WillScot Holdings Corporation

Welcome to the first quarter 2022 Will Scott Mobile Mini Earnings Conference Call. My name is Vanessa and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to Nick Girardi, Senior Directory of Treasury and Investor Relations. Nick, you may begin.

Good morning and welcome to the Will Scott Mobile Mini first quarter 2022 earnings call. Participants on today's call include Brad Soltz, chief executive officer, and Tim Boswell, president and 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 session. 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 the 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. Thank you for joining us today. I'm Brad Soltz. CEO of Will Scott Mobile Mini. This quarter is an excellent example of how growth compounds across our platform. We recently laid out a portfolio of largely idiosyncratic growth levers, which collectively represent about $1 billion of top-line growth. Starting on page 13, I'll talk through how each of these growth levers contribute to our strong performance in Q1, in which we delivered $509 million in revenue and $192 million of adjusted EBITDA, both up 20% and 17% respectively year over year. Starting with the largest growth lever at the top, value-added products and services, or VAPs, represents approximately a half a billion of the billion top-line growth potential. We continue to deliver ever more value to our customers with our differentiated and compelling offering as we take care of a supply chain node that's an inconvenience for our customers. In North America Modular, we achieved average VAPs rate per month of $407, up 21% year-over-year on all units delivered over the last 12 months. When we went public in late 2017, we set what most felt an ambitious target of $400 million of VAPs per unit per month. We eclipsed that milestone this quarter. If we simply hold these already-achieved penetration levels for three years, while the on-ramp fleet rolls from its average three-year lease durations, we'll realize $160 million of annual top-line growth or approximately one-third of the half a billion VAPS-related potential. We are incrementally introducing new offerings that will help even more of our customers be ready to work day one. We are leveraging our proven processes and tools to optimize rates. We are continuously enhancing our training and market collateral to improve the performance of the lower quartile of our sales reps and to accelerate the onboarding of new reps and customers alike, all of which makes us confident that we'll achieve our next new milestone of $600 of VAPs per unit per month, which would yield approximately another $200 million of additional annualized growth. In North America storage, now 80% of our ground-level office fleet can be delivered with our VAPs offering, and penetrating our mobile mini ground-level office fleet at the same levels already achieved on like-sized units in the modular segment would yield another $50 million of incremental VAPs-related top line growth. In addition, we are piloting our new storage VAPS program to select branches starting in May with a full assortment of locks, lighting, and basic shelving. We expect our premium offering to follow in early 2023. This is a differentiator relative to peers and is based on an established playbook that we developed and have been executing for years in modular. While we don't expect a significant financial contribution until 2023, we are excited by initial discussions with customers and confident that this initiative will be very well received. We identified up to $200 million of top-line growth potential associated with further lease rate optimization. Q1 lease rates accelerated across all segments, driven by our processes, team, and technology, further underpinned by the current inflationary backdrop. I was particularly pleased with our continued progress in North America storage, where rates on portable storage units were up 12%, year-over-year, marking our first quarter with a double-digit rate increase. North America Modular has now sustained double-digit modular rate growth, inclusive of VAPS, for over four years now, such that rates on new modular deliveries are greater than 30% above the average of all units currently on rent. As I've emphasized previously, we are a net inflation winner, and this quarter was no exception. Our cross-functional quarterly reviews help us stay disciplined and focused on further rate optimization. Given four years of history in North America Modular, wherein VAPS penetration has delivered just over half of the sustained double-digit rate growth and lease rate optimization has driven the balance, there's certainly further potential upside in this powerful and proven lever. One last note on rates. Please recall that our solutions provide a relatively high-value, low-cost, first-on, last-off critical service for our customers, representing only about 50 basis points of their average total project costs. As additional context, our average modular rental rate is equivalent to $1 to $2 per square foot per month, which compares quite favorably to the national average of about $3 to $5 per square foot per month for leased commercial office space, to the extent it's even available directly adjacent to a project. These are comparative unfurnished rates. Our fully furnished, ready-to-work solutions delivered and installed directly on the customer site and then taken away and redeployed to another customer whenever their project ends further widens the relative value spread. Market penetration initiatives are also progressing well as units on rent in Q1 were up sequentially across all segments. Looking across both North America's storage and modular segments, average portable storage units on rent increased by about 32,000 units, driven both equally by organic growth and acquisitions. As expected, our North American modular segment average units on rent inflected positive as the end-of-the-quarter unit on rent increased sequentially from December 31st of 2021 by approximately 1,800 units, or 2%, again driven by organic volume increases and acquisitions. In North America storage, Our strong volume growth of about 47,000 units per year, or 47,000 units year over year, was supported by organic growth, acquisitions, and the transfer of the legacy Will Scott containers from North America Modular. While I'll expand further on the robust in-market demand that we're experiencing in a moment, suffice it to say, we expect further sequential improvement through at least Q3. Our efforts in logistics are another example of how we are a net inflationary winner. Logistic services are where we are most immediately exposed with respect to inflation. Our delivery and installation margins actually expanded by about 300 bps year over year, which is indicative of our ability to manage through inflationary pressures. Our team vigilantly focuses on rates, fuel surcharges where appropriate, as well as operating efficiencies. Both North America Modular and North America Storage realized logistics margin expansion in the quarter. And we've now closed three more M&A transactions in 2022 for a total of 10 tuck-in acquisitions over the last eight months. All of these are fully integrated onto our operating platform, but for the one we announced this week, which is in process and expected to be fully integrated by the end of day. The M&A pipeline is robust. You should expect us to continue our momentum with smart, disciplined acquisitions, followed by seamless integrations. We deliver more value more efficiently than anyone else in our space, and we're thrilled to have the opportunity to provide that value proposition to our new and existing customers. While we do not expect meaningful additional cost synergies with respect to these tuck-in acquisitions, they certainly compound through our VAPs, lease rate, and market penetration growth levers. This portfolio of idiosyncratic growth levers underpinned by ambitious but achievable milestones laid out at our Investor Day in November notably achieving $1 billion of EBITDA milestone within three years and along the way achieving $500 million of free cash flow annualized run rate as we exit 2022. Given our significant progress in Q1, we're raising our guidance by $50 million to $860 million to $900 million of adjusted EBITDA for 2022. The predictable and recurring nature of the portfolio, supported by our long-duration leases and our current commercial momentum, will translate into growth for years to come. Circling back to our in-market outlook on page nine, while the macroeconomic uncertainties exist, we are experiencing extremely robust and broad-based in-market demand, and we are investing accordingly. Our current order book is the largest we've ever experienced. The relative strength of the order book affords us great visibility and demand for new units over the next 90 days. Non-residential construction leading indicators remain bullish in the near and medium term, as indicated by the 14th consecutive month of ABI holding above 50. This is an objectively strong leading indicator for core markets heading into 2023. Customer and field leadership feedback has been supportive, with some of our largest general contractors already booked out through the end of the year. And the strength largely extends across all end markets and geographies. Just a few examples. In Texas, we have a customer that's building a $17 billion semiconductor facility that we're supporting by providing 225 floors, totaling over 100,000 square foot of ready-to-work modular and storage solutions on their project site. This is a long-duration lease with additional opportunities to supply subcontractors over the course of the project, all enabled by the heavy involvement of our construction services team. We are unique in our capability of delivering such a large, complex solution set to customers with such high standards. Data centers continue to be a source of ongoing strength, typically requiring 20,000 square foot or more of modular and storage space per solution set, and we see that across the Midwest and the Plains regions of the U.S. And many cities, such as Des Moines and Fargo as examples, are benefiting from population shifts away from larger metropolitan centers, creating demand from customers in construction, schools, retail, warehouses, frankly, across all of our end markets. And across most geographies, infrastructure spending on roads and bridges continues to remain robust. Keep in mind, all of this is before any tangible benefit associated with the potential multi-trillion dollar infrastructure bill currently under consideration. While end market demand is the one element of the gross recipe we do not control, the current demand environment is as robust as I've ever experienced, certainly over the last 10 years, with all leading indicators porting towards sustained strength into 2023 and the potential of significant incremental infrastructure spending to further extend that robust demand well beyond that. With that, I'll turn the call over to Tim.