WillScot Corporation (WSC) CEO Brad Soultz on Q4 2019 Results - Earnings Call Transcript

WillScot Corporation (NASDAQ:WSC) Q4 2019 Earnings Conference Call March 2, 2020 8:00 AM ET

Company Participants

Matt Jacobsen - Vice President, Finance

Brad Soultz - President and Chief Executive Officer, WillScot

Tim Boswell - Chief Financial Officer

Kelly Williams - President and Chief Executive Officer, Mobile Mini

Conference Call Participants

Scott Schneeberger - Oppenheimer

Ross Gilardi - Bank of America

Kevin McVeigh - Credit Suisse

Courtney Yakavonis - Morgan Stanley

Phil Ng - Jefferies

Greg Bardi - Barclays

Alex Maroccia - Berenberg

Brent Thielman - D.A. Davidson

Operator

Good morning, ladies and gentlemen and welcome to the WillScot Mobile Mini Merger Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to your host Mr. Matt Jacobsen.

Matt Jacobsen

Thank you and good morning. Before we begin, I would like to remind you that comments made by management teams of both WillScot and Mobile Mini may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These such forward-looking statements are subject to the Safe Harbor rules. 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 WillScot’s 2019 Form 10-K that will be filed with the SEC today. 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 our actual results to differ materially from these statements. We assume no obligation and do not intend to update any such forward-looking statements. The press release we issued earlier this morning and the presentation for today’s call are posted on the Investor Relations website for WillScot and Mobile Mini. A copy of the release will also be included in an 8-K submitted to the SEC. We will make a replay of this conference call available via webcast on the company website for WillScot and Mobile Mini. 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 tables and slide presentation accompanying today’s earnings release. Lastly, this morning WillScot is filing its 10-K with the SEC for the year ended December 31, 2019. The 10-K will be available through the SEC or on the Investor Relations section of the WillScot website.

Now with me today I have got Brad Soultz, President and CEO of WillScot; Tim Boswell, CFO of WillScot; and Kelly Williams, President and CEO of Mobile Mini. On today’s call, they will provide an overview of the announced transaction and a strategic and financial rationale. The WillScot team will then briefly discuss the company’s fourth quarter and full year performance as well as guidance for fiscal year 2020. The call will then be opened up for questions.

With that, I will turn the call over to Brad.

Brad Soultz

Thanks, Matt and good morning everyone. We are extremely excited to speak with you today about an exciting transformational merger of equals between WillScot and Mobile Mini, which we announced earlier this morning as well as share WillScot’s outstanding fourth quarter results in which the company continued strong organic growth, cost synergy realization and delivered $44 million of free cash flow. As we have navigated and grown WillScot through transactions with ModSpace, Acton and Tyson, we knew the next goal and our long-term strategy was to solidify our portable storage capabilities in a way that would appropriately complement our existing modular space fleet. Mobile Mini has continually proven itself to be a leader in the portable storage solutions with a rental fleet of approximately 200,000 units across 156 locations in the U.S., UK and Canada.

As we conducted due diligence, our excitement about Mobile Mini in the opportunity, the strategic combination and the value we believe will be created for both sets of stockholders has only increased. The combination of our two great companies will create a leader in the broader specialty leasing industry with combined 2019 revenues of $1.7 billion and combined 2019 adjusted EBITDA of approximately $650 million, including the expected $50 million in cost synergies from this transaction. This combination is truly transformative and while I will dive into the rationale behind this deal in more detail shortly, I would like to highlight the most important driver behind the combination and that’s the complementary nature of our businesses. Together, WillScot’s modular space solutions and Mobile Mini’s portable storage solutions along with the combined company’s geographic footprint will enhance the scope and the reach of our value propositions that we bring to our collective customers. Equally as important, each company has predictable lease revenues, long-lived assets and attractive unit economics, all of which drive long-term growth and value creation for our stockholders. I am extremely confident together WillScot and Mobile Mini will not only create value for both customers and stockholders, but also continue to be a great place for our employees to work.

Moving to the next slide, I would like to summarize the specifics of the transaction. We have structured this deal in an all-stock merger of equals whereby Mobile Mini stockholders will receive $2.4050 WillScot shares of WillScot common sock for each share owned for a combined equity valuation of approximately $4.1 billion and an enterprise value of approximately $6.6 billion as of today’s announcement. Under the terms of the deal, WillScot stockholders will own approximately 54% and Mobile Mini stockholders will own approximately 46% of the combined company.

Now, after the deal closes, I will continue to serve as the Chief Executive Officer of the combined company and I am excited to have Kelly Williams serving as the President and Chief Operating Officer and Tim Boswell serving as the Chief Financial Officer. Eric Olson, the current Chairman of the Board for Mobile Mini will serve as the Chairman of the combined company’s board and Gerry Holthaus, current Chairman of the Board for WillScot will serve as the lead independent director. Composition of the board will consist of 11 members in total with 6 members from WillScot’s, 5 members from Mobile Mini’s current boards of directors. We will provide a deeper dive into our thoughts on synergies later, but it’s worth highlighting that we anticipate $50 million in annual pre-tax cost synergies from this transaction and expect to generate in excess of $290 million in combined free cash flow in 2020.

Again, the structure of the deal, expected adjusted EBITDA of approximately $650 million, including those cost synergies, net leverage at close is expected to be 3.8 turns and we expect rapid deleveraging given the cash flow profile of the combined company thereafter. The transaction, which has been approved by both boards of directors is expected to close in the third quarter of this year. In addition to both company’s boards, we also have the support of WillScot’s largest stockholder, TDR Capital. TDR has entered into a customary voting agreement in support of the combination and we will have a lockup period of 6 months. Further in the first year, post lockup, TDR will be prohibited from selling more than 50% of its shares subject to this exchange agreement.

Moving to Slide 7, as mentioned, this transaction is routed in compelling strategic and financial rationale, which were solidified greatly over the course of our due diligent process. Importantly, it’s worth reiterating, WillScot and Mobile Mini are truly complementary businesses. Our fleets and markets, geographic footprints and customer bases, while each unique together provide a one-stop shop for both the office and storage needs of our collective customer base. Upon close combined company will have over 360,000 unit strong fleet of modular space and portable storage units, in addition to over 275 operating locations across the United States, Canada, United Kingdom and Mexico. The complementary nature of our business will ultimate translate into more powerful solutions and enhance services for our customers as well as strong diversified recurring revenue streams that create value for our stockholders. Each company has predictable leasing portfolios, providing opportunities to drive significant recurring revenue. For both companies, the average life of our assets is over 20 years and the average lease durations are over 30 months with over 90% of our total revenue coming from these long duration leases.

Shifting to the financial rationale underpinning this transaction, which is equally as compelling. As I mentioned briefly, we have identified $50 million in annual pre-tax cost synergies in addition to upside from revenue synergies from cross-selling and customer pull-through for modular space solutions to portable storage solutions and vice-versa. All things considered, we expect greater than 10% accretion of free cash flow per share for both sets of shareholders. The combined company will benefit from a strong balance sheet and robust free cash flow generation that can be used to decrease leverage for organic growth opportunities and work to explore further inorganic growth opportunities. More specifically, upon full realization of the cost synergies, we expect the combined company to generate approximately $500 million in annual free cash flow. Both WillScot and Mobile Mini have proven track records of profitable growth. And together, they are even better positioned to generate stockholder value.

With that, I am pleased to turn it over to Mobile Mini’s CEO, Kelly Williams.

Kelly Williams

Thanks, Brad and good morning, everyone. We, at Mobile Mini, could not be more excited to partner with Brad, Tim and the entire WillScot team. We have had the opportunity to work very closely with Brad and his team over the past several weeks and believe we share similar cultures and strategic visions. We look forward to growing a combined business as we leverage each other’s resources, best practices, industry knowledge and the diverse skills of our employees.

As Brad touched on briefly, this combination brings together two North American leaders, one in modular space solutions and the other in portable storage solutions to create a premier North American specialty leasing platform. Together, we will operate a robust rental fleet consisting of over 360,000 units producing predictable revenue streams with compelling unit economics. Importantly, WillScot shares our commitment to being the company of choice for employees, customers and stockholders. Our collective employees will have the opportunity to be part of and contribute to the foremost specialty leasing company and our industry and customers will benefit from a broadened footprint, fleet and suite of products and solutions.

Moving to Slide 9, this transaction will combine two complementary fleets, each with an existing and impressive scale on its own. At Mobile Mini, we have a fleet of over 210,000 units consisting of predominantly steel storage containers and ground level offices. On its own, WillScot has over 150,000 units in its fleet consisting primarily of modular office solutions. Together, as of the end of year 2019, we would operate a combined fleet of over 360,000 units enhancing the scale of our offering and the diversity of our already attractive end market exposure. More specifically, with combined 2019 revenue of $1.7 billion, the combination remains ideally positioned to further penetrate and service attractive end markets.

As shown on Slide 10, our end market focus remains well diversified within the larger industrials universe that has continued to drive strong demand for our solutions. With expectations for continued favorable economic conditions across North America, limited customer concentration and improved fleet diversity, we anticipate impressive levels of continued growth. Our expectations are supported by several indicators, including the ABI, which has been a strong leading indicator of non-residential construction activity that has remained above 50 for 9 of the last 12 months. Further, non-residential construction starts on a square foot basis continued to remain stable with current levels in line with long-term averages and the U.S. and Canadian 2020 GDP forecast, remains stable between 1.5% to 2%. Lastly, we would expect that any substantial U.S. infrastructure spending builds would further underpin and strengthen our diverse end-markets.

Taking a more granular look at the partnership on Slide 11, the combination will yield a fleet with a net book value of approximately $3 billion with well balanced end market exposure, limited customer concentration and an impressive geographic footprint in the North American market. Based on our individual full year 2019 EBITDA contributions and including the $50 million of anticipated run-rate cost synergies, we estimate that combined company would have generated approximately $650 million in 2019 adjusted EBITDA representing incredibly strong margins of 39%. And with confidence in our ability to generate strong organic growth and to execute successfully on a cross-selling opportunities we believe we can enhance our already attractive recurring revenue model and further improve our margin profile.

To that end, Slide 12 provides a great visual demonstration of just how broad our combined footprint will be. With branches in almost every major city in North America, we will be ideally positioned to meet the evolving needs of customers and benefit from the expansion of Mobile Mini’s managed service and WillScot’s ready-to-work service offerings. On that front, we have over 275 locations that we can target explicitly for revenue up-sell. Further, we will have a leading position in North American specialty leasing market and be a premier one-stop-shop for customers seeking modular space or storage solutions. By combining our fleets, our offering becomes more strategic and valuable to customers, the diversity of our portfolio improves and we enhanced the scale and profitability of two already strong recurring revenue portfolios. At Mobile Mini, we pride ourselves on customer focus driven by our leading edge technology platform. Brad and I plan to drive value across the combined company by leveraging this core competency for the benefit of all stakeholders. We very much look forward to working with the WillScot team and successfully executing on the integration process, while bringing together best practices from both of our great organizations.

With that, I will hand the call over to Brad to discuss further plans for a successful integration and sources of synergies.

Brad Soultz

Thank you, Kelly. On Slide 13, we have laid out our initial roadmap to the successful integration of these two great organizations. As we have seen with our successful ModSpace, Acton and Tyson integrations, careful planning goes a long way towards executing the seamless integration. Beginning with an in-depth joint assessment of integration planning to occur prior to close, we will outline within IT, back office, commercial and field arms, detailed integration plans to achieve the $50 million identified cost synergies. Included in the integration planning processes prior to close will be both WillScot and Mobile Mini’s executive teams, key functional leaders across both organization and those throughout organization will have a heavy hand in implementation, all supplemented by our third-party advisers, which we have worked with on the prior integrations. Our initial estimates indicate that we should capture approximately 80% of these synergies in our run-rate by year two post deal close with approximately 30% captured in our run-rate one year post close.

Turning to Slide 14, while there is certainly a lot of work to be done to ensure successful integration, our proven and tried integration model, WillScot, provides us with the confidence we will be able to achieve our objectives and create this value. In fact, in line with synergy estimates provided at the time of the announcement, WillScot is on track to deliver approximately $70 million in cumulative cost synergies from its prior ModSpace, Acton and Tyson acquisitions. Starting on the left, we have already realized $11 million of cost synergies from Acton and Tyson, the same figure identified at deal announcement.

Shifting to ModSpace, we have realized approximately 75% of the associated cost synergies in our run-rate in the fourth quarter 2019, $31 million of which are in our LTM results. Other than some remaining real estate related optimization and fleet relocation, the ModSpace integration is complete, which is at or ahead of our original schedule. Tremendous effort went into effectively safely integrating these companies over the last several years and we look forward to bring in those best practices in the skills learned to this combination.

Now, let’s turn to the Slide 15 and dig a bit deeper into the synergy opportunity. I would like to emphasize these are cost synergies only. We have broken down clearly identified hard cost savings in three high level categories on the left side of the page that comprise the $50 million. The three categories are back office optimization, field optimization and other efficiencies within SG&A all relate to modifying our operations, footprint, real estate holdings to ensure we are operating as lean and efficiently as possible post combination without of course sacrificing any of our customer value proposition. For the right side of Slide 15, the largest of those cost synergies approximately $20 million will be realized through consolidation of the back office process, the remaining $30 million or so will be realized through eliminating any redundancies in real estate and facilities, logistics optimization and other field optimization as well as other back office savings with SG&A as we streamlined internal function and reduce the overlap of various professional fees. Based upon discussions today with WillScot and Mobile Mini, preliminarily vetted by third-party consultant firms and our experience with complex integrations, we are very confident in achieving this cost synergies target. Beyond these clearly identified cost synergies, there are other areas identified as potential sources of further cost synergies, including sourcing and procurement, further logistics optimization and among others that would serve to both de-risk the $50 million as well as provide additional upside as this integration plays out. All-in, to realize the full value of the cost synergies identified, we expect to incur one-time cost of approximately $75 million.

Moving to Slide 16, perhaps the most exciting aspect to this combination is the opportunity to capture incremental upside from the revenue synergies from cross-selling and customer pull-though. WillScot and Mobile Mini are both unique and that they have individually developed specific service offerings to ensure customers’ needs are fully met. Through it’s ready-to-work solutions, WillScot offers value-added products and services what we refer to as VAPS, in the form of turnkey solutions, for example, steps, ramps and furniture rentals to offer customers flexible, low cost timely solutions to meet their space needs. Through Mobile Mini service offering, it ensures its customers get their project sites quickly up and running by supplementing its products with other third-party re-rented products as a one-stop shop.

We anticipate significant opportunities for this cross-selling and customer pull-through from modular to storage and vice-versa as we begin marketing our combined offering. As one example, even by just expanding the WillScot’s ready-to-work service offering and other VAPS to Mobile Mini’s approximately 30,000 ground level offices, we expect an additional $35 million of potential EBITDA to be generated as that fleet churns over the next 3 years. Lastly, beyond our service offerings, we plan to achieve further competitive differentiation through this combination by way of cross application of commercial best practices. Both companies have complementary yet distinct proven methods of achieving operational excellence. We look forward to strengthening our combined practices to further optimize yield management and ensure strategic account penetration and to boost the productivity and effectiveness of our sales force.

With that, I will hand the call over to Tim who will walk through some additional financial details on the combination and then share our outstanding financial results that WillScot announced this morning.

Tim Boswell

Thank you, Brad. Turning to Slide 17, I would like to discuss our improved combined 2019 balance sheet and strong combined 2020 free cash flow outlook and then briefly share the highlights of our fourth quarter and full year 2019 performance at WillScot. As we had expected for some time, Q4 2019 was a pivotal quarter for WillScot in which we delivered a strong inflection to substantial free cash and net income generation with approximately $44 million of free cash flow generated in Q4. WillScot is carrying this trajectory into 2020 and coupled with Mobile Mini’s history of consistent free cash generation, we expect the company to generate approximately $290 million of free cash flow in 2020 on a combined basis.

As Brad mentioned, after funding organic growth initiatives and executing cost synergies, we believe the combined business can generate approximately $500 million of free cash flow annually which creates a broad degree of capital allocation flexibility. Both companies are deleveraging rapidly on a standalone basis through both growth and debt reduction and we expect this deleveraging capability will be enhanced with the merger. Assuming a closing in Q3, we expect the combined company to have approximately 3.8 times leverage at closing and approximately 3.5 times leverage by year end given the strong free cash flow characteristics.

Our improved balance sheet, coupled with the ability to generate stronger free cash flow, provides our company with significant financial flexibility to drive long-term stockholder value. More specifically, we will use our strong balance sheet and robust free cash flow to invest in organic growth initiatives, continue to de-lever our balance sheet, make accretive bolt-on acquisitions and evaluate methods to return capital to stockholders in the future. As Kelly mentioned, the fleets of the companies are highly complementary both from the customers’ perspective and in terms of their unit economics. The $2.9 billion combined fleet net book value comprised of assets with average useful lives greater than 20 years gives us a high degree of discretion around capital expenditures, the ability to flex free cash flow in all market environments and to support our capital allocation priorities. I would next like to take a few moments to discuss WillScot’s fourth quarter and full year results and our 2020 outlook which we had expected to highlight today and were frankly outstanding.

So turn to Page 18, in Q4, WillScot’s total revenue increased 8% year-over-year organically to $278 million reflecting solid growth in our core leasing and services revenue in the U.S. which also increased 8% versus last year. This increase in leasing and service revenue was entirely organic and driven by continued strong trends in pricing and value-added products and services. Modular space average monthly rental rates in the U.S. increased 15.1% versus the same period a year ago as we apply our price optimization tools and continue to penetrate the combined fleet with value-added products. Our fourth quarter adjusted EBITDA increased 33.6% year-over-year to $98.2 million as corresponding fourth quarter adjusted EBITDA margin expanded 670 basis points year-over-year to 35.3%. I will note that year-over-year growth in margin expansion was entirely organic as we delivered on all of our cost savings and cross-selling initiatives and it resulted in flow-through to EBITDA of over 120% in the quarter.

As we had committed, WillScot transitioned to substantial positive free cash generation in the fourth quarter with free cash flow of $44 million, up $64 million year-over-year. Operating cash flow ramped meaningfully in the fourth quarter as we head into 2020 driven by consistent top line growth throughout 2019 and the on-schedule realization of cost synergies coupled with the completion of cash integration costs, reduced interest costs and stabilization of our working capital. We use the surge in free cash flow in Q4 to repay debt. Net income also inflected positively in Q4 and we are excited to carry these strong trends in growth and profitability into 2020. Overall, 2019 was a transformational year for WillScot. We completed the ModSpace integration. We achieved our top line growth targets. We inflected the positive free cash and net income generation. We completed our transition to large accelerated filer status. And as I will discuss on Page 19, our Q4 EBITDA of over $98 million implies the trajectory that will support approximately 18% growth in 2020, another 300 basis points of margin expansion and approaching 3.5x leverage by year end 2020 on a standalone basis. We are incredibly proud of the WillScot team and the year they delivered.

Now as we turn to Slide 19, I would like to highlight our 2020 outlook that we initiated via press release this morning. We expect full year 2020 revenue of $1.1 billion to $1.2 billion and adjusted EBITDA of $410 million to $430 million driven by a continuation of the trends we have discussed now for several quarters. At the midpoint of our guidance ranges, we expect to deliver approximately 18% year-over-year growth and adjusted EBITDA margins, up 300 basis points year-over-year and an overall margin for the year of approximately 36%. Importantly, this plan will put us on a run-rate north of $450 million of adjusted EBITDA heading into 2021.

Just to provide some additional color as to how expect the year to play out and 2020 will build off of $357 million of adjusted EBITDA in 2019, which includes a $4 million reduction versus how we had reported previously prior to the adoption of ASC 842 in Q4. This change simply results from the reclassification of prior finance leases from long-term debt to operating leases and also results in a corresponding reduction to interest expanse and depreciation, so no economic impact to the business.

As shown in the chart, we enter 2020 with the volume headwinds that we have discussed for the past few quarters and will be most significant in Q1 and Q2 in terms of the financial impact. Q1 adjusted EBITDA should actually be down slightly from Q4 both due to the volume headwind and the normal pickup in variable cost activity as the branch network prepares equipment for Q2 and Q3 elevated delivery seasons as well as some one-time SG&A items related to our biannual sales meeting, all of which was incurred and will be incurred in Q1. That said, we continue to see robust double-digit growth in pricing and value-added products in our U.S segment, which combined with the continued synergy execution during the course of 2020 will get us confidently to the midpoint of the range.

Our plans for the year do assume a return to normal sequential volume growth in Q2 and modest year-over-year volume growth towards the later half of the year. As such, we expect 2020 net CapEx in the range of $160 million to $180 million to support modest volume growth, continued 20% growth in value-added products revenue and some continued improvements to branch infrastructure. We continue to monitor demand across all of our geographies and end-markets and perform a zero-based capital budget every 90 days based on this demand to ensure optimal capital allocation.

Sitting here today as Brad and Kelly mentioned we continue to see strong market fundamentals that would support this growth plan. Importantly, we believe this outlook is largely within our control and puts us on an exciting trajectory heading into 2021. And as I mentioned earlier, we expect the consummation of the proposed merger in the second half of the year would only enhance our financial outlook.

Before turning the call back over to Brad, I would like to touch Slide 20, which highlights the extraordinary VAPS opportunity we are executing upon with over $130 million of embedded organic revenue growth in the WillScot portfolio. Since the first quarter of 2012, our realized VAPS monthly rate has increased at a 20% CAGR and the rates we have achieved on units delivered in the last 12 months and in Q4 have increased 39% year-over-year. Executing upon this opportunity remains WillScot’s primary commercial initiatives, we believe there is an opportunity to perform above the rate of $275 per unit that we have recently achieved and as mentioned earlier, scaling this initiative across the combined WillScot and Mobile Mini office fleets is a very tangible revenue opportunity post closing. For awareness, we have posted our usual WillScot investor presentation to our Investor Relations website and will file our 10-K later today.

With that, I will turn the call back over to Brad for some closing remarks.

Brad Soultz

Thank you, Tim. Please turn to Slide 22 and I will summarize the merger benefits for all stakeholders. We are extremely excited to bring together these two iconic industry leading companies in what creates the unique opportunity to drive substantial value creation. This transformational combination will benefit all stakeholders by first, improving our recurring revenue and growth profile by bringing to bear assets that carry more than 30-month average lease duration, while possessing an average life – useful life of over 20 years; second, generating robust liquidity profile through enhanced cash flows and a strengthened balance sheet to invest in profitable growth, broadening our footprint and fleet while enhancing the solutions and suite of services that we offer to an expanded and diversifying set of end markets; and finally, creating additional resources and opportunities for our collective employees to benefit from and contribute to as the foremost specialty leasing company in our industry.

Additionally, we have material cross-selling opportunities, which can result in incremental upside. Our collective sales force will now be able to offer our modular customers, the storage solution and storage customers and modular solution. We will bring our offering of VAPS solution to Mobile Mini’s ground level offices and will extend the Mobile Mini’s managed service offering across WillScot’s customer base. The integration teams at WillScot and Mobile Mini will be working closely to ensure a smooth transition and successful execution of our integration plan. As mentioned, we have identified $50 million in cost synergies and I am highly confident in our ability to capture these.

Now, as I step back to take a higher level view of the transaction, I see two complementary companies joining together, each with strong individual cultures, committed to operational excellence with a keen focus on delivering value solutions to customers. Together, we will be an industry leading best-in-class team with a proven track record of delivering profitable predictable growth and value for our stakeholders.

With that, let’s turn the call over to the Q&A portion.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Scott Schneeberger with Oppenheimer.

Scott Schneeberger

Thanks very much. Good morning, everyone and thanks for taking the questions. I guess, this has been anticipated near-term heavily and long-term over the last couple of decades, an anticipated that I think makes a lot of logical sense. I’d like to start out asking first off, why right now, obviously in the past few weeks, months, there has been a little bit of risk increased to the business environment. So I guess, if you guys could comment on your comfort with being able to execute this right now and good times and if potentially we face some bad times in the end markets? Thanks.

Brad Soultz

Yes, Scott, I will go first and then Kelly and Tim opine. As mentioned in the prepared remarks, I am highly comfortable with the $50 million of cost synergies, but I mean, I think as we really delved into the due diligence, it became exceedingly apparent there were significant commercial and revenue related synergies associated with cross-sell and then the cross application of our combined commercial platforms. So you have got $50 million of cost synergies as well as clear line of sight to incremental cross-sell opportunities. And then we have been working with our colleagues at Mobile Mini for several months on this. This has not been a rush process if you will, such that both of us got very comfortable working together as well as aligning around the upside both in cost synergies and commercial synergies. So, I think it’s the right time. Our demand outlook still remains solid. No doubt, there is some uncertainty given the coronavirus and other macro market questions. Remember, we have – through your average lease duration and long-life assets with an incredible free cash flow generation profile. Post cost synergies we will be generating about $500 million of free cash flow a year. So, is it the right time to put them together as you said, it’s been contemplated for a long time? And I am excited about it.

Kelly Williams

Yes, hi, this is Kelly, Scott. I would just add I think the industrial logic was obvious and we certainly have seen that for quite some time, I think the investment thesis obviously very similar complementary businesses, but Brad bought up the fact I think once we got certainly, I got comfortable with the culture at WillScot and I think that there is tremendous alignment in the fact that employees are a focal point of both organizations, it’s really where both companies execute. And when you look at the fleet end markets, when you look at the geographic footprint, all of these things simply aligned, but again, I think the cultures were so similar that from an integration standpoint, there is certainly a lot greater opportunity for us to execute and to do it quicker. So I certainly couldn’t be anymore excited.

Tim Boswell

Scott, this is Tim. And just to touch on the ability to execute this in the light of the macroeconomic backdrop, I mean, the beauty of both of these business models as you know is the forward visibility that you have got into the lease revenue stream, which is driven by that average 30 plus month lease duration. So as we just take the WillScot guidance, sure, we have baked a little conservatism into the low end of that range, but the levers that we can pull within the business to deliver the midpoint or perhaps above are largely within management’s controls and that’s 18% year-over-year growth. And you have seen similar trends in the trajectory in the Mobile Mini business. So, we feel like we have got a good visibility across the combined lease revenue stream. Then secondly, the transaction structure, an all equity stock-for-stock merger to de-leveraging transaction for WillScot, we expect to be around 3.8 turns of leverage at closing in Q3 heading towards 3.5 by the end of the year. Combined with the enhanced free cash flow that’s coming from the combination that gives us a lot of balance sheet flexibility heading into 2021, no matter what it brings.

Scott Schneeberger

Alright. It sounds good. Good responses, all. And Kelly interesting on the cultural fit, I think you have a very good point there. I think that will work well. Another question just intrigued, I know to what extent, you are going to comment on it right now, but when combining these two companies, there maybe some pieces – obviously there are some pieces you guys like in common the vast opportunity of cross-sell managed services cross-sell. Are there any pieces that maybe considered not core on a go forward basis to the extent you can comment on that now? Thanks.

Kelly Williams

Yes, Scott, that’s something we will look at to determine if there are any asset classes that are non-core. We haven’t made any such determination. So I think we have primarily focused as you would imagine the real cash drivers of these two businesses or the combined storage and modular office leasing portfolios. So you will see us – we will keep our focus there.

Scott Schneeberger

Alright. Appreciate that, guys. Thanks for taking my questions. I will turn it over.

Brad Soultz

Thanks, Scott.

Operator

Your next question comes from Ross Gilardi with Bank of America.

Ross Gilardi

Hey, good morning guys.

Brad Soultz

Good morning, Ross.

Ross Gilardi

Congratulations. For whoever it would be appropriate to take this question, I was just curies about the bridge from the $290 million in pro forma free cash to the $500 million. Could you give us a sense to the timing for achieving that and can we bridge the gap mostly with EBITDA growth over the next several years?

Tim Boswell

This is Tim, Ross. Thanks for the question. The bridge is actually pretty simple. So, as Brad mentioned, similar to what we experienced in the ModSpace transaction, you do incur some upfront integrating costs before realizing the full benefit of the cost synergies. So, in that $290 million on a combined basis this year, you are starting to incur some significant integration costs in the back half of the year, in the first half of 2020 and that could be $75 million, call it 70% to 75% of that would be incurred in the first 12 months post transaction, with the reminder incurred through month 24. So think of that as the timing of the integration costs. The synergies then build along the schedule that Brad articulated, we have about 30% of those in the run-rate 12 months post-closing and 80% in the run-rate 24 months post closing. So you will have this dynamic where the integration costs flex upfront and then taper off and the synergies flow through by month 24. Meanwhile, yes, you have got good continued lease revenue growth on the top line and it’s really the combination of those three factors that take you from 290 close to 500 and you would want to have full synergy realization by the time you are assuming that 500, so after month 24 post closing.

Ross Gilardi

Got it. Thanks. That’s helpful. And then maybe you could talk about I guess the targeted capital structure for the combined company and as you discussed you are going to be 3.8x pro forma leverage reduced to $290 million that would take you down 0.5 turn or so? I mean, you are talking about getting $500 million, which is close to three quarters of a turn. So where do you think this business should be over the cycle and maybe just bridge it out for us over the next couple of years as to where you think you will go? And is the main prioritization just going to be – continue to be on de-leveraging for the next 12 to 18 months?

Tim Boswell

Okay. Let’s break that down into at least two pieces, one would be sources and uses expected around closing and then two as de-lever closer to that 3.5 to 3 range, what are our various capital allocation alternatives. We did put in place for purposes of closing. As you know, it’s an all stock deal. We put in place a expanded $2.4 billion committed ABL at LIBOR plus 150 that is capable of refinancing the existing Mobile Mini unsecured debt and ABL balance. So in a simplest form out of the gate we are just swapping debt for debt moving it into the ABL and we do have the flexibility to revisit that mix of debt financing opportunistically based on market conditions. If we assume that structure, assume Q3 closing, it’s 3.8x leverage going to 3.5x by the end of the year. And then look as we have said in our own business, we would operate WillScot between 3x and 4x leverage at the low end of that range. We are extremely comfortable. I will let Brad and Kelly comment on the continued consolidation opportunity I think in both asset classes, because they are both extremely attractive. So as we execute the integration, I expect there is a significant appetite to reinvest in organic growth, value-added products, expansion of the fleet in certain areas, both inorganically and organically. But maybe I will hand it over to Brad and Kelly to talk about their views on capital allocation.

Brad Soultz

Yes, Tim summed it. I mean, we have been calling for 18 months that we would have the WillScot platform back to 4x by the end of the second quarter 2020. That 3x to 4x range is a very comfortable range. At 4x we have great flexibility, right as you de-lever from 4 down to 3 that just increases and my main priority is to continue to reinvest in both organic and inorganic growth opportunities. As Tim mentioned, you get closer to the 3x. We have got all the agility if you will to consider all options return value to shareholders, etcetera. But my first focus is to continue to reinvest in growth.

Kelly Williams

Yes. I don’t know there is anything else to add. I think we are completely aligned. I think the story here is that free cash flow is so robust that it certainly gives us plenty of options and alternatives in terms of cap allocation and both of us had focused on de-levering. I think that, that’s something that we have been able to achieve and like I said the combination just is certainly exciting to see the free cash flow, the combo and I think that this is certainly – the capital allocation structure is something for us to continue to discuss as we go forward.

Ross Gilardi

Got it. Thanks. And just lastly to wrap up just this little discussion, Brad, maybe you can talk about what you are thinking on the mini dividend, is that a source of cash flow synergy or will the combined company have a dividend? I think you correct me if I am mistaken that Mini has got like a 3% yield?

Brad Soultz

Yes, I think, I mean that will be a matter for the new board to take up. I have reiterated my primary focus is to continue to reinvest in the organic and inorganic growth opportunities across the two portfolios but that’s something as the new board will take up as a first matter of business.

Tim Boswell

And I would just add the free cash flow ranges that we have articulated assume organic reinvestment in the business and no assumptions around return of capital until the Board determines that.

Ross Gilardi

Okay, thanks guys. Best of luck.

Tim Boswell

Thank you.

Brad Soultz

Thank you.

Operator

Your next question comes from Kevin McVeigh with Credit Suisse.

Kevin McVeigh

Great. Thanks and congratulations to all of you. Hey, I wondered if you could give us a sense of the one side articulated VAPS growth an incremental $130 million is still achievable. Is there any way to put some parameters around what the combined entity can achieve from a VAPS perspective, so, pro forma what that can mean and maybe just from runway around when it gets achieved?

Tim Boswell

Yes, I think, Kevin, we have mentioned in the prepared remarks the first target would be to cross-sell the WillScot ready-to-work solution into the Mobile Mini ground level offices. We are already providing that suite if you will to the WillScot ground level office fleet, albeit it’s much smaller. So that was I think I had quantified that as a $35 million EBITDA upside. Again, remember that takes about 3 years as these long lease duration projects and return back through the fleet. That would be incremental to the 130. And I guess the last bit as we have talked on all of our past earning calls we continue to see the penetration increase, which is continue to extend the duration of that revenue opportunity.

Kelly Williams

Yes, Kevin, I would – this is Kelly, I would just add first of all, hey, there, what Brad and team have done here WillScot with the – they are ready to work, then the VAPS rollout has been impressive. I think it’s becoming obvious that customers are looking for convenience and you can see that evidence by what they have done with the ready-to-work service and also Mobile Mini as managed service business that’s grown substantially although at a much leaser agree. But I think when you look at how compiling the two organizations coming together are, this was another big piece of this where I think scale is important, convenience is important to the customer and it’s a real opportunity for us to cross-sell really on both sides. I would say with managed services we really just were getting started at Mobile Mini and I think this is a chance to launch that side of the business as well. So, certainly another piece that makes us very compiling.

Kevin McVeigh

Got it. And then just any thoughts around, would you expect an HSR review on this transaction or no?

Tim Boswell

Yes, the combination is subject to receipt of antitrust approval. So, we will file.

Kevin McVeigh

Thank you.

Brad Soultz

That will be a U.S. file.

Operator

Your next question comes from Courtney Yakavonis with Morgan Stanley.

Courtney Yakavonis

Hi, thanks for the question. Just curious on the planned footprint in the deal with ModSpace, it seems like a lot of the synergies were coming from footprint consolidation, it doesn’t seem like that’s the case with this deal. So maybe can you just talk a little bit about why you need the 275 footprint? And if there was any different dynamics between portable storage versus a combination with another modular office player that might require additional footprints or is that something that hasn’t been decided yet?

Brad Soultz

It’s a great question. I will start and then Kelly should jump in as well. As you appropriately recall, ModSpace was much different, it was two – almost entirely redundant branch that works and impact sales team. Our approach with this combination will be much different at the field level. So our expectation to think of this simply would be the Mobil Mini storage division will be kind of a parallel to the WillScot office division. There are some opportunities on real estate, if you look at the, I think it was Slide 12, with the green dots and the blue dots. Imagine there is a first step. Everywhere there is a green, we will be able to start moving blue storage through and vice-versa. But I would say, our expectation as far as actually combining branch operations, we are going to take some time here through the first certainly through close in the first half of the year and be very methodical with that. My expectations we say here today two complementary sales teams, one focused on office, little cross-sell, their counterparts in office and vice-versa. And I am really excited to have Kelly as the COO to lead that.

Kelly Williams

And Courtney I would just add I think on the portable storage side of business, it’s a very fragmented industry. So, when you think about footprint, where we get beat even as a national player, we are 6 times larger than in the next nearest competitor. It’s typically from a logistic standpoint. So about 20% of our revenue is driven through trucking and so much we can a premium brand and be 20% or 30% higher than our competition on the rental, but the trucking piece is a significant cost to the customer. So this footprint specifically I could take cities like Chicago or Atlanta where we have got a sell-side location. It’s difficult for us to compete on the north side due to trucking costs. So this additional footprint that combined company has I think is a real competitive advantage for us. And I know that there is going to be consolidation down, but I do believe as Brad and I have discussed there is some real opportunity to take some of these branches that might be a little bit smaller and certainly with the combination be much more robust and much more competitive certainly from a logistics standpoint.

Courtney Yakavonis

Thanks. That’s helpful. And then if you could also just comment a little bit on the current customer overlap between the two organizations. Right now, I know you guys have historically talked about most of your customers also have portable storage on their site, but do you have a sense at this point of those actual customer overlap?

Brad Soultz

Yes, Courtney, as you would expect there is a fair bit of that specific detail that we really can’t get into until close. We have done some assessing if you will at a high level. I will just say across the diverse end markets, I would characterize it as I have been on past calls, we have about 90,000 mobile offices and fleet. I drive by most of our – lot of our job sites and travel, all 90,000. But you will typically see two, one, two or three storage units around our offices and by the small scale of our current container fleet, they are not our containers. And oftentimes, it’s Mobile Mini, but as Kelly represented, they are 6x their next competitor. The balance of that market is extremely fragmented. So I think over time, we will be able to be more specific. I think the overlap will be high. I think a solid majority of more of our end markets require both storage and office. And that’s what really excites me about the revenue upside here, the cross-sell potential.

Courtney Yakavonis

Great. And then just…

Tim Boswell

Courtney, this is Tim. Just one other point, while we believe there is substantial overlap, there is no customer concentration. And one of the beauties of this portfolio in both companies is you have got this extreme diversification and fragmentation within the customer portfolio, but you have got the visibility that comes from the 30-month lease duration I think in our – in 2019 WillScot’s largest customer was 1% of revenue. And so then there really is no concentration when you breakdown our portfolio. So you are maintaining those kind of mechanical elements of both customer portfolios getting some diversification, but then also recognizing there is going to be a significant amount of job site overlap which is great.

Courtney Yakavonis

Thanks. That’s helpful. And then just lastly, on the last 12 months delivered rate, I think fell this quarter, correct me if I am wrong, but can you also just elaborate a little bit on any dynamics that might have been impacting that?

Tim Boswell

Yes, just normal Q4 trends, Courtney, I think. While it did go down sequentially, it’s up even more year-over-year, 39%. So we are not – it will fluctuate. We are not reading too much into that in heading into 2020 and coming out of Brad’s biannual sales meeting. We have got targeted significantly above the 275 deployed across the sales force today, so continue to see upside to that.

Courtney Yakavonis

Okay, thank you.

Operator

Your next question comes from Phil Ng with Jefferies.

Phil Ng

Hey, guys. The $100 million free cash flow – free cash flow number is a big number implied for the low to mid-teen free cash flow yield. So that’s great. I guess, if I take your combined 2020 free cash flow and give you full credit for the $50 million excluding any cash cost synergies, again, it’s like a $340 million number. So the bridge that implies about a 50% increase. So what the realistic timeframe you get to that $500 million number and what are some of the major drivers to kind of get there? Is there anything else outside of EBITDA growth that’s driving it?

Tim Boswell

Yes, there are really two things and I think Ross touched on this a bit earlier. So first of all, as Brad mentioned in terms of the synergy realization, we will get to 80% run-rate we believe 24 months post closing the transaction. So that’s taking you into middle of 2022, right there, before you are approaching full synergy realization. Upfront, we will be incurring approximately $75 million of integration costs. So, that’s going to be a near-term free cash headwind. But as those integration costs subside and the cost synergies build, you pickup the $50 million, the $75 million goes away, plus some organic growth coming from top line lease revenue and it’s really those three elements that are going to bridge you organically to that circa $500 million number.

Phil Ng

Okay.

Tim Boswell

Okay. And along the way, you are also going to be de-levering and interest costs will be coming down, so levered free cash flow is going to benefit from that one.

Phil Ng

Okay. I was just wondering if there are any other drivers outside of the just core organic growth, just core?

Tim Boswell

Just core and completion of the integration.

Brad Soultz

Yes. And while we kind of gave an abbreviated fourth quarter, I mean, Tim mentioned 15.1% year-over-year rate growth again. That’s our ninth quarter or such of double-digit rate growth. So, we continue to see that driven about 40% by VAPS and the base through – or the balance through the base rate on the box. So, that organic growth, if you will, will continue.

Phil Ng

Got it. So, just anchored by organic growth and Brad, it sounds like that double-digit run-rate in terms of price mix improvement, you feel pretty good about sustaining through that balance to get to your $500 million number?

Brad Soultz

Yes. As we have characterized, I mean, it’s a – let’s say in the mid-teens. It’s a bit superheated or elevated if you will just because of the inefficiencies in the acquired prior office portfolios, but certainly, achieving double-digit, 10% over the next couple of years is something I feel is quite achievable.

Phil Ng

Got it. And then in terms of integrating two big companies, you guys have a great track record on that front, but what are some of the biggest risks here, appreciating this deal is a little different, is the ERP system any different, how are the sales force approaching the sale process, are they compensated any differently?

Brad Soultz

Yes, I would just say, I would iterate that our intention here again much different than ModSpace is to largely leave these two operating divisions as they are and be very thoughtful over time as to what and how to combine. Obviously, there will be opportunities to collaborate the national accounts. We have mentioned obvious opportunities to cross-sell the VAPS and Mobile Mini’s managed services, but those don’t require immediate system changes nor do they really require organizational changes. That’s just being good at collaborating as we are.

Phil Ng

Got it. And just one last one for me, I think in the prepared remarks, you called out a $35 million opportunity on your –implementing your ready-to-work offering across Mini’s platform. Can you expand on that a little bit and what needs to happen?

Brad Soultz

Yes, just high level, so we had about 30,000 units in that fleet, assume 80% utilization. We assume the VAPS level that WillScot’s been delivering for that kind of 160 square foot offering in the last 12 months and use that as a basis for something that we feel is quite achievable. Again, it’s just paced by the 3 years it will take for those ground level offices in their natural projects return and be redeployed.

Phil Ng

Okay, alright. Thanks a lot. Appreciate it.

Operator

Your next question comes from Manav Patnaik with Barclays.

Greg Bardi

Hi, this is actually Greg calling in. Just wanted to hit a little bit more on the sales force orientation just given that you are going to have one organization that’s been more focused on the modular space and one on the storage side, just how are you guys thinking about standing up pieces of the organization on the cross-sell opportunity or how is that going to be oriented on one side or the other?

Kelly Williams

Yes, Greg, this is Kelly. I will start here. I think a lot of the diligence that we did, Brad and I as we were discussing the organizations was really centered around the sales structure. And I think it’s really important right now that these – we look at these two independent. It’s very obvious that there is cross-selling opportunities. I mean, I can give you so many examples from a managed services standpoint where we can re-rent other products and mobile offices are one of those that become very obvious, but I think there is an opportunity for us here a little bit longer term to have a go-to-market strategy at a higher level within the organization in terms of how we have the two complementary products and service offerings that we have to be in alignment with the sales force to go forward, but I think that’s somewhere down the road. I think what we want to do right now is just – there are best practices. We have tremendous industry knowledge between both organizations and I think there is some opportunity for us here to identify what we can do with these sales reps to become more efficient and over time understand exactly how we can fit the two together. But in terms of the headcount, certainly on the Mobile Mini side, we are never at full staff. There is always opportunity to grow. And based on all of the market data we have, we certainly would look to continue to add. So, I don’t know that it’s consolidating an employee base as much as it’s trying to figure out kind of what that go-to-market strategy is so we can take advantage of both brands cross-selling at a higher level.

Brad Soultz

Yes, I think a bit I would add is just the operation side of that and there was an earlier question contrasting this to the ModSpace combination. I mean, you will recall from prior presentations, between Tyson, Acton and ModSpace, we went from operating over 200 branches to about 120 now, right. That was a massive disruption within our field, both operations and sales organization. This is much different, right. If we combine our branches, we have got 275. There will be some opportunities to improve the efficiency. But as far as like branch closures and consolidations, it will be a very low percentage of that, much, much different than we experienced with ModSpace.

Greg Bardi

Okay. And then maybe on the managed services side, has this been something that on the WillScot side, you have looked into? Has it contemplated any of that CapEx this year and maybe how it sounded like it’s even early days for Mobile Mini. So, just some thoughts on the opportunity there?

Brad Soultz

Yes. We have actually been doing it, but not with the focus that Mobile Mini has applied. A portion of our ready-to-work of VAPS value that we have been quantifying every quarter is through other third-party services such as re-renting portable toilets and such. So, our primary focus has been, drive the growth via the furniture. We haven’t, let’s say, stopped any of that related managed services opportunity. So, I think just taking the platform that Mobile Mini has put in place allows us to really do both.

Kelly Williams

Yes. And just to clarify, Greg, the managed services portion of Mobile Mini’s business does not require capital. It’s strictly through re-rent process with a third-party.

Greg Bardi

That makes sense. Alright, thank you guys and congratulations.

Operator

Your next question comes from Alex Maroccia with Berenberg.

Alex Maroccia

Hey, good morning guys. Thanks for the questions. So, I got a two-parter here. In terms of the integration, what kind of ramp up of asset purchases are you guys expecting given the possible utilization boost from cross-selling? And then the second part is, just looking at some of the differentiating technologies between the companies in terms of maybe unit tracking, VAPS, etcetera, are these baked into that $75 million one-time number you identified?

TimBoswell

This is Tim. I will start with the combined organic capital expenditure outlook for the two companies and I think you will find that it’s quite similar to the two standalone trajectories and the business on a combined basis can easily self-fund kind of be organic fleet requirements across all asset classes. So, on the WillScot side, we are operating in the mid-70s in terms of modular office utilization. We have got several years of organic volume growth that can be supported with the existing fleet. And I know Mobile Mini has invested in fleet over the past year or so to the point where the outlook for 2020 fleet CapEx spends are actually quite modest. Kelly, you can feel free to elaborate as we look forward, but the free cash flow ranges that we have articulated looking out 2, 3 years here fully support the combined fleet needs of the business.

Brad Soultz

Yes, I think this is Brad. The other part of your question was with respect to the $75 million. The $75 million of cost associated with achieving those synergies, that’s primarily related to combining the ERPs. So it’s IT professional service support. It’s the third-party help we will bring in to facilitate the integration and then people and the branch-related opportunities as I mentioned before. That’s – we don’t include capital investments to upgrade assets, if you will, at locks etcetera. That would be within our normal free cash flow and net CapEx guidance.

Alex Maroccia

Okay, got it. And then...

Kelly Williams

Yes. Alex, just real quick I did want to add in. I think you brought up technology, I think this is a really big opportunity for us in terms of the combination of both companies. As we looked at the implementation of SAP, it took us a couple of years, but in terms of creating operational efficiencies, mobility, everything around route management with logistics, I think that again so many great strengths of both brands coming together, I think there is an opportunity here for us to harmonize from a tech standpoint and really improve between both companies, the operational efficiencies and share best practices. It’s a big opportunity for a tailwind here for us.

Alex Maroccia

Got it. That will make sense. And then another one just sectors that makes sense to cross-sell into, how does the current geographic footprint align with the strategy there and what sectors are you thinking of specifically?

Kelly Williams

This is Kelly. I mean, I think it’s really across all end markets. There are very few, maybe retail where we do our seasonal business, but even that would have – there would be some demand for offices, but everything that we have been able to identify in terms of cross-selling opportunities and end markets, quite frankly, there is true overlap. And I think it’s evidenced by our managed services opportunities as I have brought up that it’s a convenience factor to be able to provide other products. And in this case again, we re-rent those products, but the mobile offices are one product that comes up on a regular basis and the customer is willing to pay a premium for us to be able to find those products. So, I think it’s very obvious across most end markets that there is an opportunity for us to cross-sell based on all the data points that we can come up with.

Brad Soultz

Yes, I think Kelly really hit it on that Slide 12 in the deck. If you look at, where there is green-only dots or blue-only dots I mean, that really highlights the cross-sell potential. I mean, we have got WillScot well established in Canada and Mexico. Mini is kind of just on the fringe there. And then even within the U.S., you can’t really call out, one geography, where neither is present, but if you look city by city, there is certainly opportunities there.

Alex Maroccia

Great. Thanks a lot guys.

Operator

Your next question comes from Brent Thielman with D.A. Davidson.

Brent Thielman

Hey, great. Thanks. Congratulations. Maybe a couple of quick for Tim I think, just wondering what the breakup fee might be associated with the transaction and then the $1 billion in combined NOLs, any restrictions associated with that?

Tim Boswell

Yes. We spend a lot of time on the NOLs, Brent and we feel very good about the ability to kind of consume those over the next 3 to 4 years and that’s one of the great attributes of the business is historically both companies have been extremely tax efficient and we expect that to continue. So, while there are some restrictions related to say the ModSpace NOLs, we can sequence the utilization of those NOLs in a way that does not restrict the business and frankly defers the cash tax obligations of the business in the U.S. several years out into the future. So, we feel very good about the NOL situation. We have got a break fee – mutual break fee, 3% of equity value of the transaction in either direction. So I will stop there and see if you have a follow-up.

Brent Thielman

No, that’s great. And then I guess just one on the legacy – I guess, call it, legacy WillScot outlook for 2020 I didn’t see it in there, but can you quantify or sort of qualify what kind of rental rate performance or expectations kind of embedded in that 2020 outlook?

Tim Boswell

Yes, it’s continuation of the double-digit year-over-year trends that we have seen in the U.S. modular lease revenue lines, so not 100% of the revenue, but the trends that we have been seeing in the U.S. modular lease revenue, we see the 10% year-over-year rate growth continuing. I did flag there is a volume headwind in the first half of the year. We have talked about the volume trends in the business. We are assuming sequential pickup in volumes going into Q2 and Q3. So think about this as a continuation of the pricing and value-added products trends that you have seen for several quarters now and then a return to normal sequential volume growth just based on the natural seasonality of the business. And then the last building block is just the continued synergy realization coming out of the ModSpace deal. So, those three things are really taking you from where we ended 2019 to 2020 and I would just say the vast majority of that bridge we believe is in management’s control.

Brent Thielman

Okay, great. Thank you.

Operator

I am showing no further questions at this time. I will now turn the conference back for closing remarks.

Brad Soultz

Okay. Well, thank you everyone. I would like to just remind you of two points with respect to this transaction. First, both WillScot and Mobile Mini have outstanding teams with proven track records of delivering profitable growth and together, we will be even better positioned to generate stockholder value. More specifically, as Tim mentioned upon full realization of the cost synergies which will be two years post close, we expect the combined company to generate approximately $500 million in annual free cash flow. So, with that, we would like to thank you for joining us this morning and thanks for your continued interest in our company.

Operator

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.