Implemented a unified leadership structure for sales and operations teams.
Upgraded field service and dispatch systems for better logistics utilization across product lines.
Plans to deploy route optimization and logistics management tools to accelerate insourcing of services.
Consolidation of 6 websites into 1 with enhanced customer portal for Q3 aimed at driving demand and improving efficiency.
Launched Project One, a proprietary sales tool for identifying and assigning project opportunities to local sales experts.
McGrath Acquisition and Integration
Announced the acquisition of McGrath, expected to close in the second half of 2024.
Cross-selling and comprehensive offerings are key value drivers of the McGrath acquisition.
McGrath’s expertise in the education sector and inventory centers to offer efficiency benefits.
McGrath acquisition supported by WillScot’s technology platform for seamless integration.
Engagement with FTC for regulatory review of the McGrath transaction, anticipating compliance and shareholder vote in Q3.
Financial Performance Q1 2024
Q1 results aligned with expectations, supporting the 2024 outlook with solid lease revenue growth.
Revenue of $587 million, leasing revenue of $461 million, and adjusted EBITDA of $248 million in Q1.
Adjusted EBITDA margin of 42%, with expectations of margin expansion in the second half of the year.
Free cash flow increased by 40% year-over-year in Q1, with a 25% free cash flow margin.
Share repurchases resumed in April due to valuation considerations.
2024 Outlook and Guidance
Outlook for 2024 remains unchanged from Q4 2023 guidance.
Anticipates mid-single-digit sequential revenue growth each quarter through the year.
Expects margin expansion in the second half of 2024, with capital expenditure plans unchanged.
Approximately $10 million per quarter anticipated for McGrath regulatory and integration-related expenses.
Aiming for record financial performance in 2024 across key metrics.
Question and Answer
Revenue Outlook and Guidance Range
Question
Can you provide more details on the 2024 guidance range and the factors influencing it, particularly any changes in the expected revenue mix and EBITDA margins?
Answer
The revenue outlook remains unchanged, with Q1 results in line with internal plans and a mid-single-digit sequential revenue growth expected for the rest of the year.
There is a stronger mix of modular activations relative to storage, leading to short-term margin pressure due to maintenance costs and slower operating leverage in the trucking fleet.
Despite these factors, EBITDA margins are expected to be flat sequentially in Q2 and expand in Q3 and Q4, aligning with the original guidance and indicating a positive trend.
Share Repurchase and Capital Allocation
Question
Can you share the amount of share repurchases made in April and provide insights into the capital allocation strategy, considering the potential closing of the McGrath acquisition later this year?
Answer
The exact amount of share repurchases is not disclosed, but the company remains committed to using repurchases as a capital allocation tool to enhance shareholder returns.
The delay in the McGrath acquisition process has provided additional cash flow and balance sheet capacity, allowing for continued share repurchases while maintaining a focus on closing the transaction with a target leverage ratio of 4.25x.
Value-Added Products and Modular Segment Performance
Question
Can you confirm the drivers of the last 12 months delivered VAPS for modular units and provide insights into the current VAPS trends for both modular and storage segments?
Answer
The last 12 months delivered VAPS for modular units was $393 per unit per month, including some third-party managed services from the legacy storage segment.
The current modular VAPS trends are positive, with a year-over-year increase and further improvement expected in Q2.
Storage VAPS is also performing well, with $32 per unit per month, up over 60% year-over-year, indicating the success of the Value-Added Products strategy for this asset class.
Modular and Storage Unit Trends and Implications
Question
Given the 5% increase in modular activations, are the implications for unit on rent (UOR) inflection similar to the original plans, and what are the implications of the lower-than-expected monthly activation rates for storage?
Answer
The modular business is on track with original expectations, with UOR inflection expected in the second half of the year if activation rates are sustained.
Activation rates for storage are slightly below expectations, leading to a sequential decline in UOR into Q2 and a potential year-over-year inflection in Q4.
The timing of UOR inflection in storage is dependent on enterprise account activity, and discussions with potential customers are encouraging.
Modular Product Demand and Unit on Rent Inflection
Question
Can you elaborate on the demand drivers across customer segments supporting the expected unit on rent inflection for modular units in the second half of 2024?
Answer
The expected unit on rent inflection for modular units is based on sustained mid-single-digit year-over-year activation growth throughout the year, driven by the 3-year lease duration and the time required for consecutive quarters of growth to impact UOR.
Current trends and backlog visibility align with the original expectations, supporting the confidence in UOR inflection in the second half of the year.
Portable Storage Rental Rates and Pricing Strategy
Question
Can you provide the core portable storage average rental rate growth for the first quarter, excluding the cold storage acquisition, and discuss the pricing strategy and product differentiation within the storage fleet?
Answer
It is estimated that about half of the core portable storage rental rate growth is attributable to the cold storage acquisition, and the company utilizes product differentiation and pricing strategies to drive rate and value across the storage fleet.
The mix benefit within the storage product class is expected to continue, driven by both cold storage and traditional specialty Mobile Mini products.
Free Cash Flow and CapEx Profile with McGrath Acquisition
Question
Given the focus on the McGrath acquisition, how will the capital expenditure (CapEx) profile and free cash flow generation be impacted in the future?
Answer
The McGrath acquisition is expected to be modestly accretive to earnings and free cash flow per share in the first full year post-closing, with significant synergy and value creation opportunities identified.
These opportunities include $50 million in cost synergies, cross-selling, diversification, and operational efficiency benefits across the combined company’s product offerings, branch network, and sales force.
The company is confident in the long-term value creation potential of the transaction and expects to unlock efficiencies through the integration of systems and operations.
Macro View and Reindustrialization Trends
Question
Considering the overall mix of the business and the pipeline for the next 12 months, what insights can you share about the macroeconomic view and the opportunities for WillScot Mobile Mini in the reindustrialization of the U.S.?
Answer
The company is seeing continued wins and benefits from larger mega projects, onshoring, reshoring, and reindustrialization trends, particularly in the modular business.
The mix of nonresidential construction activity, with a focus on larger, more sophisticated projects, is a tailwind for the modular business and is expected to persist in the foreseeable future due to federal stimulus programs.
WillScot Mobile Mini is well-positioned to take advantage of these trends and is optimistic about the opportunities in the nonresidential construction market in the medium to long term.
Customer Behavior and Pricing Dynamics
Question
Can you discuss the conversion rates from quotations to orders and how they inform your understanding of customer price sensitivity and the health of end markets, as well as any changes in the timing between quotation, order, and delivery?
Answer
Similar to the modular portfolio last year, the storage portfolio is experiencing a similar trend, with rolling 4-month quote activity up year-over-year and conversion rates slowing, potentially due to timing and testing of price elasticity.
There is no significant evidence to suggest that the moves in volume are driven by market share loss or pricing dynamics, as the storage recoveries are lagging behind modular and the overall activity level in the construction market has contracted.
Storage Unit Returns and Macro Implications
Question
Can you provide insights into the reasons for the slower return of storage units compared to expectations and whether this indicates any macroeconomic implications?
Answer
The volume of returns is proportional to the installed base, so with fewer units on rent, a lower quantity of units is expected to be returned each period, leading to a self-mitigating effect on UOR trends.
This is a normal and expected pattern, and there are no unusual macroeconomic implications associated with the current rate of storage unit returns.
Modular vs. Storage Activation Trends and Leading Indicators
Question
Given the better performance of modular activations compared to storage, have there been any changes in your assessment of the factors influencing this trend, such as supply, competition, or customer mix, and is there a risk that storage is a leading indicator for modular unit on rent recovery?
Answer
The concept of storage being a leading indicator for modular unit on rent is not valid due to the different project timelines and customer behavior patterns between the two segments.
The main differences in drivers between the modular and storage businesses are the retail exposure in storage and the higher proportion of larger mega projects in the modular business, which is a tailwind for modular unit on rent recovery.
McGrath Acquisition and Regulatory Review
Question
Can you provide insights into the discussions and questions from regulators regarding the McGrath acquisition and the company’s defenses against concerns related to industry consolidation?
Answer
The company remains confident in the value and strategic rationale of the McGrath acquisition and is actively engaging with regulators during the review process.
No further details or speculation will be provided at this time, but the company is committed to complying with the review and addressing any concerns raised by regulators.
McGrath Utilization and Market Share
Question
Can you clarify the utilization and unit on rent growth reported by McGrath, and provide insights into the market share dynamics and the comfort level regarding pricing and volume trends?
Answer
McGrath reported a utilization decline, and the unit on rent growth was primarily driven by acquisitions rather than organic expansion.
The company is confident in its understanding of the market dynamics, including the retail exposure within the storage portfolio and the overall volume of construction activity, and there is no indication of significant market share shifts.
Sequential Improvement and Full-Year Guide Mix
Question
Can you elaborate on the mix of sequential improvement within the full-year guidance range, specifically the contributions from unit on rent improvement versus rental rate and VAPS sequential trends?
Answer
The sequential headwinds in storage are expected to continue into Q2, with sequential volume improvement in Q3 and Q4.
Modular volumes are expected to continue their sequential improvement, and rate trends have been stable and predictable, with no significant changes anticipated in the near term.
The leasing KPIs are generally in line with the original expectations for the year, with the main change being the storage volume outlook.
Margin Improvement Drivers and Timing
Question
Given the significant step-up in margins expected in the second half of the year, what are the key drivers of this improvement, and what gives you confidence in this outlook?
Answer
The margin improvement is attributed to several factors, including the expected lease revenue build, better leverage off the trucking fleet with more storage movements, and the benefits of the field service and dispatch platform implementation.
The field service and dispatch platform enables greater efficiency and cost savings by optimizing truck, driver, and service crew utilization across various customer activities and eliminates redundancy in functions and systems.
The company is confident in the long-term value creation potential of the platform and expects it to contribute to margin improvement in the second half of the year and beyond.
Progression in the Second Half and Retail Outlook
Question
Can you provide more context on the expected progression in the second half of the year for both modular and storage, particularly any updates on the retail side and the potential for stronger pull-through?
Answer
While there is no specific order information for Q4, the company expects a normal seasonal progression, with sequential improvement in both modular and storage volumes and Q4 typically being the highest quarter for storage unit on rent.
The activation volumes and order rates in storage are building sequentially as expected, providing a reason to anticipate a flattening of unit on rent trends.
