Q4 2022 Willscot Mobile Mini Holdings Corp Earnings Call
The conference will begin shortly.
Yeah.
Welcome to the fourth quarter 2022 will Scott mobile mini earnings conference call.
It's Michele 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 Gerardi Senior director of Treasury and Investor Relations you may begin.
Good morning, and welcome to the well Scott Mobile mini fourth quarter 2022 earnings call participants on today's call include Brad salts, Chief Executive Officer, and Tim Boswell, President and Chief Financial Officer. Today's presentation materials may be found on the Investor Relations section of the well 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 todays comments for a more complete description.
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 salts.
Thanks, Nick Good morning, everyone and thank you for joining us today I'm, Brad sold CEO will Scott mobile mini.
First a quick reminder, that we've completed the divestiture of the tank and pump in the U K segments. Together. These discontinued operations had been contributing about $100 million of adjusted annual EBITDA.
We are now focusing our human and financial capital with laser precision on further amplifying our pure play position as the undisputed leader, providing innovative modular space and storage solutions in North America.
We're excited to kick off 2023, with the streamlined focus and we continue to get a lot of new interest in our company. Our strategy is simple and unchanged, we safely and prudently grow lease revenues by driving units on rent rate optimization optimization and value added products and services all to delight our customers support our employees.
And deliver outstanding returns to our shareholders.
For those of you on the call followed us for some time know that we say what we do we do what we say and we referenced our goals as milestones. That's because milestones are intended to be surpassed in 2022, we achieved several key milestones that we had identified just over a year ago at our Investor day.
Outperformance from continuing operation operations resulted in full year 2020 to return on invested capital of 15% as well as revenue of $2. One 4 billion up 28% net income of $276 million up 141% and adjusted EBITDA of 884 million up 30%.
6% year over year, respectively. All of these are company records and will continue to raise the bar.
Given the trajectory on which we exited 2022, we will achieve the 1 billion adjusted EBITDA milestone already in 2023 based exclusively on our continuing operations.
Now beginning on page 14, we're executing a portfolio of largely idiosyncratic initiatives representing over $1 billion of further growth opportunity.
First the largest in massive comparative advantage value added products and services or of apps opportunities alone support $500 million of future growth and we continue to make great progress our modular team exceeded $400 of apps revenue per month per module unit delivered and are progressing toward.
Our next milestone of 600 with enhanced penetration selective new product introductions and better sales rep productivity modular perhaps alone represents over $300 million of growth over half of which were realized by simply holding penetration rates they've already achieved on units delivered in the last 12 months.
Our storage team continued to expand babson penetration across the ground level office fleet and rolled out our basic storage offering across our branch network, including organizational solutions security features and lighting options and in 2023, we're introducing our premium offering and innovative proprietary.
<unk> of highly efficient and reusable modules that can be configured for shelving pipe racks, workbenches tool storage et cetera customer support and feedback has been strong and we're following the same proven playbook, we've been executing for years and modular.
The growth potential associated with this initiative gets more exciting every time I revisit it.
Second rate optimization initiatives continued to progress very well simply maintaining the rates that we've already achieved today represents over 200 million of future growth as our portfolio churns over its approximate three year lease duration.
Our modular team achieved an 18% year over year increase in average monthly rates in 2022, driven by consistent growth throughout the year, our storage team delivered 24% year over year growth in 2022 accelerating throughout the year and we have numerous levers to drive rate in our business and our differentiated value proposition.
Product offering best in class logistics and customer service allow us to deliver unrivaled value to our customers. We will continue to expand our value proposition and capture that value and rate.
Third market penetration improved as we drove volume in both segments. I'm also thrilled to report that we went live on our new CRM system earlier, this month, which allows all employees to see all customer activity across the entire company. This will enable more systematic lead sharing more sophisticated digital marketing and ultimately.
Will allow us to go to market as one company and provide a more seamless experience for our customers.
We are booking orders and deliveries in the harmonized system as we speak and I would like to extend my gratitude to the team and the dedicated countless hours. It took to make this transition smooth and seamless.
Our fourth lever our logistics teams have been hard at work as well, we improved delivery and installation margins in every quarter. This year already capturing over $50 million of incremental margin in the year 2022, we have many more opportunities to generate further value as we reduce cost, particularly as we improve our routing and delivery systems.
Invest more efficient environmental friendly trucks and in source more delivery activity in modular. So we've clearly already delivered pun intended on the 50 million milestone for this category and are confident there's another $50 million of further potential.
Finally, you'll note that we've expanded the title of our fifth growth level to include the scale efficiencies, resulting from both M&A as well as optimization across the broader enterprise.
2022, we continued our disciplined and programmatic tuck in M&A strategy closing and integrating 13 acquisitions of local and regional modular and storage companies, which extends our value proposition to both new and existing customers and our current M&A pipeline supports a continuation of this cadence.
Broader scale efficiencies will build overtime with initial benefits evidenced in our gross margin expansion and sequential improvements in SG&A, both of which Tim will unpack a bit further.
Our customer value proposition is equally simple deliver turnkey space solutions. So our customers are safe comfortable and productivity from day, one and while our value proposition is simple execution is not we leverage our market, leading and unparalleled scale with commercial operational and <unk>.
Technological sophistication, we are a small part of the total project cost for our customers and are typically the most cost effective and convenient.
Alternative.
Our portfolio of idiosyncratic value drivers, resulting compounding cash flow, providing for full optionality with respect to capital allocation.
Our modular and storage fleet scale and associated operations are five times larger than the next largest alternative provider and over 75% of our revenues are driven by recurring long duration leases to generate consistent and profitable growth.
Altogether translating into attractive and expanding returns on capital.
It will Scott mobile mini we deliver on our promises I have no doubt that we will achieve in suppress more milestones in 2023 with that I'll turn the call over to Tim for more detail on the year end results and our exciting outlook.
Thank you Brad and good morning, everyone I'm going to flip through a few pages starting with page 20 in the financials section, which shows a high level summary of the quarter.
Before I jump in I will remind everyone that the results from the divested U K storage segment are reported as discontinued operations in Q4, and all prior periods and the results of the divested tank <unk> pump segment are reported as discontinued operations in Q3 and all prior periods.
And certain analyses, we've added back UK storage and tank and pump results for comparability purposes, and footnoted those adjustments.
As always our goal is to be as transparent as possible about the run rate of our business and we continue to be very excited about our trajectory.
In Q4 total revenues of $591 million were up 28% driven by our Tri factor of right value added products and volume across both segments and supplemented by acquisitions.
Adjusted EBITDA was up 43% to $268 million and adjusted EBITDA margin expanded by 480 basis points to over 45%, which is a company record and driven by very strong performance in our logistics function.
For the full year 2022, adjusted EBITDA margin of 41, 3% expanded by 250 basis points, which is exactly the midpoint of what we presented to you at Investor day about 16 months ago, while significantly exceeding those revenue and EBITDA targets.
Free cash flow accelerated as expected generating $123 million in Q4 at a 20% margin and a 14% margin for the full year.
Return on invested capital increased to over 15% for the year, which is also a company record and up 370 basis points year over year.
Net debt to EBITDA has dropped to three one times pro forma for the UK divestiture, which is at the low end of our target range and the lowest level in the last 10 years.
All while supporting the strongest reinvestment in the history of our business with $414 million of net Capex $221 million invested in 13 acquisitions and over $750 million of share repurchases, which reduced our economic share count by eight 2%.
We continue to execute across all of our idiosyncratic growth initiatives and together they comprise a powerful formula to deliver sustainable growth and returns.
Page 21 lays out revenue and adjusted EBITDA for the quarter from continuing operations revenue increased 28% to $591 million and adjusted EBITDA increased 43% to $268 million and margins expanded by 480 basis points to 45, 4% and these are.
Results exclude contribution from the divested segments.
It's important to remember that Q4 is always our highest margin quarter due to the strong seasonal utilization in our storage segment and seasonally lower work order activity in our modular segment. So while margins will obviously come down sequentially. As we enter 2023. This was record profitability for the company in Q4 and indicative of where the bid.
<unk> can go as it compounds predictably overtime.
We've been talking about the trifecta of right value added products and volume all year and they all contributed again in Q4 across both segments and provide clear tailwind for leasing revenues into 2023.
We also saw 23% increase in delivery and installation revenue as a result of strong pricing and volumes as well as efficiency initiatives, which together drove over 550 basis points of gross margin expansion in the quarter and over 800 basis points for the year.
The team did an extraordinary job managing the fuel and freight cost volatility last year and will be focused on maintaining these gains in 2023.
Similarly, SG&A stabilized through the course of the year as we saw in Q3 and SG&A was down again sequentially in the fourth quarter and down approximately 130 basis points as a percentage of revenue for the year and I fully expect that SG&A will be down again in 2023 as a percentage of revenue.
So between the top line momentum our cost efficiency initiatives and easing inflation, we are quite confident in our margin outlook heading into 2023 and beyond.
Turning to page 22, net cash provided by operating activities increased to 36% year over year to 200 $200 million as I suggested on our last call in Q4, we reduced net capex by almost $50 million sequentially and by almost $20 million year over.
A year most.
Most of the fleet purchases and our storage segment landed earlier in the year and we saw more normal seasonal reduction in modular refurbishments relative to 2021.
Recall that in Q4 2021, we maintained significant production in our modular branches given the extraordinarily tight labor market at the time and rebounding demand <unk>.
So capex in Q4 2021 was unusually high in 2022 reflects a more normal seasonal pattern.
Free cash flow increased sequentially by $40 million to $123 million in line with the $500 million run rate that we were expecting.
And free cash flow margin jumped back to 20% in the quarter and over 14% for the year.
The cash flow metrics all include the divested tank and pump and UK segments for the periods in which they were owned so that run rate will come down a bit entering 2023, and then rebuild through the course of the year.
And consistent with our other margins I expect free cash flow margin will compress meaningfully from Q4 into Q1, and then expand back into the high teens for the full year of 2023 as the business compounds predictably.
Turning to page 23 leverage declined to three three times last 12 months adjusted EBITDA as reported for purposes of Q4 and to three one times pro forma for the close of the U K divestiture on January 31 2023.
We are at the bottom of our target leverage range of three point out to three five times with over $1 billion of availability on our asset backed revolver. So we're unconstrained from a capital allocation standpoint, with an extremely flexible debt structure.
Our weighted average cost of debt is five 5% and our debt structure is now 60% fixed rate after taking into account the $750 million floating to fixed so first swap that we executed in January 2023.
And we entered the year with an annualized cash interest run rate of approximately $170 million.
As always we will be opportunistic and exploring ways to further optimize the balance sheet, but we are very happy with this debt structure.
Page 24 shows our capital allocation framework and our performance over the last 12 months, we created $1 $6 billion of capital availability on a leverage neutral basis over the last 12 months and we allocated that capital consistent with our framework.
26% of our capital or $414 million went to net capex, including the data.
The divested segments, given the strong demand environment.
As I'll talk about in a minute I expect that comes down a bit in 2023.
We invested $221 million 13 acquisitions in 2022, and the pipeline supports maintaining this cadence in 2023.
We delever to the low end of our range, both through growth and our divestitures and we continue to see value in our own stock repurchasing over $750 million of shares in equivalents and reducing our economic share count by eight 2% in 2022, representing a very strong return for our shareholders.
Page 25 reconciles our 2022 results with the guidance that we issued in Q3 following the divestiture of the tank <unk> pump segment.
On the left hand side, our prior guidance was $910 million to $930 million of adjusted EBITDA for the year inclusive of the U K operations.
We ended 2022 with $933 million of adjusted EBITDA due to outperformance in our modular and storage segments. So above the range we shared in November .
Moving to the right side of the page removing the annual results from the UK as discontinued operations leaves $884 million of adjusted EBITDA.
Our run rate that supports over $1 billion of EBITDA in 2023 and generated by a stronger pure play modular space and storage portfolio here in North America.
Yes.
And last but not least page 26 details the guidance for the year, we expect that revenue will be up between 9% and 16% for the year with stronger growth in our leasing revenues relative to delivery and installation and sales.
Adjusted EBITDA of 1 billion to one point over $5 billion will be up between 13% and 19% for the year.
And this growth is nearly all organic with no assumed contribution from incremental acquisitions.
We are assuming stable market conditions that support low single digit volume growth.
But but not the same demand environment that we saw in 2022.
That said, we're not assuming a major demand contraction either given that we have and markets like infrastructure manufacturing and re shoring and energy that are set up to perform this year, regardless of a potential recession.
We are assuming that we continue to execute our pricing value added products and margin initiatives. Since these are all largely within our control.
EBITDA margins should be up approximately 125 to 175 basis points this year.
And we are not assuming further expansion of our delivery and installation gross margins. So the expansion is coming from rental gross margin and operating leverage in SG&A.
As I mentioned earlier, both revenue and margins will contract sequentially from Q4 into Q1, and then expand sequentially such that they are up meaningfully again for the year.
This is normal and simply a combination of seasonal storage volume coming off of rent and modular work order volume beginning to ramp up in Q1.
I would also expect SG&A to step up sequentially from Q4 to Q1, and then level off for the rest of the year and decline overall for the year as a percentage of revenue.
As I mentioned on our last call net Capex will remain at moderate levels in Q1 before ramping into the seasonally stronger Q2, and Q3 delivery periods.
<unk> thousand 22 was a record year for fleet investment in our storage business. So between fewer storage fleet additions and more efficient modular work order spending partly offset by value added products growth capex.
Our base our base case for Capex is to be down about $25 million or 7% this year.
That said it will be it will be demand driven and we will invest more or less as we reset our zero based fleet investment plan every quarter.
But regardless I think this sets up for a year of very strong free cash flow growth.
Looking at the guidance altogether, we would point investors to the lower end of the revenue and EBITDA ranges to start the year given there is clearly some macroeconomic uncertainty out there that said at the lower end, we're comfortable that we can offset any risks related to volumes and any risks to delivery and installation margins or cost inflation.
So the only question at the lower end of the range is how strongly as our run rate compounding into 2024, depending on the on how the second half of the year unfolds.
And while we're not seeing any alarming deterioration in our metrics to start the year, we have considered a potential 2023 recession scenario and formulating the ranges and believe we can deliver the ranges, regardless, which reflects the resilience of the business model and the strength of our own growth drivers.
In terms of variables that could take us to the higher end of these ranges certainly acquisitions would be incremental this outlook is purely organic.
A stronger demand environment supporting additional volume growth could push us towards the higher ends of all ranges and have great run run rate implications for 2024.
And further expansion of delivery and installation margins would be incremental given the extraordinary gains in record levels achieved last year.
I am sure there will be follow up questions. So I'll leave it at that in all of our scenarios. It will be another year of strong revenue EBITDA and free cash flow growth and margin expansion. It's just a question of how strongly the business compounds into 2024, and we're highly confident that we have a portfolio of growth levers that will drive the business.
Well beyond that horizon.
Thanks to our team for their execution and to our investors for your support as we continue the transformation of Wolfe Scott mobile mini with that Brad I'll hand, it back to you great. Thanks, Tim.
And as Tim I want to thank our team our customers and our shareholders for their continued commitment to the to the wheel Scott team.
We are extremely excited about our growth in 2023 and beyond given the trajectory at which we exited 2022 I do wish all of you listening today continued safety and good health. This concludes our prepared remarks, Michelle would you. Please open the line for questions.
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Our first question comes from Manav Patnaik with Barclays. Your line is now open.
Yes.
Hi, Good morning. This is roni Kennedy Altra Manav. Thank you for taking my questions.
I'll just ask if you could kind of further elaborate with regards to demand I know the commentary alluded to not seeing the same consistent levels of demand contemplating.
A recession to start the year being at the lower end of the guide, but what does that imply for the pace of compounding you saw the order book the conversations Youre, having and the leading indicators you had with regards to demand. If you could please just expand on that.
Yeah. This is Brett I'll start.
Tim will certainly jump in.
First of all we should remind ourselves the extremely.
<unk> robust environment, we were experiencing a year ago.
So there is nothing in the current demand outlook that gives me pause.
We have moderated our growth.
Expectations for the year, we still expect growth.
And it's reflected in our capital guidance as well, so a fair bit more uncertainty to be clear the only leading indicator that's let's say.
Of note that might be in the negative territory is the Abi.
Which we've now had only four months of below 50.
Inquiry index has remained very robust throughout that process.
I do think there is still significant backlogs the commentary from our customers is still extremely robust.
Expectations for the year so.
Underpinning all of that with.
Certain tailwind that we'll experience with respect to onshore and re shoring without regard and then further lifted by whatever materializes in terms of infrastructure.
Albeit that's going to be a second half 'twenty three and 'twenty four play.
Please. Thank you that's helpful in EMEA.
Yes.
Please standby for our next question.
Okay.
Our next question comes from Tim Mall, REIT Rooney with William Blair. Your line is now open.
Yes, Thanks for taking my question this morning.
It looks like Youre expecting about 150 basis points EBITDA margin expansion in 'twenty, three and on top of the significant expansion. We've seen over the last few years can you just talk about how much of that you expect to come from the gross margin side.
Versus getting leverage on fixed SG&A, and how youre thinking about that gross margin between modular and starch.
Yes, Tim this is Tim.
I would say, it's going to be roughly roughly half and half.
Between SG&A leverage and as I said in my prepared remarks.
Not assuming further expansion of delivery and installation margins that would be would be upside. We certainly delivered a great result in 2022 on that line.
A line item and I also said that leasing revenues are likely to grow faster than delivery and installation and sales. So you get some mixed benefit to the margin. The gross margin line in terms of the relative profitability of leasing revenues as compared to the other revenue stream. So I think that's the best way to think about it and it's really just predicated on.
On a continuing predictable compounding of the portfolio, you've got very strong pricing and value added products tailwind that naturally drive gross margin expansion.
As well as the topline growth of the business, which then in turn delivers the operating leverage so it's really just a continuation of the formula that's been working for some time now and we haven't really assumed any heroic initiatives into in terms of delivering yet another year of pretty attractive margin expansion.
Understood. Thank Tim are we doing to questions, which I'll hop back in queue.
Yes, I think we unfortunately cut off.
Our friend on the prior questions. So please feel free to do a follow up.
I just wanted to follow up on that prior on the prior question I thought it was a good one.
Brad You said, you expect robust demand, but you've moderated moderated your growth expectations a little for this year.
A lot of us have given the uncertainty.
Is your moderation when I think about when you say something like what we've moderated is.
Is that more on the pricing side based on what you are seeing with spot rates or is it you're just kind of expanded the range of volume possibilities.
How do I think about.
When you say, you've moderated your growth expectations, a little bit. Thank you.
I think the only moderation if you will is reflected in our capital guide, we're expecting to invest more in organic growth. This year, but I will stress the word expecting we don't know what the end markets will present in the end.
If they accelerate and are as robust as we experienced last year, we will be investing at the high end of our range and if they are extremely robust we'll invest ahead of that.
And reap the benefits in 2024 and beyond so this is the time of year, where we will continue to see increased clarity with respect to the modular.
Let's say second and third quarter demand reality, we will see the retail remodels.
<unk> become more apparent if you will throughout the year.
It's just early in the game there is nothing.
This is me any concern.
And as always we will moderate our capital investments.
Our labor accordingly to whatever the markets present I'll. Just this is Tim I'll, just elaborate a little bit and if you look at the Capex range. The top end of the range is above what we invested this year in our core modular and storage segments. So that would be a that would be a very robust market investment effort.
Market <unk>.
Scenario for investing at that level, but there's clearly more uncertainty going into the second half of the year than maybe we felt there was last year.
So we are assuming low single digit volume growth in the modular business.
Three 4% volume growth in the storage business, but remember that's coming off of a year, where we added 15000 containers organically right and grew the storage business organically in the 8% to 9% volume range on top of the pricing performance that we saw in storage and on top of the rollout of value added products. So we're just.
Moderating off of.
A result that was pretty darn strong in the case of our storage segment.
Got it thank you.
Please standby for our next question.
Our next question comes from Scott Schneeberger with Oppenheimer. Your line is now open.
Thanks, very much good morning.
I have one on pricing one on.
On Capex.
On pricing guidance.
It's been I think eight consecutive quarters of accelerating price and North American stare storage up to 35% year over year quite robust.
Can you talk about how that occurred in the fourth quarter was it was at the base rentals.
Or or season, all of that had that impact and how should we think about that metric looking in 2023. Thank you.
Yes, there are certainly.
Strong seasonal impact to the.
Year over year result that we delivered in Q4 in the storage segment, we had some very meaningful rate adjustments across some of the national accounts and the major retailers that were probably just frankly, a little bit overdue. If we think back as to how those were handled historically.
Sequentially in the storage business I would expect that to come off a bit as we move from Q4 into Q1.
And I think we alluded to that possibility.
Last quarter, when we were talking about the performance of our seasonal business.
This is Scott I would just add if you go further.
Further afield in storage rates.
Kind of reflect on what's developed.
On the modular side, so think of longer term, we can achieve double digit rate growth, we're not going to achieve 35% year over year growth in core rate alone forever.
But even if that moderates to.
Low to mid single digits at the same time, we're bringing the vast portfolio into play there so between rate and <unk> I am highly confident.
We can sustain double digit rate growth for for.
For several years, there and Scott to be a little more specific in terms of the sequential potential contraction you could be in the 10 to $15 range.
As you go from from Q4 into Q1 as that seasonal.
Volume comes off of rent.
Thanks, guys I appreciate all that color.
That follow up I mentioned, the Capex just curious Kim you mentioned it is a very wide range of the guidance for 2023.
What are the asset classes that you're targeting.
Just some color around that and some color around maintenance versus growth in 2023. After what was a very active capex year in 2022.
Yes, we've got a rule of thumb here that tends to be pretty consistent if you look at our capex spend in a given.
Given 12 months period about half of it is going to be going into modular refurbishment.
About a quarter, it's going to be going into new fleet and about a quarter of its going into value added products and services and Thats a pretty good that's a pretty good assumption for.
For this year that implies that modular refurbishment is coming coming down a bit year over year in this case.
And Thats.
Due to roughly comparable work order volumes, but also with <unk>.
<unk>, 5% to 10%.
Efficiency on the cost per work order, which we are seeing we are seeing some interesting opportunities there coming out of the transition into <unk>.
SAP.
On the new storage fleet side of things as I mentioned a minute ago. We added about 15000 containers organically last year, our base case would assume roughly roughly half of that.
And then value added products is going to be up meaningfully.
Year over year.
In terms of just because of the growth in that in that revenue stream.
At the midpoint of the guidance of like $340 million Youre almost right in line with depreciation and amortization in the P&L, which is about $335 million going into next year.
So that would mean youre pretty much balance sheet neutral in terms of the midpoint of that that guidance range.
At the high end as I mentioned that would be above last year, so a pretty robust demand environment and we did introduce a lower range as well recognizing that there is uncertainty.
In the second half of the year and we have a demand driven model. So if the demand isn't there we have a very countercyclical cash flow model and part of that is because we would pull down capex in that environment.
Great. Thanks, guys I appreciate all the color congrats on a great year.
Please standby for our next question.
Our next question comes from Faiza.
<unk> with Deutsche Bank. Your line is now open.
Good morning, Scott This is avi filling in for <unk> today.
Quick question on some of the things that you had laid out back in your Investor day, It looks like you're already there, especially the.
EBITDA perspective.
As I look at forward like what are the new setup.
What was the next leg of growth for both cut from here are there any disinfectants you could target.
Kind of on that thank you.
Hi, This is Tim I look at the Investor Day $1 billion is one of those milestones among many that were in the.
Investor Day materials, and yes, we will be there in 2023, we also presented a bridge to $650 million of free cash flow and free cash flow per share between two and four until two and $4 is the business compounds predictably over time. So this is just one step on what was always.
Going to be a pretty pretty long and exciting journey from our perspective.
In Brad's prepared remarks he referenced.
Kind of the five major growth drivers in the business, we still have $500 million of growth opportunity and value added products and services just by holding rates, where they are today, we've got about $200 million of growth embedded in pricing, we continue to be acquisitive and acquisitive smarter.
In a very disciplined way and realizing cost and revenue synergies from those acquisitions at attractive valuations.
We've delivered on the logistics opportunity and we think theres upside there over time.
And we also see other scale efficiencies as the business.
Gross so thats not the role to take other.
Growth initiatives off the table, but let's also stay focused on the fact that there is still a tremendous amount of gas in the tank in terms of just executing.
The initiatives that have been propelling the business now for some time.
Thank you Dan and just a quick question on M&A, how does M&A look like to you in 2023, especially if there's a recession and if there is not a recession could we see sort of an upside to our revenue guidance. Thank you.
If there is not a recession and we have a stronger demand environment throughout the year than our base case, then yes that would be one of the factors that takes us to the higher end of the range.
I think we said in our remarks that the acquisition pipeline as we sit here today certainly supports investing at the levels that we did.
In 2022, and that was over $220 million of enterprise value.
Invested in.
We again, we won't Miss a quality deal in quality deal to us is quality fleet quality people and quality customer portfolio.
We see a pretty attractive pipeline ahead of us.
Great. Thank you.
Please standby for next question.
Our next question comes from Andrew Wittmann with Baird. Your line is now open.
Yes, great. Good morning, and thanks for taking my questions I guess I had a question on the logistics.
On the delivery and installation margins I guess, obviously 2022 was a very strong year.
You talked about some of the initiatives.
Asking you to talk a little bit more about some of the things you've done on the cost side I think you've also tried to price more for the value.
On that side as well, that's helping that margin so.
I guess, if you could just give a little bit more detail about.
What kind of happened in 2022, Brian in your opening remarks, you also talked about but theres still some opportunity here.
On the delivery and installation yet it sounds like your guidance is not expecting too much more much more contribution from that so I was wondering if you could kind of maybe I heard that incorrectly, but I was wondering if you could kind of square that one off as to why that's the approach we've taken with the guidance.
Yes, Im happy too I mean, the majority of the $50 million incremental we realized last year was rate driven.
The <unk> team did an outstanding job.
Not only driving the value that we're delivering.
But also overcoming the all the inflationary pressures.
On that front so base.
Basically the initiatives that we had in mind, when we put the investor day material together, which in sourcing more modular route optimization.
More fuel efficient vehicles et cetera.
That's all still yet to be harvested if you will and that's why I did say in my prepared remarks I think.
With those initiatives and own alone there is still another $50 million of potential out there.
That will just continue to work on.
So I guess why was that not included in the guidance for 'twenty three than if there's that much opportunity.
Those are heavy lift heavier lift if you will right.
As Tim said, we've kind of assumed kind of moderation throughout the year, but to bring more in house, you've got a source trucks, which have been hard to acquire <unk> got a source drivers.
We just undertook a massive integration.
On the CRM side, so looking forward, we've got to integrate and harmonize the C or the logistics platforms et cetera. So there will be a lot of work. If you will next year, Andy but those results are probably going to be materializing 2024 and beyond Okay. That's helpful. And then I guess.
Just for my follow up question here with the with the right approach that you've taken and have been taking in 'twenty. Two on your storage business. I was just wondering what the competitive response has been we heard your conference Brad in the outlook for double digit growth for some time, certainly <unk> being a contributor to that but just abroad.
Price as well has there been.
Our competitive those spuds, that's either trying to.
Obviously be underpriced or is the market coming your way and others are seeing the rising tide potential here and lifting all boats. So just curious as to.
What your business is experiencing in that marketplace.
And as Tim as you know we've been quite acquisitive on the store.
The storage side of the business and we do get feedback that our rate strategy as noted and competitors are following as you would expect them to.
It's still a difficult environment out there for smaller competitors in terms of sourcing fleet and also the cost of capital.
Which I think is not supportive of the acquisition pipeline.
Going forward, but in the meantime, yes, we do see.
Competitors, raising rates, which is healthy for for everybody and healthy for the industry and Meanwhile, it hasnt been an impediment to us growing our storage volumes.
Quite strongly in 2022 on an organic basis again up eight or 9% in addition to.
The rate performance, which was pushing 30% in Q3 and Q4 year over year.
Got it okay, great. Thanks, guys.
Please standby for next question.
Our next question comes from Phil <unk> with Jefferies. Your line is now open.
Our next question comes from Phil <unk> with Jefferies. Your line is now open.
Please standby for our next question.
Our next.
Comes from Sharif Al Savvy with Bank of America. Your line is now open.
Hi, good morning.
Just wanted to come back to the capital allocation framework and just see just given given the framework you have is there any appetite for larger acquisitions or M&A activity or just given the CRM rollout some of the additional head count that's been brought in is that something that.
You are not really looking to do right now or would you have an appetite for in the coming years.
I'm not sure if it's Tim we've had the appetite in the past and we would certainly have it in the future. It's just always more difficult to predict the timing and profitability of those types of transactions. So our approach since the investor day is to be talk about talk about that which is within our control. We think the programmatic tuck in <unk>.
<unk> is absolutely within our control and something we intend to continue to execute but to your point at three one turns of leverage we've got plenty of capacity.
On the balance sheet for transactions really of any size as well as supporting our other capital allocation like the share repurchase, which we still think is a very attractive.
Capital deployment alternatives. So appetite is there, it's just harder to predict timing and probability on the larger stuff.
Thank you.
Please standby for our next question.
Our next question comes from Stanley Elliott with Stifel. Your line is now open.
Good morning, everyone and thank you for taking the question.
Quick question on the Capex piece are you all seeing any deflation be lumber or steel prices.
Embedded in kind of your your buys expected for the rest of the year.
Stan This is Tim I would say not yet deflation certainly in specific categories. Yes, we track a basket of goods that is common in our modular refurbishments and what we've seen there is stabilization, which is a good first step you have things like HVAC, which are still up significantly in other categories that are.
Down.
The basket that we track is has stabilized over the last two or three quarters, which is really good.
A really good first step.
In our modular Refurbishments I also noted in our remarks that.
On a per work order basis, we expect that spend to be down about 5% to 10% this year and thats more just driven by our own.
Using less material on a work order and being more efficient with that type of activity.
And that is more a result of.
Some of the benefits and visibility we have after moving the modular business.
But there is some work to do there so.
So we've not assumed deflationary benefits in the.
And the Capex guidance, but there are some signs pointing in that direction.
Yeah, no. It just would seem like if down seven probably is not really down seven is probably down maybe low single digits I'm kind of more flattish would be my guess, but.
Switching gears on the VAT storage piece, you mentioned the security lighting options the premium offering I think it's.
Very excited again, especially when you think about it.
Maybe it was more shelving kind of the way I had originally conveyed conceptualized all of this how quickly can you move this premium offering into the VAT kind of offering as youre looking at now for the storage side.
Ed.
Would love to get any color there. Thanks.
Yes. This is Brad I'll.
I'll take that first of all the premium offering is just kind of further enhancement upside we've already offering lighting solutions, we're already offering shelving solutions security solutions et cetera, we do and we have referred to that is our basic offering so.
And that was just rolled out last year and is just getting started so I think the basic offering if you will is pretty comprehensive.
We'll satisfy most of our customers' needs.
The premium just takes it to another play.
Great guys. Thanks for the color best of luck.
Please standby for our next question.
Our next question comes from <unk> <unk> with Jefferies. Your line is now open.
Hey, guys can you hear me now.
Yes again.
Sorry about that sorry about that well congrats on the inter strong quarter I. Appreciate all the color you provided Tim.
Just to make sure I heard you correctly Tim.
Your guidance the low end of the sales range.
But EBITDA, where do you think we are going to shake out closer to the low end or you have the ability to kind of get to the midpoint and implicit in that are you assuming low single digit and mid single digit units on rent for modular and storage. If I heard you correctly. If that's the case and it's still pretty solid and a potential recession backdrop in the second half.
I think you've got it mostly right there I think to start giving given the uncertainties in the second half of the year.
We are pointing to the lower end of the revenue and EBITDA ranges, but the entire range is in play right.
I said in my prepared remarks, even if we have a macroeconomic disruption. This year, we can deliver the low ends.
And if things.
Are more favorable than maybe we're assuming right now then.
The top end is definitely in play as well.
So I think this is just more of a function of where we are in the year.
And the obvious.
Uncertainties that are out there relative to maybe maybe prior approaches to guidance, where we are.
I've been to say Hey, just go straight to the midpoint in and keep it simple.
In terms of the volume assumptions, yes, low single digit for modular and.
Bit higher in the storage segment, but again, three or 4% organic growth in storage is not quite the eight or 9% that we delivered last year organically. So it is a slight moderation.
Got you that's really helpful color and Brad you talked about your confidence in kind of sustaining double digit EMR growth I believe on both businesses.
Can you kind of remind us where spot.
Prices are what that spread is and assuming we do head into a recession.
If that takes a step back.
Just given your long leased nature I think you should still have pretty good runway, but just kind of help us think through that dynamic potentially going forward.
Yes. This is Tim we still have very favorable spreads between <unk>.
Spot and.
The overall portfolio average north of 30% in modular.
And close to 30% across the ground level office fleet.
And given the massive increase that we just saw in the second half of the year.
It's a little bit tighter kind of low teens in the storage business right now and we'll see where that kind of stabilizes as the seasonal volume comes off rent and we move into the busier quarters here, but the spreads are still very powerful tailwind which to your point.
Allow us to deliver kind of the guidance ranges with confidence.
Okay, Great I appreciate the color.
Please standby for next question.
Okay.
Our next question comes from Brent Thielman with D. A Davidson your line is now open.
Hey, great. Thanks, Hey, Brad Tim Congrats great year.
Brad in the past you've talked about your modular order book typically accelerating.
And February and I guess I'm, just wondering how that's evolving.
Relative to what you've seen over the past few years, it's we're sort of tick through the month that you're encouraged by what Youre seeing mini underlying trend as you have seen that seasonal uptick in modular.
In February it's early in the play right will we will see more as we navigate March April and may into that peak season.
I will say theres nothing about it thats discouraging and as Ive said before its not as robust as it was let's say one year ago, when we'd actually been investing in the fourth quarter of the prior year.
At very high levels right as we were ramping into what we knew was very very robust if not record demand levels. So nothing I am seeing is of concern.
But as Tim and I. Both said, we we don't know in the end, where the macro environment lands.
We're highly confident we'll grow through it.
We will work within our ranges of guidance and.
It's basically executing the playbook, we've been executing for five years to 10 years now.
Yep, Okay and then.
Just a question on the underlying trends you're seeing in Baps I mean, obviously customers still very much prefer that total solution here given the traction penetration youre seeing.
Are you finding customers seeking more ways to.
Minimize their all in costs just given this macro inflationary environment are you having to pivot some of your offerings to support that just curious what you're seeing under the covers there.
Yes, it is the inflationary environment and cost is definitely supportive.
Still think the prevailing driver here is convenience.
And I mentioned in the prepared remarks, we had eclipsed the $400 <unk> value per month that was actually 447, so almost $4 50.
Which was just phenomenal and it was not too long ago, we were at.
$100. If you will and thought 400 was extremely aspirational. So were 447, we see upside we're driving that side of the portfolio towards 600 as you guys know if we're saying 600, <unk>, we're driving north of that.
And we're just like.
In the in the bullpen, if you will warming up on the storage play.
Alright, very good looking forward to 800 Brad.
Yeah.
Okay.
Yes.
All right.
Please standby for our next question.
Our next question comes from Manav Patnaik with Barclays. Your line is now open.
Hi, Thanks, Rodney back into the queue. It's Ron again on for Manav. If I may please confirm for the 13 acquisitions completed $220 million I think it was could you. Please recap the units acquired by segment and if Theres any further insight you can offer say financial contributions or impact for 'twenty two.
And then anticipated for 'twenty three and then also on the topic of M&A I know it was discussed competitive behavior in relation to Andy's question, but given recent acquisition in this space by comps just your high level thoughts on.
Broader industry dynamics and your outlook for further consolidation please.
Hi, Ryan this is Sam I'm, not going to try to add up the acquired units during the course of last year.
But we have said in the past that we're acquiring at or below kind of roughly eight times.
Valuation multiples and that's absolutely been consistent and we haven't really seen.
Much change in that department and when we were acquiring at that level, it's with confidence that we're going to be able to.
<unk>.
Exploit other types of synergies over time, whether it's cost or commercial upside nobody else has a value added products revenue stream for example.
Like we do in that.
It creates visibility into predictable growth as those acquired portfolios churn and we really haven't seen anything materially different in terms of the competitive landscape in the deals that we're looking at I think it's safe to say that we know everybody and all the industry participants.
And we.
Take care and developing those relationships so.
We'll stick to the programmatic strategy that we've had for the last 18 months now and like I said the pipeline supports continued reinvestment at these levels.
Yes, the only thing I would add to that as we often say inside when things go well it looks easy it.
It is not but we're damn good at this rate since the ERP cutover, we've done over 20 acquisitions and.
And we quickly and seamlessly integrate them. So as Tim said, we're buying them at a great value arbitrage, where we are we will take cost and commercial synergies out in the pipeline looking forward looks the same so its a great play and it's a it's a big thanks to the team that's able to pull this off and so I think it's pretty unique aspect of the portfolio.
Thank you I appreciate it.
We have now reached the end of today's call I will now turn the call back over to Nick.
Thank you Michelle. Thank you all for your interest in Wells Scot mobile mini if you have additional questions. After today's call. Please contact me.
Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.
Okay.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
Okay.
[music].