Overview

WillScot Holdings Corporation (WSC) is a leading provider of innovative and flexible turnkey temporary space solutions, serving diverse end markets across the United States, Canada, and Mexico. With a vast network of over 260 branch locations and additional drop lots, the company offers an extensive selection of "Ready to Work" modular space units and portable storage units, catering to the evolving needs of its over 85,000 customers.

Business Overview

At the core of WillScot's business model is its highly predictable recurring revenue stream, driven by its leasing operations. Over 90% of new lease orders are on the company's standard lease agreement, pre-negotiated master lease, or national account agreements. The initial lease periods vary, and leases are customarily renewable on a month-to-month basis after their initial term, resulting in an average effective duration of approximately 38 months for the lease portfolio, excluding seasonal portable storage leases.

Financials

In the second quarter of 2024, WillScot reported revenue of $604.6 million, up 3.9% year-over-year. This growth was driven by a 2.1% increase in leasing revenue to $458.6 million and a 137.4% surge in new unit sales revenue to $21.4 million. Rental unit sales also increased by 49.6% to $16.5 million. However, delivery and installation revenue declined by 4.1% to $108.1 million. For the first six months of 2024, the company generated revenue of $1.19 billion, up 3.9% compared to the same period in 2023.

Geographically, the United States accounted for 93.4% of WillScot's consolidated revenue in the second quarter of 2024, with Canada and Mexico contributing 5.3% and 1.2%, respectively. This geographic mix has remained relatively stable over the past year.

The company's modular space leasing revenue increased by 7.5% year-over-year to $470.4 million. This growth was driven by a 7.8% increase in the average monthly rental rate for modular space units to $1,176, as well as continued progress in value-added products (VAPS) penetration. However, average modular space units on rent decreased by 3.3% to 95,671.

In contrast, the storage product revenue decreased by 7.0% to $134.1 million. This decline was primarily due to a 22.1% decrease in delivery and installation revenue, as well as a 2.8% decrease in core leasing revenue for portable storage containers. The average portable storage units on rent decreased by 19.8% to 124,743, while the average monthly rental rate increased by 17.9% to $263.

WillScot's gross profit margin for the second quarter of 2024 was 54.1%, down from 56.3% in the same period last year. This decrease was mainly driven by lower utilization rates, specifically in the portable storage product line. Adjusted gross profit margin, excluding the effects of depreciation, was 66.6% in the second quarter of 2024, compared to 67.4% in the prior-year period.

The company's selling, general, and administrative (SG&A) expenses increased by 18.9% to $174.6 million in the second quarter of 2024, primarily due to $21.8 million in discrete expenses related to the acquisition of McGrath RentCorp, which was announced in January 2024. Adjusted EBITDA, a key profitability metric, increased by 1% to $263.6 million, with an Adjusted EBITDA margin of 43.6%.

For the first six months of 2024, WillScot reported net income of $9.4 million, down from $164.0 million in the same period of 2023. This decrease was primarily due to a $132.5 million impairment charge related to the Mobile Mini trade name, as the company plans to rebrand under a single WillScot brand name. Operating cash flow for the first half of 2024 was $384.3 million, up from $350.9 million in the prior-year period, while free cash flow increased to $264.8 million, compared to $262.5 million in the first six months of 2023.

Outlook

Looking ahead, WillScot is maintaining its full-year 2024 guidance, which calls for revenue in the range of $2.45 billion to $2.55 billion and Adjusted EBITDA between $1.10 billion and $1.12 billion. The company expects to see steady mid-single-digit sequential revenue growth each quarter as it progresses through the year, with more of the revenue growth coming from the modular business and lower volumes of storage movements impacting the delivery and installation segment.

Liquidity

WillScot's balance sheet remains strong, with net debt to last twelve months Adjusted EBITDA of 3.3x as of June 30, 2024, well within the company's target leverage range of 3.0x to 3.5x. The company has ample liquidity, with $1.8 billion of available borrowing capacity under its $3.7 billion asset-based lending (ABL) facility as of the end of the second quarter.

Recent Developments

In January 2024, WillScot announced a definitive agreement to acquire McGrath RentCorp, a leading provider of modular buildings and portable storage solutions. The transaction is expected to close in the second half of 2024 and is anticipated to be modestly accretive to earnings and free cash flow per share in the first full year post-closing. The companies' complementary product offerings, geographical footprints, and customer segments are expected to drive significant value creation opportunities, including cross-selling, operational efficiencies, and expanded career opportunities for employees.

Conclusion

Overall, WillScot's resilient business model, diversified customer base, and strategic initiatives position the company well to navigate the current economic environment and capitalize on long-term growth opportunities in the modular and portable storage solutions market. The company's strong financial performance, robust cash flow generation, and disciplined capital allocation strategy continue to support its position as a leading player in the industry.

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