WillScot Holdings Corporation

Welcome to the second quarter 2021 Will Scott Mobile Mini Earnings Conference Call. My name is Kathleen and I will be your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct the question and answer session. Please note that this conference is being recorded. I will now turn the call over to Nick Girardi, Director of Treasury and Investor Relations. Nick, you may begin.

Good morning and welcome to the Will Scott Mobile Mini second quarter 2021 earnings call. Participants on today's call include Brad Soltz, Chief Executive Officer, and Tim Boswell, Chief Financial Officer. Today's presentation material may be found on the investor relations section of the Will Scott Mobile Mini website. Slide two contains our safe harbor statement. We will be making forward-looking statements during the presentation and our Q&A sessions. Our business and operations are subject to a variety of risks and uncertainties, many of which are beyond our control. As a result, our actual results may differ materially from today's comments. For a more complete description of factors that could cause actual results to differ and other possible risks, please refer to the Safe Harbor Statement in our presentation and our filings with the SEC. With that, I'll turn the call over to Brad Soltz.

Thanks, Nick. Good morning, everyone, and thank you for joining us today. I'm Brad Soltz, CEO of Will Scott Mobile Mini. I want to start by extending my gratitude to our entire team for their strong performance in yet another quarter. I also want to thank our customers for their continued support. We appreciate and value your business and take pride in delivering on our commitments to you. Before I get into this quarter's outstanding results, I'm excited to announce that we'll be holding an Investor Day on November 8th in NASDAQ and Times Square. We look forward to seeing many of you there. Our second quarter results demonstrate accelerating trends across our diversified portfolio and corresponding superb outcomes. Delivery volumes improved in all of our segments while rates improved at record pace. We also achieved a major step in the Will Scott Mobile Minis maturation process by successfully migrating the legacy Will Scott business onto Mobile Minis SAP platform in May. In turn, I'm pleased to raise guidance again this quarter after our increase last quarter. Our latest outlook indicates a 9% to 12% revenue growth and a 10% to 13% adjusted EBITDA growth relative to 2020 on a pro forma basis, which again is a function of accelerating KPIs across our business and implies a stronger run rate for 2022. Our strong free cash flow continued with a margin of 20% over the last 12 months and supports continued execution of our capital deployment strategy as we've repurchased 251 million of our shares over the last three quarters. Starting on page eight, the progress that we saw in March for deliveries continued throughout the second quarter. We increased deliveries across all four products and across most of our end markets on a year-over-year basis. In construction, strong architectural billing index, or ABI, of greater than 50, which began in February and has continued each month since, confirm a significant rebound in activity since March of 2020 and indicate growth in non-residential starts. This is a nine to 12 month positive leading indicator, and we expect this trend to continue in the near and medium term. I'll note that where we go, our customers go, and our customers are building everything from warehouses to data centers to the Virgin Hyperloop in Las Vegas. Commercial and industrial had the largest increase in deliveries this quarter at 49% year over year. There's certainly more opportunity than risk in this segment. The biggest mover in the bucket was arts, media, hotels, and entertainment, which we increased deliveries to by over 80%. Retail store remodels returned to more normal levels as evident in the storage deliveries. This activity is augmented by the return of special events as COVID restrictions relax. You can see great examples of these contracts on page 14 with units for media at a major league baseball all-star game in Denver. and temporary complexes for production of an upcoming miniseries on HBO. Other customers include Facebook, where we're helping to build data centers, and Amazon, where we provide flexible warehousing for inventory, distribution, and infrastructure. Energy and natural resources, which is a smaller component of our customer base, also saw rising deliveries. This segment correlates with both GDP and energy prices, both of which were strong throughout the quarter. And we'll continue to monitor the passage of infrastructure bill in the United States. However, for our 2020 outlook, we do not assume any significant impact from incremental spending by Congress. As I stated previously, the current drafts of the infrastructure bill would provide tailwinds across almost all of our end markets. And keep in mind, it'll take roughly 12 to 18 months following passage before shovels hit the ground on any of these infrastructure-related projects. So we would expect any associated tailwinds to occur in 2022 and beyond. Regardless, with or without further stimulus, we expect a continuation of strong market demand. Page 15 breaks out deliveries by segment. Modular space deliveries in our North American modular segment increased in the quarter at a rate of 12%. As we expected in our outlook beginning earlier this year, deliveries accelerated in the second quarter as the economy improved in what are typically stronger seasonal months for project starts. We expect this trend to continue in the third quarter. Deliveries in our North America storage segment increased 42% year over year and now exceeded 2019 levels. This rebound reflects strong demand across all of our end markets that are previously discussed. In the second quarter, following our successful ERP migration, the North America storage segment began delivering all container deliveries. So the North America storage segment is managing both legacy mobile mini portable storage as it previously had as well as the legacy Will Scott portable storage units in most of our geographic markets. Consolidating all of our container rental activity into the legacy mobile mini branch network will have numerous benefits in the form of improved customer service, operating efficiencies, logistics, and utilization, among others. Turning to slide 16, in our North American modular segment, the increase in deliveries resulted in stable modular space units on rent sequentially from the first quarter. As a function of our long-duration leases, which average 34 months in North America modular, unit on rent growth will lag delivery volume. So stabilization is the first step on the path towards volume growth, and I'm highly encouraged by the order and delivery activity in this segment. And at 68% utilization, we have ample inventory with which to grow without thinking of any near-term fleet expansion. Portable storage and modular units on the bottom left in the North America segment increased 6% sequentially from the first quarter, 10% year over year. And compared to 2019, average unit on rent increased 6.5%, a testament to the strength we're seeing across end markets. North America storage recovered faster than North America modular, thanks in part to the return of the store renovation in our retail, wholesale, and trade end market. You can see an example of these types of remodels back on page 14, where we delivered 17 storage containers, for a major retail remodel, which is representative of the services we provide to most major non-mall-based retailers. Shifting gears to rates, on slide 17, North American modular average monthly rental rates increased nearly 20% year-over-year in the second quarter, smashing the previous record of 15%. Roughly half of the $132 year-over-year increase was driven by continued VAPS penetration on newly delivered units in the last 12 months, The remainder of the increase came from core pricing with larger than normal impact from the return of shorter duration events relative to Q2 2020. Looking back on the last 18 months, our markets and pricing were expanded rapidly heading into the pandemic. As discussed in prior quarters, the growth trajectory for both pricing and VAPs on new deliveries slowed a bit in Q2 and Q3 of last year, largely mix related. We're now seeing a continuation and further acceleration of the pre-pandemic trajectories as price and VAPS performance has been phenomenal. Our VAPS monthly rate on new units delivered in the last 12 months, as depicted on page 10, is up 31% to $360 per unit per month. So we're now setting our sights higher in this area. Rates also increased dramatically in our North America storage segment, up 10% year over year in the second quarter. Our team is very focused on optimizing rate for new storage activation, and the focus is evident in our results. In parallel, we're starting to provide value-added products in our ground-level office fleet, and we've identified a VAPS offering for containers, which is now under development. Our UK segment continued its brilliant progress with another tremendous quarter. Rates are up 40%, units on rent are up 13%, and adjusted EBITDA is up nearly 80% year-over-year. We're thrilled with their progress. And our tank and pump segment is also inflected strongly as in-markets recovered. However, we're clearly outperforming the market and capturing share here. Our OEC utilization is into the mid-70s, which is now above 2019 levels. Revenue and EBITDA are up year over year in Q2. So while outperforming our peers in 2020, Q2 of 2020, our tank and pump business is now also contributing to our increased run rate, which is fantastic. We have a very exciting technology roadmap coming together, which will further underpour and support these results in all segments for coming years. And before I pass the call over to Tim, I want to spend some time on our ERP migration. As I mentioned previously, we migrated the legacy Will Scott business onto MobileMini's world-class SAP platform on time earlier this quarter. We went live in SAP across the entire company the first week of May, so we've now been operating on a single ERP platform for three months, a year of planning, Several months of intensive training change management led up to that successful cutover. Many of our colleagues worked days, nights, and weekends to make this transition a success, and for that, you have our internal gratitude and appreciation. No ERP transition is easy, but our team's dedication, meticulous attention to detail, and collaboration across the various segments resulted in a minimally disruptive implementation. There's really been no change for the legacy mobile mini branch, as we've been operating SAP there for years. But it's been a massive change for our legacy Will Scott branches. And while we're still learning how to efficiently navigate the new system, refining our reporting and analytics, it hasn't distracted us from serving our customers, as you can see from our delivery, pricing, and value-added product trends. This successful system migration is a critical enabler on four fronts. It enables the $50 million in cost synergy premised in the merger between Will Scott and MobileMini, but frankly, this is pretty straightforward. Second, it enables us to embark upon the next phase of our technology roadmap, which in the near term will include refinement of inventory management, harmonization of our CRM platform, development of stronger business intelligence, and data science capabilities. Third, now that the migration is complete, I'm excited to redirect the team to our host of multi-year growth levers, that continue to expand. Price optimization, value-added products, cross-selling, operation efficiencies, each and together represent opportunities in all four of our operating segments. And fourth, we'll be able to even more seamlessly integrate any acquisitions going forward, continuing our strategy to compound robust organic growth with highly accretive M&A. We executed the cutover flawlessly, and I'm humbled to be associated with such an outstanding team. We are one of the very few small group of great companies that can use the terms on-time, success, and SAP in the same sentence. With that, I'll hand it over to Tim.