WillScot Holdings Corporation Q2 FY2025 earnings call

• Financial results: Second quarter financial results were broadly in line with expectations, with adjusted EBITDA of $249 million and a 42.3% margin. Sequential improvement in lease revenues and robust adjusted free cash flow performance.
• Capital allocation: Funded growth CapEx investments in FLEX, complex fleet, and new adjacencies, and deployed $134 million towards tuck-in acquisitions.
• Customer satisfaction: Higher Net Promoter Scores due to improvements in the order-to-cash process.
• Macroeconomic environment: Second half demand below prior expectations, with larger projects robust but smaller projects sensitive to interest rates and economic conditions.
• Strategic initiatives: Building enterprise account relationships, improving field sales execution, repositioning offerings in favor of higher value-added services.
• Operational initiatives: Optimizing logistics and field service resources, improving order-to-cash process, seeing improvements in days sales outstanding and cash flow from operations.

In the second quarter, WillScot delivered adjusted EBITDA of $249 million, with a 42.3% margin, a 140 basis points sequential increase. Leasing revenues were $443 million, a 3% year-over-year decline but a 2% sequential growth. Adjusted free cash flow was $130 million, with a 22.1% margin in the quarter. For modular products, FLEX units on rent were up 30% year-over-year, and average monthly rental rate for modular products was up 5% year-over-year. For storage products, climate-controlled units on rent were up 30% year-over-year, average monthly rental rate for storage products was up 7% year-over-year, but units on rent were down 3.8%. Value-Added Products (VAPS) revenues were up approximately 7% year-over-year on modular units and about 12% on storage units.

• Revenue: Narrowed revenue outlook to $2.3 billion to $2.35 billion.
• Adjusted EBITDA: $1 billion to $1.02 billion.
• Sequential growth: Anticipates modest sequential leasing revenue growth in Q3 and 50 to 100 basis points of margin expansion sequentially compared to Q2.
• Free cash flow: Raised free cash flow outlook to $500 million to $550 million due to tax legislation and working capital improvements.

• Macroeconomic uncertainties: Trade and U.S. monetary policies impacting end markets.
• Small project demand: Sensitivity to interest rates and economic conditions affecting smaller projects.
• Integration of acquisitions: Ensuring synergies and margin expansion from tuck-in acquisitions.

Q: Just wanted to touch base a little bit more, I guess, on the modular side. There were some kind of subtle improvements in the data there, both the rental rate and utilization kind of on a sequential basis. Can you just help us unpack that a little bit more?

A: Angel, this is Tim, and I'll let my colleagues jump in with anything they'd like to add. But this has been going on for some time now where we've seen kind of a bifurcation of performance within the overall portfolio with modular outperforming storage. And within the modular portfolio, I commented in my remarks that FLEX units on rent, for example, were up 30% year-over-year. We've had very solid performance across all of the complex product line within the Modular category. So there is an underlying mix shift in that category that is helpful in many ways, and that's a reflection of the nature of the project activity that we see in our end markets, and it's also highly levered to our enterprise accounts. And I noted that those Modular units on rent are up 4% year-over-year as of June. So there is quite a bit of nuance in there. If we break the Modular portfolio down and just look at pricing and VAPS performance, largely flat from pricing in terms on new contracts. And when I was talking about value-added products per modular unit on rent, that was up 7%. And we have kind of renewed our focus there across the sales organization to get that back on track. So overall, I'm actually really happy with the modular trajectory. Sitting here today, the overall order book is up about 1% year-over- year, and it's been up all year really since we met together in March. The order rates in the business did plateau in kind of the April, May time frame, kind of going into June, but have stabilized, in modular. So overall, that's a bright spot in the business, and we've kind of extrapolated that trend, I would say, in Matt's guidance.

Q: I wanted to dig in on enterprise leasing revenue up 4%. First, can you clarify if that's Q2 or year-to-date? And then secondly, can you dissect the drivers of that, the units on rent and the pricing dynamics that support that result?

A: Steven, this is Tim. My comments in the prepared remarks was specific to volumes within the enterprise portfolio. And I mentioned that modular units on rent as of the end of June in the enterprise portfolio were up 4% year-over-year. And storage units on rent were down just 1% year-over-year. So I was just trying to contrast the activity levels that we're seeing among our enterprise customers with the rest of the portfolio. And those enterprise customers tend to be focused on larger, longer-duration projects. They tend to be biased towards our modular complex fleet, and there are associated pricing and value-added products opportunities when you see projects of those -- of that nature. So just trying to compare and contrast a little bit where we're seeing strength in the business versus relative weakness. And as we talked about in March, we're putting a lot of effort behind our enterprise strategy. This is something that we had kind of built out and developed through the second half of last year, and we've moved into execution mode in kind of the April, May time frame, bolstering kind of the leadership team there, adding resources. So it's not just an account management function, but we actually have a proactive business development capability within each of our target verticals focused on penetrating sectors outside of construction and outside of the legacy retail relationships where the current enterprise portfolio is heavily weighted today. We see very interesting opportunities in energy and industrial, government, professional services and special events. I mentioned FIFA, for example, is just one example of that, where we're serving a dozen locations across North America, all at once with all of our product offering in a very sophisticated way in terms of the logistics and service capabilities that are involved. So those are examples of areas where I think we've got opportunity over the next 3 to 5 years.