WSC: Acquisitions Hide a Collapsing Core
The company aggregates new products into legacy segments. As we show, doing so helped conceal the catestrophic collapse of the legacy storage business.
The disclaimer here and in the report is important and should be read.
WSC is a tale of two businesses: the legacy Modular and Portable Storage (PS) segments, and newer businesses, including Clearspan, tents and Temperature-controlled Storage (TCS). These businesses should be reported separately, in our view, but they are not. WSC combines new products with the legacy segments, the primary impact of which is to fill financial holes and mask the rate of decline in the underlying legacy business.
Cash flow holes are not really filled – it is financial whack-a-mole. EBITDA decline created by collapsing legacy businesses is reduced, but the financial hole shifts onto the cash flow statement in the form of acquisition and elevated CapEx expense and balance sheet as increasing debt.
To illustrate, we stripped-out the impact of TCS acquisitions to reveal the underlying decay in the legacy PS business. We estimate total segment revenue ex-TCS has eroded ~$207M and segment EBITDA is down ~-$150M annually. Approximately 16% of WSC’s EBITDA has simply vanished.
Disaggregating the business shows a clear picture: the performance of the dying legacy business is obfuscated by the tactical acquisition/funding of adjacent businesses and elevated CapEx.
FULL REPORT HERE:
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