

On that note, let's dig into the 2 Modular segments, and the U.S. Modular segment, in particular, Slide 13.

Q4 revenue, in the top left chart, grew 14.3% to $103.6 million compared to the prior year period, as a result of solid demand for our Modular Space offering, which more than offset some weakness in our portable storage business.

Q4 is typically a softer quarter from a revenue perspective due to lower delivery and return activity. So we are quite pleased with both the year-over-year and the quarter-to-quarter results.

U.S. Modular adjusted EBITDA, on the bottom left-hand chart, increased 17% to $31.6 million as compared to the prior year period, as a result of an increase in Units on Rent and a rise in average monthly rental rates. It is important to note that Q4 typically sees higher adjusted EBITDA margins due to lower variable costs associated with our leasing operations. So while our adjusted EBITDA margin will expand in 2018, we expect it will revert to historical seasonal levels in Q1 2018 and reflect the increased public company costs noted in our guidance.

Moving to the top right chart on Page 13.

Average monthly rental rates increased to $560 per unit, up 10.2% year-over-year, driven by a 25% increase in VAPs per Unit on Rent. And you can see the steady quarter-to-quarter acceleration of this key metric. We're very proud of the execution in our commercial organization and the acceptance of our value proposition the market.

On the far right-hand gray bar, pro forma for the Acton acquisition, average monthly rental rate drops to $527 per unit in the quarter, which is our new base line heading into 2018. There's nothing fundamentally good or bad about the $527 number. Acton's portfolio simply had a lower average monthly rate for 2 reasons: First, Acton's suite has a higher composition of smaller single-wide units, which are comparable to our own single wides and rent at lower rates. And secondly, Acton is not focused on VAPs, historically, because they were expanding their branch network. This creates the opportunity for us to drive more revenue from these assets going forward. So this pro forma monthly rate is simply the new baseline from which we are growing in 2018.

In the bottom right chart, Modular Space Average Units on Rent increased to 37,727 units, up 6% year-over-year. As Brad mentioned, we had approximately 2 percentage points of organic growth, with the other 4 points coming from the Acton acquisition. Pro forma for the Acton acquisition, average units on rent in the U.S. would have been 48,277 units, which again is our new baseline heading into 2018. Q4 was clearly an outstanding quarter for the U.S. Modular segment.

Moving to Slide 14, we'll look at our Other North America segment, which includes operations in Canada, Alaska and Mexico.

On the left-hand side of the page, revenue grew 33% to $16.9 million, and adjusted EBITDA grew 36% to $4.5 million compared to Q4 2016. In the fourth quarter, we completed one large sale project that contributed over $1 million of gross profit, which we do not expect to reoccur in Q1. So while the result in Q4 was quite strong, the overall trend line in our Other North America segment has been steady for the last 4 quarters.

On the right-hand side of the page, we're seeing stabilization of pricing and have 3 sequential quarters of Unit on Rent growth heading into 2018. Acton's operations do not overlap with any of our branches in the Other North America segment, so there are no pro forma adjustments required here.

Turning to Slide 15.

As I mentioned earlier, one great attribute of our business model is the ability to flex capital spending in response to changes in market conditions. Most of our Modular Space and portable storage units have 20-year useful lives, which allow us to cut capital spending in periods of lower demand and reinvest during periods of growth. As we saw in the Modular - U.S. segment, we are in a strong growth environment and are investing accordingly to grow Units on Rent and VAPs. In 2017, our Modular segments invested $80 million to support Unit on Rent growth in the U.S. and the continued expansion of our value-added products and services. This includes approximately $8 million of capital to replace units that were destroyed in the third quarter hurricanes. Those losses were fully insured at replacement cost, and the majority of the insurance proceeds will be received in 2018.

Net CapEx doubled from 2016, which was a year in which we invested at minimum levels required to maintain flat Units on Rent in the U.S. That was due to Algeco's global capital allocation strategy at the time.

At the bottom of the page, we look at adjusted EBITDA minus net CapEx as a proxy for cash generation before interest and financing activities from our Modular segments.

This metric totaled $77.6 million in 2016 in a year of moderate capital investment and $34.9 million in 2017 as growth accelerated. In the short term, our capital investments are almost entirely discretionary, and we reassess the investment of our cash flow on a quarterly basis.

Moving to Slide 16.

Our business has benefited historically from attractive tax attributes, including accelerated depreciation on fleet investments. These attributes, combined with the decline of earnings in our Other North America segment, have resulted in $1.2 million of net cash income tax refunds cumulative since 2015.

I'm not going to rehash the details of the U.S. Tax Cuts and Jobs Act, but will call out one highlight. We were able to recognize 100% cost expensing for the fleet assets acquired in the Acton acquisition, which increases our U.S. NOL to $270 million. Crystallizing this NOL in 2017 allows for 100% utilization on taxable income over 20 years, which will limit our U.S. cash federal income taxes in the coming years.

While there are many moving pieces, our year-end income tax provision did include $27 million of net additional income tax expense in the quarter due to tax reform, driven by a valuation allowance in our Section 163(j), deferred tax asset, and the transaction -- transition tax on foreign earnings. These were partly offset by the remeasurement of net deferred tax liabilities at the reduced U.S. corporate tax rate. We'll continue to analyze the impact of tax reform on our provision, but we do not expect any significant change to our near-term cash tax outlook. All of this is discussed in detail on our 10-K. And aside from crystallizing the NOL, we're most interested in the positive impact that tax reform may have on our end markets.

Moving to Slide 17.

Concurrent with the business combination, we put in place a new $600 million asset-backed revolving credit facility and issued $300 million of senior secured notes. The credit facility has an accordion feature that allows us to increase the facility size to $900 million under certain conditions. We used cash on hand and drew on the credit facility to fund the acquisition of Acton in December. The credit facility requires the pro forma net secured debt to adjusted EBITDA as defined in the credit agreement be less than 4.5x at the time of acquisition. We obviously met the condition at closing, and our intention is to operate at or below 4x leverage, after taking into account synergies that we believe to be achievable.

From a capital allocation standpoint, our first priority is to continue to reinvest in our business and to support our organic growth. However, we're pleased with our acquisition pipeline. And we'll continue to engage methodically in the M&A market to extend our network, and we'll draw on our capital resources as necessary.

Last but not least, Slide 18 provides a detailed table showing our total shares and equivalents outstanding.

In the left column of the page, we had 84.6 million beneficially owned shares as of December 31, 2017. You'll note this contrasts to 19.8 million fully diluted shares outstanding used for the calculation of net loss per share in 2017.

For GAAP purposes, 14.5 million shares redeemed to be outstanding prior to the business combination, another 57.7 million shares were deemed to have been issued to effect the business combination, bringing the total outstanding to 72.2 million, which is in the first gray-shaded row on the left-hand column.

As such, the weighted average shares outstanding in 2017 for GAAP purposes was 19.8 million shares. The only difference between GAAP shares outstanding and beneficially owned shares as of December 31 are the 12.4 million in Founder Shares. The Founder Shares are subject to an earn-out agreement which has a certain performance criteria that had not been met as of December 31, thus they are not included in that GAAP share count. That said, half the Founder Shares did vest in January, and therefore, will be captured in our weighted average GAAP share count in Q1.

As you move to the right-hand side of the chart, we illustrate the potential of Class A share equivalents associated with the remaining Founder Shares, our warrants and our Class B shares.

I'd note that warrants in particular, if exercised, could generate nearly $400 million of cash proceeds to the company. As of December 31, none of the warrants or Class B shares have been exercised or exchanged for Class A shares. Our intention is to be as transparent as possible with respect to our equity structure, and this is explained in detail in our public filings.

With that, I'm going to turn it back to Brad on Slide 19 for his closing thoughts before we open up for Q&A.

[Brad Soultz, executive]

Thanks, Tim.

While we're extremely proud of the success of our company has achieved over the course of more than 50 years, we are even more excited about our future. With the Ready to Work platform, the transformational transactions in Q4, we're well positioned to continue deliver strong results as we have this quarter.

I'd like to take a moment to thank all of our employees, customers, advisers, lenders and new shareholders for the incredible support we've received throughout the process of returning to these public markets.

Thank you all again for joining us today, and we look forward to speaking with many of you very soon.

That concludes our prepared remarks. Now we'll be happy to entertain questions. Operator, please open up the line.

[Operator]

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

[Scott Schneeberger, analyst]

I have 2 questions. The first one, multipart. Could you please just elaborate a little bit more on your thoughts for organic revenue growth in 2018 with consideration for U.S. Modular and Other North America, and provide a little bit of discussion of what you're seeing or thinking across each end market? And then the last part of this is, how should we think about seasonality as we move through 2018?

[Timothy Boswell, executive]

Okay. So we've got -- Scott, this is Tim. So we've got organic revenue growth expectations by segments, end market's recap, which I'll ask Brad to talk about, and seasonality through the course of the year.

So let's start with organic revenue growth expectations. And I'd say, at the high level, we see topline expanding organically in kind of that 5% to 6% range at the consolidated level, and that's translating into at least 10% EBITDA growth at the consolidated level. And you kind of saw the contribution that's coming from the U.S. versus the Canada side or Other North America side of things, approximately 17% organic growth in EBITDA expected in the U.S. segment and basically flat from the Other North America Modular segment. From a seasonality perspective, the topline is pretty steady here. So as you kind of go into next year from a year-over-year perspective, what you're really going to see is the inclusion of Acton in the results and the steady build of leasing revenue in the U.S. coming from our Unit on Rents pricing and new value-added products run-rate. So I don't see a lot of seasonality in the topline in the business. I did note in my remarks, there is some seasonality in terms of EBITDA that drops through. As activity levels kind of slowdown in Q4, you're incurring less cost through the branch network, materials, direct labor, that type of thing, which allows EBITDA to kind of spike a bit in Q4. Now that starts to reverse itself in Q1 and early Q2, as we start investing into kind of the busy season. So more direct costs in the branches, we'll incur some incentive related then sales comp costs in Q1 this year. But from a seasonality perspective, that's really the primary dynamic that we see. With that, maybe, Brad, you want to comment on the end markets?

[Brad Soultz, executive]

Yes. As noted, Scott, in my prepared remarks, effectively, all of our end markets across most geographies are quite strong. If we contrast that to our 2018 outlook, overall, I expect a 4% to 5% growth year-over-year. We've been a bit more conservative as we've factored that into our 2018 outlook. I would note, we touched on infrastructure, that's largely not included in our 2018 outlook, given the uncertainty of timing, as well as quantity is still out there. We do expect, as that develops, it'll further underpin all of our markets and further strengthen the -- basically all of the end markets.

[Scott Schneeberger, analyst]

All right. I appreciate it. Follow-up question is -- has multiparts as well, but it's a little more straightforward. Could you just discuss a little bit the integration process of the 2 acquisitions thus far, with a feel for the cadence of the synergy over time and the synergy benefit over time? So just a kind of a feel for how long that's going to take. And is it going to be front-end or back-end loaded? And then the follow-up there is just, a feel for your M&A pipeline, and is that still something where you're active? How ripe is it right now? And that's all for me.

[Brad Soultz, executive]

Scott, thanks. So I'll touch on kind of the process, and then I'll let Tim confirm the synergies. So if you think about the 2 acquisitions, they're really 2 types. The Tyson Onsite acquisition is an indication or representation of a smaller independent acquisition. We acquired that, integrated it into our portfolio within 3 weeks, as noted before. Within that kind of space of independent operators, there're about 60 companies we track that are similar to a Tyson Onsite. As we look ahead, we see that pipeline developing quite nicely. We'd kind of guide towards doing a handful or maybe half a dozen a year of those just over time. So it's just a good practice. The Acton integration and acquisition was a bit more complex. We announced that acquisition in late December. We expect to have that integrated into our operations in the second quarter of this year, right? So I touched on before the branch overlap and the consolidation that's involved. But given the scalability of our operating platform, rolling the assets onto our business is pretty straightforward, as well as transferring over the employees, equipping them with our training and our pricing tools, et cetera, to basically expand our value proposition across the acquired assets. So I won't say it's easy, but it's fairly straightforward. We announced that acquisition just a few months ago, and we'll have it integrated in the second quarter. And I think that's a fair indication of the pace at which we could continue to acquire companies at the scale of Acton.

[Timothy Boswell, executive]

To follow up on that. In terms of the financial impact, and the cadence of the synergies, and when to expect that to start dropping through into our results. If you think about our guidance, we're going to start the integration in earnest. All the planning has been taking place through Q1. But the cutover to our systems is -- in our platform is really going to take place in early Q2. So that's really when I expect to see kind of the cost synergy realization begin. And we expect to have about $4 million reflected in our results in 2017. So action has been taken, and we actually recognized that savings in the year. About -- within 12 months of the beginning of the integration, so think about Q1 of 2019, action will have been taken, such that an additional $7 million of cost synergy should be in our run-rate by that time, totaling about $11 million of savings coming out of the integration. So the way to think about that is actions are going to be taken throughout the course of the remainder of this year. $4 million will flow through to the bottom line in year. And by Q1 of next year, the full synergy potential should be in our run-rate. And the reason for that tail, as you think about branch consolidation, real estate, that type of thing, there is a longer tail on executing those types of savings. The only other thing I would add is there is a upfront cost to implement those savings. Think of it as an investment to get that $11 million of recurring profitability. Think of that as about equal to or slightly greater than the magnitude of the cost synergies themselves. It's going to be a one-time cost we're starting to incur in Q1, more so in Q2. That will precede the synergy realization. So that will drop out of our adjusted EBITDA. When we report, we'll capture this as a restructuring of some kind. But from a cash standpoint, it will be an investment that we're making through the course of the remainder of the year.

[Brad Soultz, executive]

And Scott, I'll just -- without getting into specifics of the pipeline, I'll just remind folks that our organic trajectory, we feel has us on a path to double the company over 5 to 6 years. With our new balance sheet, we intend to accelerate that process through M&A. Our intent is to double the company without overpaying and without overlevering.

[Operator]

And our next question comes from the line of Kevin McVeigh from Deutsche Bank.

[Kevin McVeigh, analyst]

Just to follow up on that, Brad or Tim, can you just remind us what -- and I think I have the numbers, but I just want to make sure I'm -- what the total available liquidity would be to fund deals, if you think about some of the accordion feature on the debt, if you were to flex that. And then, Tim, you kind of mentioned the warrant. What would be the total amount of capital available to do deals?

[Timothy Boswell, executive]

Okay. Well, first, if you just think about the ABL as it sits today, as of 12/31, we had $281 million of available capacity on the $600 million facility. We do have the ability to upsize the facility by $300 million. And frankly, our borrowing base is supportive of that. So that would take you up to $581 million where we -- if we were to expand the ABL. You mentioned the warrants. If all public and private warrants were exercised, they have a strike of $11.50 a share, that would generate almost $400 million of proceeds. And then in addition to that, obviously, there is the opportunity to tap to debt and equity markets as necessary, but obviously, there's quite a lot of dry powder there for our -- to support our M&A pipeline. Does that answer your question, Kevin?

[Kevin McVeigh, analyst]

Yes. Tim, very helpful. And then just, where are we, because you folks are obviously seeing a lot of success in terms of VAPs. Where are we in that implementation? And as you kind of integrate Acton into that, how does that factor into kind of the VAPs implementation, number one? And when did Acton get up to kind of the blended corporate pricing?

[Brad Soultz, executive]

Yes. So I'll take that in a few bits. This is Brad. So I think the VAPs, if we think of our organic business first, we believe we're supplying this Ready to Work solution in about 40% of our delivered units, okay? So we think, over time, we can double that penetration to about 80%. So if you're going to use a baseball analogy, maybe we're in the third or fourth inning of that, with significant further upside. If you think about acquiring businesses like Tyson or Acton, generally, they have not been supplying the Ready Work solution (sic) [ Ready to Work solution ]. Their VAPs performance is more akin to where we were back in 2013 -- 2014 timeframe. It's -- the platform itself is directly applicable to the new assets. As you look forward and ask how soon would you realize that, there is really only 2 factors. One is, you've got new customers that you have to basically establish their comfort with this value proposition. We found that is a quite a compelling story and moves along quite nicely. The other counter to that is the long-lived assets with their 3-year average lease duration, right, basically puts us in the position whereby it takes 3 years for the lease portfolio to fully roll. So if you acquire a business today that has assets with a low level of VAPs, we'll start delivering at a higher levels quickly, but it will take 3 years for that performance to roll through and be fully realized in the average rates of the acquired fleet. Does that answer your question, Kevin?

[Kevin McVeigh, analyst]

It does. Very helpful. And then just one last one. I'll get back in the queue. As you do these kind of Acton deals and Tyson, does it help kind of liquidity overall in terms of do you intend to sell more of those units? So as you think about funding CapEx, I know it's a net number. Or does that not really factor into the thought process as you're doing these deals?

[Timothy Boswell, executive]

Kevin, this is Tim. Think about the used sale proceeds just scaling up proportionally. There is no fundamental strategy around liquidating fleet. And as you know, over the past few years, we've seen very interesting opportunities to refurbish our older fleet and grow Units on Rent in a more capital efficient manner than buying new units. So we can refurb 3 or 4 units for the cost of 1 new. So when we look at a target asset like Acton that was operating in the high 60s in terms of utilization, you'll see our pro forma utilization, Q4 actually dipped relative to the Williams Scotsman's 75% in the U.S. Modular Space fleet. That's actually a good thing. So now we've got more idle fleet we can look at, redistribute across the branch network. And I would rather refurbish some of those older idle assets to the extent that are out there than liquidate and buy new. So that's how we're thinking about it. And there is a capital synergy that we think about when we're looking at a target company.

[Operator]

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

[Sean-M Wondrack, analyst]

I'll start with the follow-up on that last line of questioning. Obviously, these acquisitions look to be very creative for you. Talking about a half dozen per year, I'm not sure if you mentioned it, did you say the kind of multiple you're looking for when you make these acquisitions?

[Brad Soultz, executive]

So this is Brad, I want to clarify that point. So we talked about is, within this market, about 1/3 of the supply are comprised of smaller independent operators. Tyson was an example of one of those. So these are typically family-owned businesses, operating in 1 or maybe 2 cities, right? So within that portfolio of 60 companies, we've been sidelined given our relatively high leverage under the former parent company, but now we're just actively, but patiently kind of developing the pipeline. And I had guided towards doing maybe a half a dozen, a handful or half a dozen of those a year. So those are just the smaller -- consider it like a little tuck-in acquisition.

[Sean-M Wondrack, analyst]

Right. And then do you have any LOIs or letters of intents outstanding for any of these acquisitions?

[Timothy Boswell, executive]

Yes, we're not going to disclose the status of the deal pipeline. It's suffice to say it's part of the strategy, we're capitalized to execute. But for probably obvious reasons, we're going to keep the details unannounced.

[Sean-M Wondrack, analyst]

Fair enough. When you think about your leverage target of about 4x, and we're really back into the EBITDA there, it seems that if you hit your leverage target at current debt levels, you would be -- you would end up around like 3.7x, call it, next year. Would you expect, as you continue to acquire to maybe put in place some more permanent debt to fund these acquisitions, so you have the ABL as dry powder?

[Timothy Boswell, executive]

Yes. That's absolutely a consideration. And your observation around the deleveraging of the business that we expect is spot on. It's primarily ratio deleveraging based on the EBITDA and capital guidance that we've given for this year, but deleveraging nonetheless. And absolutely, we will be opportunistic in terms of putting in place more long-term structure to free up ABL capacity as necessary. Right now, between the $280 million on the ABL and the ability to upsize the ABL, there is not like an immediate need, but it's certainly something that we'll be looking at.

[Sean-M Wondrack, analyst]

Right. Okay. I'll ask one more, and I'll hop back in queue. Recently, we had the news about the 25% steel tariffs. Clearly, your units are -- some of the composition is steel, some units are I think, I believe, completely steel. Between sourcing them offshore, and I know most of this is sourced onshore, but do you expect to have any potential input costs inflation? And do you think you'd be able to cover that by passing that along to the customer? Or what are your thoughts around that?

[Timothy Boswell, executive]

I'll start and I'll let Brad chime in. And I think the punch line is probably a little too soon to say in terms of how all these impacts flow-through. To the extent there is a resurgence of the domestic manufacturing activity and all that, it could help the topline, but we'll see. In the terms of our input costs, let's break it into kind of fleet maintenance activity versus new fleet purchases. Then the third impact, maybe on the margins, we're able to generate on selling containers and that type of thing. In terms of maintenance activity, steel is not a real big input. Think about when we're refurbishing a unit, its traditional building materials are really what we're consuming in terms of our refurbishment spend. If you think about a traditional modular office that we're buying, yes, indeed, the building sits on a steel chassis. And the overall building cost depending on the size of the unit, it could range from $20,000 to $40,000. The chassis is kind of $2,000 to $3,000, again, depending on size. So yes, there's a steel input there. But in terms of the overall cost of the unit, it's -- we are talking 10% or less of the overall product cost. You did reference our steel frame units that we are shipping in from China. Certainly, an impact there, but that product is also positioned as a premium offering. So probably, pretty confident in our ability to pass through costs in that particular area. And then, again, too soon to say, but to the extent that container prices and lease rates are rising, that could be a good thing, both in terms of rental revenue and used sales margins, albeit on a very small portion of our overall fleet and net book value. So all that said, probably too soon to say how that all shakes out, but that's my sense. Brad?

[Brad Soultz, executive]

Yes. I would just add that I'm neither excited or concerned about these. As Tim said, they need to play out. Just a few facts from Slide 3. So our containers and our ground-level offices only represent 6% of our net book, right? So the majority of our fleet is VAPs and these modular offices, which have a quite small concentration of steel, mainly in the sub frames. So -- and effectively, I think our results prove that these are quite effective markets, such that, over time, we'll be effective at passing along any increases we might realize.

[Operator]

Our next question comes from the line of Dan Stratemeier from Jefferies.

[Dan Stratemeier, analyst]

First of all, I just want to say congratulations on the reemergence, and congratulations on this great first quarter out of the box. It's a no small undertaking. You guys deserve to be applauded for that. If you can give us -- I know you mentioned in the prepared remarks a little bit more of an update on now that we're almost all the way through the first quarter, how business trends are, understanding that the fourth quarter is seemingly your strongest quarter? And then maybe in particular, can you talk a little bit more about pricing? It looks pretty strong. Where is it year-o-year and maybe relative to how the fourth quarter ended?

[Brad Soultz, executive]

Maybe I'll touch on the rate bit, and then will let Tim take you through the seasonality. So we'd mentioned before the U.S. Modular segment, which is really -- has been driving our growth and will continue to do. Rates are up 10% year-over-year. It was 10.2%, to be precise. If you think about the drivers behind that, this VAPs, value proposition that was mentioned before is the significant driver. I think I'd referenced on a question earlier in the call. We believe we're supplying about 40% of our delivered units. Now with this kind of Ready to Work fully-furnished value proposition, we believe we can double that penetration over time. And then, as I noted before, as that takes a few years to roll through the fleet, we see that continuing to provide significant upside in the rates.

[Timothy Boswell, executive]

Dan, this is Tim. From my perspective, not seen anything today that's dramatically different than what we were seeing from a market performance standpoint in Q4, so that's a good thing. In terms of the seasonality, we touched a little bit on it in the prepared remarks as it relates to just EBITDA flow-through. So I would expect I think, in the U.S. Modular segment, we had a 31% adjusted EBITDA margin in Q4. Typically, Q1 is a lower adjusted EBITDA percentage, so think about that dropping down to the high 20s, consistent with prior years. So that's one change that I would guide towards in Q1. The other change, as I mentioned in the Other North America segment, which is we had a big sale project, so sales -- the bulk of our profitability is coming from the leasing operations, but we do sell new and used units, and that can be a bit lumpier. So we did have one major sale project in Q4 that generated over -- about $1.6 million of gross profit, which will not recur in Q1. So you'll see actually a quarter-to-quarter decline from the Other North America Modular segment, nothing concerning there. It's just a function of how the sales kind of ebb and flow. And as you saw, the leasing metrics in the Other North America segment are quite stable with sequential improvement in Units on Rent. So does that answer your question?

[Dan Stratemeier, analyst]

It does, great. And a quick follow-up on that, Brad. You said a 40% of units deliver now. You said it could take up to 80%. I assume that is ex Acton?

[Brad Soultz, executive]

Yes. That's prior to Acton, right? So that was kind of the Williams Scotsman legacy organic platform. I think we touched on before, the Acton assets were quite light in VAPs penetration, so we'll be accelerating that in accordance with continuing the growth on the legacy fleet.

[Dan Stratemeier, analyst]

Great. And there's been lot of questions obviously as to M&A. If I can ask just one in particular. Is there a specific region or geographic exposure that you're looking to expand and maybe you're focusing your time on more than other reasons, or just when things come up, you're just sort of cycling them all through?

[Brad Soultz, executive]

I would say, broadly, the U.S. markets are most interesting to us. Certainly, Canada and Mexico is and can be as well. But that's -- given our scale and the robust markets in the U.S. today and the fragmented supply side, we just think it's a quite interesting space for us.

All right. With that, folks, I'd like to thank you for taking the time to join us for our first earnings call, and we look forward to seeing many of you in the near future. Thanks, and have a great day.

[Operator]

Ladies and gentlemen, thank you for your participation in today's conference. This does concludes the program, and you may all disconnect. Everyone, have a great day.