The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understandWillScot Corporation ("WillScot"), our operations and our present business environment. Unless the context otherwise requires, "we," "us," "our" and the "Company" refers to WillScot and its subsidiaries. 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 I, Item 1 of this report. The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the US ("GAAP"). We use certain non-GAAP financial information that we believe is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects. This information is also used by management to measure the profitability of our ongoing operations and analyze our business performance and trends. Reconciliations of non-GAAP measures are provided in the Other Non-GAAP Financial Data and Reconciliations section. OnDecember 31, 2019 , the 2019 financial statement amounts were adjusted for the adoption ASU 2016-02, Leases (Topic 842) ("ASC 842"), effective retroactively toJanuary 1, 2019 , and therefore may not agree to the Quarterly Reports filed on Form 10-Q for the respective periods of 2019. Executive Summary and Outlook We are a leading provider of modular space and portable storage solutions inthe United States ("US"),Canada andMexico . As ofMarch 31, 2020 , our branch network included approximately 120 locations and additional drop lots to service our more than 50,000 customers across the US,Canada andMexico . We offer our customers an extensive selection of "Ready to Work" modular space and portable storage solutions with over 125,000 modular space units and over 25,000 portable storage units in our fleet. Equipment leasing is our core business. 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 Modular Lease Revenue is highly predictable due to its reoccurring nature and the underlying stability and diversification of our lease portfolio. Our average minimum contractual lease term at the time of delivery is over 11 months. However, given 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 is 34 months. 22
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We remain focused on our core priorities of growing modular leasing revenues by increasing modular space 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. 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. We track several market leading indicators including those related to our two largest end markets, the commercial and industrial segment and the construction segment, which collectively accounted for approximately 83% of our revenues in the three months endedMarch 31, 2020 . Significant Developments Pending MobileMini Merger OnMarch 2, 2020 , we announced that we entered into an Agreement and Plan of Merger with Mobile Mini, Inc. ("Mobile Mini"). The pending merger with Mobile Mini is subject to customary closing conditions, including receipt of regulatory approvals and stockholder approvals from the Company's and Mobile Mini's stockholders. We are working collaboratively with our counterparts at Mobile Mini to satisfy these closing conditions and plan the integration of the two businesses with the expectation of closing in the third quarter of 2020. We believe that the merger will result in strategic and financial benefits by combining the two industry leaders in the complementary modular space and portable storage solutions markets. COVID-19 Impact on Business During the three months endedMarch 31, 2020 , financial results for our operations were not significantly impacted by the COVID-19 outbreak as we are considered an essential business in most jurisdictions and as such have continued to operate normally with additional safety protocols in place. However, there have been significant changes to the global economic situation as a consequence of the COVID-19 pandemic, and since the declaration by theWorld Health Organization onMarch 11, 2020 of COVID-19 as a global pandemic, our operations have been adversely impacted and we expect our financial results may be adversely impacted in the future. The global pandemic is resulting in significant global social and business disruption, and in response we are modifying the way we communicate and conduct business with our customers, suppliers and employees. The following summarizes many of the key actions we have taken in response to the pandemic. Employee Safety and Health The Company has implemented various employee safety measures to contain the spread of COVID-19, including domestic and international travel restrictions, the promotion of social distancing and work-from-home practices, extensive cleaning protocols, daily symptom assessments, and enhanced use of personal protective equipment such as masks. We are closely monitoring all guidance provided by public agencies such as theCenters for Disease Control and Prevention in the US or thePublic Health Agency of Canada to ensure the safety of our employees, vendors, and customers as our top priority. Sales and Leasing Operations The Company is responding to shelter-in-place and similar government orders, which vary significantly across our geographic markets. As a result of the shelter-in-place orders and increased social distancing, some of our markets, such as special events and sports and entertainment, have experienced immediate reductions in demand for new projects. Other sectors such as health care have seen increased demand, and other sectors such as construction have remained active but with varying degrees of project disruption. We are also responding to demand across our end markets from customers in need of additional office space to facilitate social distancing. As the Company serves many critical sectors of the economy, the Company will continue to help support customers who remain operational, as well as those who are actively engaged in the COVID-19 response. We believe that our branch locations are considered essential businesses in most jurisdictions and as such have continued to operate normally with the aforementioned safety protocols in place, while our customer service and sales teams are working closely with customers to meet current demand. The impact on future demand for new projects will depend greatly on the degree and duration to which governments restrict business and personal activities going forward and when businesses resume normal operations. Cost Reductions In anticipation of a potential decline in demand for new projects, the Company has implemented a range of actions aimed at temporarily reducing costs and preserving liquidity. These actions include suspending previously planned compensation increases for its corporate and shared services employees until the third quarter of 2020, putting a temporary freeze on hiring, significant planned reductions to overtime and external variable labor costs, and significant reductions in other discretionary spending including marketing, travel and entertainment, outside professional fees and other aspects of the business. Reduced demand for new projects allows the Company to reduce or delay capital spending, including new fleet purchases, refurbishments of existing equipment, and improvements to branch infrastructure. The Company monitors new project demand on a daily basis, and given the flexibility in our cost structure, can adjust costs and capital spending rapidly to align with demand levels. 23
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First Quarter Highlights For the three months endedMarch 31, 2020 , key drivers of financial performance included: •Total revenues increased by$2.1 million , or 0.8%, as compared to the same period in 2019, driven by a$12.2 million , or 5.4% increase in our core leasing and services revenues primarily due to pricing growth, partially offset by lower units on rent. Increases in our core leasing and services revenues were partially offset by new and rental unit sales which decreased by$5.2 million , or 35.1% and by$4.8 million , or 41.4%, respectively, driven by higher demand in 2019. -Consolidated modular space average monthly rental rate increased to$653 representing a 13.6% increase year over year. -Consolidated average modular space units on rent decreased 5,320 or 5.7% year over year, and average modular space utilization decreased 320 basis points ("bps") year over year to 69.2%. •Modular - US segment revenues, which represented 91.4% of revenue for the three months endedMarch 31, 2020 , increased by$3.7 million , or 1.6%, as compared to the same period in 2019, through: -Modular space average monthly rental rate of$659 , increased 14.2% year over year. Improved pricing was driven by a combination of our price optimization tools and processes, as well as by continued growth in our "Ready to Work" solutions and increased VAPS penetration across our customer base. -Average modular space units on rent decreased 4,961, or a 5.9% year over year decrease. -Average modular space monthly utilization decreased 330 bps to 71.5% for the three months endedMarch 31, 2020 , as compared to the three months endedMarch 31, 2019 . •Modular - OtherNorth America segment revenues which represented 8.6% of revenues for the three months endedMarch 31, 2020 , decreased by$1.5 million , or 6.4% as compared to the same period in 2019. Decreases were driven primarily by decreased new and rental unit sales and decreased modular delivery and installation revenues which decreased by$1.4 million , or 34.1%, and by$0.5 million , or 12.5%, respectively, driven by higher demand in 2019. These decreases were partially offset by net increases in modular leasing revenues through: -Average modular space monthly rental rate increased 8.7% to$600 . -Average modular space units on rent decreased by 359 units, or 4.1% as compared to the same period in 2019. -Average modular space monthly utilization decreased by 230 bps as compared to the same period in 2019 to 52.8%. •Generated consolidated net loss of$3.7 million for the three months endedMarch 31, 2020 , which included$12.7 million of discrete costs expensed in the period related to acquisition and integration activities, including$9.4 million of transaction costs related to the announced Mobile Mini merger,$1.7 million of integration costs, and$1.6 million of lease impairment and other related charges and restructuring costs. •Generated Adjusted EBITDA of$89.5 million for the three months endedMarch 31, 2020 , representing an increase of$6.1 million or 7.3% as compared to the same period in 2019, which includes continued realization of commercial and cost synergies associated with the ModSpace acquisition. Adjusted EBITDA for the Modular - US segment and the Modular - OtherNorth America segment, respectively, was$81.7 million and$7.8 million for the three months endedMarch 31, 2020 . •Generated Free Cash Flow of$7.8 million for the three months endedMarch 31, 2020 , representing an increase of$34.4 million as compared to the same period in 2019, as net cash provided by operating activities of$38.3 million was reinvested primarily in value added products and fleet refurbishments to support growth of modular leasing revenues (net cash used in investing activities of$30.5 million ). 24
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