WillScot Holdings Corp Q3 FY2024 earnings call

• Positive aspects: Adjusted EBITDA margins at record levels, adjusted free cash flow and return on invested capital near record levels, continued advancement of enterprise-wide initiatives.
• Negative aspects: Non-residential construction start square footage up 14% year-over-year but tracking 15% below 2019 levels, delays in order activity impacting the quarter.
• Cost management: Reduced variable costs by over $20 million relative to forecast, on top of $40 million of annualized indirect cost takeout.
• Integration and initiatives: Combined field sales and operating teams, completed systems integration, consolidated under WillScot brand, launched combined website, new digital tools, and focus on streamlining order-to-cash process.
• Portfolio expansion: Continued investment in operational efficiency and customer-focused initiatives, expanding portfolio to include climate control storage, clear span structures, sanitation, etc.

Revenue of $601 million declined 1% year-over-year. Storage leasing revenues were down 13% year-over-year, delivery and installation revenues were down 1% year-over-year. Modular leasing revenues in VAPS were up 4% year-over-year. Adjusted EBITDA margins were at record levels at 44.4%, adjusted free cash flow and return on invested capital were near record levels. Storage average monthly rental rate was up 9.5% year-over-year, modular average monthly rates were up 6% year-over-year. Value-added products penetration for modular units inflected positively with average rates up 3% year-over-year and delivered rates in Q3 up 1% versus prior year. Storage value-added products had average rates up 28% and delivered rates over the last 12 months up 16%.

• 2024 Outlook: Revised adjusted EBITDA midpoint to $1.60 billion, reduced revenue assumptions for Q3 and Q4 due to non-residential construction markets continuing to bottom into early 2025.
• 2025 Outlook: Anticipates modest growth, margin expansion, with volume headwinds moderating but not to the extent expected earlier, and focus on operating and optimizing the business, driving growth across the portfolio.

• Market uncertainty: Non-residential construction start square footage below 2019 levels, delays in order activity, impact of election on customer timing decisions.
• McGrath transaction impact: Incurred $203 million of broken deal costs including termination fee, which affected adjusted financial metrics.

Q: Why view volume headwind moderating and break out modular and storage?

A: Tim Boswell explained average units on rent deficit converging, with storage seeing sequential build.

Q: Pricing perspective on modular and storage?

A: Tim Boswell discussed storage average monthly rental rates up 9.5%, modular delivered rates up 1%, with VAPS contributions and spot rate trends.

Q: Interest rates and modular transactional units?

A: Tim Boswell mentioned certainty in rate cuts is important for stimulating projects, with modular product lines showing contrast in performance.

Q: Storage seasonal retail dynamics?

A: Tim Boswell said retail side performing in line with expectations, end of year unit on rent expectation lower than prior outlook.

Q: Volume recovery and macro perspective?

A: Brad Soultz and Tim Boswell discussed seasonal slowdown, March as potential improvement time, and impact of political clarity.

Q: Capital allocation, CapEx, M&A, buybacks?

A: Brad Soultz and Tim Boswell talked about tuck-in pipeline, CapEx spend, M&A in core and adjacent markets, and share repurchase cadence.

Q: Units on rent and AMR growth for 2025?

A: Tim Boswell discussed moderating headwinds, margin expansion levers, and different pathways to achieve growth.