WillScot Holdings Corporation

Welcome to the second quarter, 2024, Will Scott Earnings Conference Call. My name is Cherie, and I will be your operator for today's call. 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 Director of Treasury and Investor Relations. Nick, you may begin.

Good afternoon and welcome to the Will Scott second quarter 2024 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 website. Slides two and three contain our safe harbor statements. 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 Statements in our presentation and our filings with the SEC. With that, I'll turn the call over to Brad Soltz.

Thanks, Nick. Good afternoon, everyone, and thank you for joining us today. I'm Brad Soltz, CEO of Will Scott. Starting on slide 17, our team delivered a solid Q2 with financial results that were both in line with our expectation as well as within the three to five year target ranges that we established just two and a half years ago. We continue to say what we'll do and then deliver on those commitments by controlling what we can control and through consistent execution by a great team. Before I hand the call over to Tim to cover results in more detail, I'll start by providing additional context with respect to the current macro backdrop and a brief strategic initiative update. In Q2, we continue to experience strong demand for larger-scale projects, namely in the industrial, manufacturing, energy, data center, and infrastructure sectors. These projects more immediately drive demand for our modular product lines, particularly our innovative and proprietary flex solutions. We expect this demand to stretch well beyond 2025, which is in line with our outlook in prior quarters. On the other hand, Q2 non-residential square foot starts were down 14% versus prior year and only up 1% sequentially versus Q1. This was below our expectation and is driven by fewer starts from smaller scale commercial construction and more interest rate sensitive projects, which have a more pronounced impact on our storage and smaller modular product lines. And as a reminder, the construction sector represents approximately 40% non-residency construction sector represents approximately 40% of our revenues, and we are not forecasting any improvement in this sector for the second half of 2024, and we are managing our business accordingly. Net of that mixed backdrop, Q2 modular activations were up modestly the prior year. We continue to be pleased with the resilience of our modular portfolio. Q2 storage activations were down 12% versus prior year, although up more than 20% sequentially. And we continue to see storage orders and activations build through July. Importantly, storage units on rent were stable throughout the second quarter. And while these trends are good outcomes given the mixed market backdrop, the sequential activation growth in storage and modular were slower than we expected. Our Q2 revenues were up 4% and continue to compound predictably driven by simple equation of volume times rate times value-added products penetration, all underpinned by our three-year average lease duration. In the case of Q2, strong performance in rate and VAPs more than mitigated year-over-year unit owner headwinds of 3% in modular and 20% in storage. And whilst our second half 2024 outlook is softer and less certain, we expect these volume headwinds to continue to dissipate throughout the balance of the year and be substantially, if not fully, abated as we enter 2025. Unfortunately, we enter second half on a lower revenue trajectory than we expected and are therefore revising our four-year outlook accordingly, while maintaining an implied 45% EBITDA margin and three cash flow margins above 20% at the midpoints. Now, turning to slide 13, this is a new page that shows our journey since the July 2020 merger with Mobile Mini. Less than one year after the merger closed, we went live on a harmonized version of SAP and then shifted our focus into combining the two separate instances of Salesforce.com, which occurred in 2023. In Q1 of 24, you recall we combined our legacy modular and storage sales and operation teams into a single leadership structure organized by geography. This allows us to go to market locally with a single team to conserve our customers across the entire offering of turnkey solutions. We also consolidated and upgraded our field service and dispatch systems, which allow us to better utilize our logistics resources across all product lines while improving execution, safety, and customer communication. Along the way and to this day, we continue to assess our processes and our team to identify which of each and which roles continue to make sense. In this, we are guided by our focus on operational excellence to safely streamline our operations and modernize our service model. We're recently in Q2 of 2024. Now that the systems are in place, we took further action to implement those streamlined processes. In some cases, those improvements led to meaningful employee cost savings, such that in early July, we implemented a plan that will result in a 15% reduction in indirect headcount. We believe these savings are durable and will continue to support margins in the second half of 2024 and beyond. Commercially, we announced earlier this week that we're consolidating our entire offering under the Will Scott brand. We also introduced a new company tagline right from the start, which is our commitment to bring expertise and execution to deliver our space solutions that are right for the project, right for the timeline, right from the start. We also took a moment to celebrate our history as innovators and pioneers in the industry with roots back dating 80 years. I'm particularly proud of the more recent acceleration of our innovation that, while perhaps a bit underappreciated, will certainly drive additional value creation for all stakeholders for years to come. This is an important step in a logical culmination of the timeline we just outlined and the harmonization of our go-to-market strategy. Our single Will Scott identity gives us the ability to scale more efficiently, particularly as we've diversified our offering to include ClearSpan climate control storage and other complimentary space solution. And we're backing all this up with an overall of our digital customer experience. I'd encourage our customers and investors to check out the new willscott.com to see it for yourself. We're adding an enhanced customer portal with expanded customer self-service capabilities, and we launched a new digital marketing initiatives to modernize how we feel, fill and convert our sales funnel. We designed the entire experience in direct response to feedback that we get from our customers and incorporated best practice from other industries. These digital tools are in tune and turn directly feeding into our CRM as well as our proprietary sales tool, Project One, which we mentioned last quarter. Project One leverages multiple third party and internally generated data sources to identify developing project opportunities prioritize the leads, and recommend actions to our sales reps. This gives us a platform to further optimize selling time and conversion and allows us to be more prescriptive, recommending the appropriate bundled solutions that are tailored by project type. We're starting to see results from our investment already with early wins in the manufacturing data center and education sectors. I'm proud of the team for their diligent efforts to launch these initiatives. We've prioritized these front-end tools to drive demand for obvious reasons. Though we have an equally important roadmap to reimagine our backend processes, ensure that we deliver an unparalleled customer experience in our industry. And finally, before turning it over to Tim, I'll provide a brief update on our pending acquisition of McGrath. You'll recall in January of 24th, we announced the exciting transaction. In May, both Will Scott and McGrath certified substantial compliance with the FTC's second request for information which you'll recall was comprehensive in nature. On July 11th of 2024, McGrath shareholders resoundedly approved the transaction, and both parties recently agreed to extend the FTC's review period through September 27th of this year. We continue to work collaboratively with the FTC. As we discussed in the last earning call and frequently over the last corner, we will provide further updates on the review process when we have new news to share via public channels. we will otherwise not be commenting further on the FTC review process continues. We remain extremely excited about the benefits that this transaction will provide for customers, our collective teams, our shareholders, and the communities in which we operate. With that, I'll hand it over to Tim to discuss our Q2 2024 results in more detail.