Q1 2023 WillScot Mobile Mini Holdings Corp. Earnings Call

April 27, 2023

In a listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded I would now like to turn the call over to Nick Gerardi Senior director of Treasury and Investor Relations. Nick you may begin.

Good morning, and welcome to the will Scott Mobile mini first quarter 2023 earnings call participants on today's call include Brad salts, 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 todays comments for a more complete.

One 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 salts.

Thanks, Nick Good morning, everyone and thank you for joining us today <unk> CEO will Scott mobile mini will Scott mobile mini is a north American leader in innovative and flexible total space solutions. In Q1 of 2023 are continue we continue to execute our idiosyncratic credit growth levers combined with capital discipline and outs.

<unk> operational efficiency, which support our improved 2023 outlook of over $1 billion of adjusted EBITDA. During the quarter, we grew revenue by 25% and adjusted EBITDA by 47% driven by strong <unk> penetration and rate optimization and with a company record of 17% return on.

<unk> capital over the last 12 months and a free cash flow margin of 18% in the quarter, we pursued our strategy with smart capital discipline, including acquisitions of up to $80 million and $216 million of share repurchases turning to slide 16, I will share a quick growth lever update.

Our value added products initiatives represent over $500 million of $1 billion of idiosyncratic growth levers and we made great progress across both segments. Our track record in modular has proven as well as over the last 10 years, we've delivered over an 18% compound annual growth in our <unk> average monthly rates were also beginning to see.

The benefits from <unk> in our storage solutions segment <unk> revenue in this segment in the first quarter was $22 million up 60% year over year and we believe that this is just the beginning of a differentiated long in duration and high growth value driver that is entirely in our control Tim will impact us a bit later in his section.

The engineering.

Consume the entire call with my exuberance associated with our basic offering of lights, shelving and pipe racks for portable storage units as well as many new products under development. Those of you visited US Con Expo in March saw a new premium storage offering which will take this to a whole new level based upon robust testing and early customer feedback we will.

On track for our planned launch this premium offering beginning in test markets. This summer.

We're following an established playbook that we've developed over the last decade, and modular with exciting results and our turnkey value proposition is obviously continuing to resonate with our customers.

Now pricing supported by the apps continued to contribute meaningful meaningfully to our Q1 2023 results are modular products continue to drive an approximate 30% spread between the delivered rates on units over the last 12 months and the average of the portfolio and our storage segment continues to leverage our unique and.

<unk> product offering our in house logistics capability, our price management tools and processes and while still relatively small of apps offering that will drive growth for years to come.

Our confidence in delivering double digit rate growth across both segments is not grounded in hope rather it's largely embedded in the current spreads we enjoyed between spot rates.

<unk> delivered units in our portfolio average and the spot market has continued to trend favorably.

We're very small spend for our customers and we've transformed our value proposition to provide more value to them.

Been delivering double digit rate growth in modular for well over five years, and while input and equipment costs have increased meaningful over the last couple of years. They are not the driver for this trajectory rather they will provide support for continuation.

And as discussed in our 2021 Investor day, an important milestone in our strategy to improve organic market penetration with the optimization of our two disparate customer relationship management or CRM systems I am excited to confirm that we achieved that milestone in early February our entire team, including 500 sales reps and many more.

Customer service professionals now have clear visibility into the activity of our more than 85000 unique customers. The combined CRM system will serve to further enhance sales productivity and cross selling with vegetal better digital marketing and predictive analytics, which will allow us to accelerate cross selling and most importantly provides a seamless.

And efficient customer experience.

Our team has clearly made demonstratable progress in the first quarter across each of the five aspects of our portfolio of the $1 billion of idiosyncratic growth levers as evident in the continued absent price momentum to successful CRM harmonization Q1 logistics margins EBITDA expansion and continued disciplined M&A activity. This team.

This team's execution underpinned by long lease durations is the basis for our confidence in our ability to continue to drive growth for years to come which is certainly not dependent on end market expansions.

Turning back to slide 10, we provide a turnkey solutions across 15 diverse end markets across all of North America.

It is critical to appreciate that units on rent do not move fast and our business as units on rent are ultimately governed by three year lease durations, which correspond to product duration and market demand for the actual number of new units in storage units, we deploy each month as the only aspect of our portfolio, which we do not have full control over.

We do operate a robust zero based capital allocation process through which we systematically and routinely adjust fleet and people investments across our diverse end markets and geographies based on actual demand for new Activations every 90 days its not a new playbook, rather it's what we do and we're very good at.

If you recall that we took a more cautious approach to our original 2023 volume outlook, citing uncertainty with respect to tightening financial conditions, our customers' labor constraints Abi indicators uncertainty with respect to the number of larger retail store Remodels and continued softness in Canada and short not a lot's changed.

<unk>.

While our consolidated units on rent in the first quarter were up year over year and Theres certainly no new concerns we now have better visibility in the demand through the next couple of quarters and it's apparent that our initial caution was both prudent balance we will stay focus on the topline and bottomline levers that are within our control and which are substantial.

I would offer the following update considering the underlying macroeconomic factors that influence our demand as well as relative leading indicators. The most important of which is feedback from our customers for first the Abi index recently turned positive.

Following five months below 50, the Abi as a reminder, it's been a good indication of modular activation nine to 18 months out.

Our larger contractors customer backlogs remained robust, although many are facing labor constraints, which may slightly impact our ability to complete ongoing projects and start new projects. According to original timelines and third consistent with our concerns earlier in the quarter. Many of the retail store remodels have been deferred to 2020.

For such that we expect an approximate 10000 portable storage unit on rent headwind across the retail sector in Q2, and Q3 of this year versus prior year as well as a corresponding tailwind in 2024.

So while we continue to maintain our balanced outlook with respect to end market demand through the balance of 2023, we're excited about the potential tailwind associated with on shoring and re shoring infrastructure projects that we expected further accelerate heading into 2024 and persist for several years to come large scale <unk> projects of <unk>.

<unk> been breaking ground across North America, which represent material and long duration opportunities to deploy our expansive services. We are actively participating in bidding on multi multiple billion dollars projects in sectors, such as advanced materials chemicals power Gen renewables electric vehicles in semiconductors to name a.

View.

We were already positions, we are uniquely positioned to provide complex value added total space solutions to our customers with our unrivaled scale product offering and capabilities.

Given this demand outlook, our long lease durations are differentiated value prop and the $1 billion <unk>.

Idiosyncratic growth levers that are largely under our control will easily eclipse our $1 billion adjusted EBITDA milestone in 2023, and we're on track to achieve all of the long term financial goals that we established just 18 months ago with that I'll turn the call over to Tim for more detail on the Q1 results and our updated outlook.

Thank you Brad and good morning, everyone.

Age 21 shows a high level summary of the quarter before I jump in I will remind everyone that the results from the divested tank and pump and UK storage segments are reported as discontinued operations in all periods.

I will also point out that in Q1, we transferred approximately 6000 ground level offices or <unk> from our modular solutions segment to our storage solutions segment we.

We have consolidated all of our containerized products within the legacy mobile mini branch infrastructure, which makes perfect sense, both operationally and commercially.

We updated all historical segment financials and Kpis to reflect this integration.

So youll see some changes in the segment metrics, but the year over year comparisons are all meaningful and it does not change the trajectory of either segment materially and obviously it doesn't impact consolidated financial results.

With that said Q1 2023, it was a great quarter, we saw consistent contributions from pricing value added products and volumes and frankly had superb results across all financial metrics.

Modular unit average monthly rate increased 20% year over year and portable storage unit average monthly rate was up 30% on a consolidated basis.

<unk> is one of the areas, where we see upside in the remainder of this year, which in turn creates multiyear tailwind into 2024 and beyond.

Value added products support our ability to capture rate differentiate us from our competitors and are an example of the powerful organic growth strategies that we are executing with clear and tangible results.

We updated page 13 to show the Vas revenue opportunity across both our modular segment and our ground level office fleets, which is new disclosure and details $400 million of highly credible growth across these products.

And growth from our recently introduced value added products for containers will be incremental bringing us closer to a $500 million prospective opportunity.

If we just look at margin dollars from value added products in our storage segment back in 2020 at the time of acquisition, we were generating approximately $22 million annually.

That doubled to $47 million in 2022, and will triple to over $65 million in 2023 and our guidance.

As Brad mentioned, our Q1 <unk> revenue in the storage segment of $22 million was up 66% year over year. So the rate of change is both impressive and undeniable.

This is a clear multi year growth lever in our storage segment. It is a clear example of how we add value to our acquisitions and we are clearly creating incremental value for our new customers in the process.

Back to the financial metrics on page 20. They are all incredibly strong leasing revenue was up 25% for all of the reasons I just mentioned adjusted.

Adjusted EBITDA margins were up 650 basis points year over year free cash flow margins expanding into the high teens and return on invested capital is expanding to record levels hitting 17% for the quarter up 570 basis points versus prior year.

We have deleveraged to 3.0 times net debt to adjusted EBITDA, and we bought back nearly 10% of our stock in the last 12 months given our confidence in both our short and long term outlooks.

These results showcase the value of our predictable sequentially compounding reoccurring revenues are idiosyncratic growth strategy, our cost discipline and our value accretive capital allocation framework.

Page 22 lays out revenue and adjusted EBITDA for the quarter, we've already talked about the commercial kpis, which drove revenue up 25% to $565 million.

In the bottom right chart, you can see the normal seasonal decline sequentially from Q4 into Q1, driven by our seasonal retail business.

Leasing revenues will grow sequentially into Q2 and increased sequentially each quarter thereafter in line with our guidance.

Cost management and margin performance has been outstanding and better than we expected to start the year and we're seeing favorability in four key areas that are causing margins to go up both in Q1 and in our guidance.

First now that we've been in for almost two years, we've gotten much better visibility into the work orders and maintenance costs in our modular fleet.

We're being more efficient with our spend and we're consistent with that spend across our branch network.

This is helping both gross margins and capex.

Second input inflation is easing on our maintenance materials.

We have not yet seen input deflation, but inflation appears to have peaked in the second half of 2022.

I said a year ago that we were incurring significant cost inflation and that the inflationary benefits from our rental rates would roll through the portfolio in time and that is exactly what's happening.

Third logistics margins have continued to improve and we're up 200 basis points year over year in Q1.

The gains are primarily driven by the value based pricing strategies that we began in 2022 and we still have opportunities on the cost side, such as in sourcing and route optimization, which we're actively working on and we will have benefits in future periods.

And lastly, SG&A is down 270 basis points as a percentage of revenue. So we're getting good operating leverage there and looking forward we have opportunity for further efficiencies now that we've consolidated both our ERP and our CRM systems.

Altogether a flow through of revenue growth to EBITDA was 67% in the quarter, which is great and.

And most encouragingly, we can see quantifiable impact of our internal initiatives across every line in the P&L all of which are within our control and give us a clear roadmap to deliver the guidance for 2023 and our run rate into 2024.

Turning to page 23, net cash provided by operating activities increased by 2% year over year to $149 million.

These numbers are not adjusted for our two divestitures. So on a pro forma basis cash from operating activities is growing significantly faster than 2% and should expand sequentially through the remainder of the year.

Said, another way organic growth and acquisitions in our core segments have already replaced the prior year operating cash flows from our divested segments.

I said on our Q3 call last year that capital expenditures will be down through at least Q1, just given the record investment levels in 2022, and the flexibility in our supply chain.

At $46 million of net Capex in Q1, we are basically operating at maintenance levels capital expenditures will of course go up into Q2, and Q3, but will be below both prior year levels and our original guidance given both the maintenance efficiencies I mentioned earlier and available capacity in the storage fleet, resulting from the <unk>.

For all of retail store Remodels.

The implication of course is that this is going to be an outstanding year for free cash flow free cash flow of $103 million in Q1 was up 88% year over year and again that is not adjusted for the divestitures. So the modular and storage segments are cash flowing extremely well heading into the remainder of the year.

And in the current outlook free cash flow should be north of $500 million.

Turning to page 24, we reduced leverage to 3.0 times last 12 months adjusted EBITDA from continuing operations in Q1 as.

As we said last quarter, we used the $418 million of UK divestiture proceeds to repay our ABL, creating capacity for other capital allocation opportunities.

While the divestitures were onetime events the bottom left chart illustrates the ability of our business to delever rapidly when we so choose.

The team between free cash generation and predictable growth, we can reduce leverage by approximately a full turn in 12 months, which is one of the reasons. We maintain the 3.0 to three five times target range.

We're obviously at the very low end of that range, we're perfectly comfortable with the debt structure and we have highly productive areas to deploy capital.

Our weighted average pretax cost of debt is five 7%. So increased cost of capital has not changed our capital allocation priorities at all.

Our debt structure is 60% fixed rate accounting for the swap that we executed in January 2023, which got us back to our targeted fixed and floating mix.

And our annualized cash interest run rate is approximately $168 million as of Q1 2023.

So we're at the bottom of our target leverage range, we have $1 1 billion of available liquidity in the ABL plus our internally generated cash flow, which is accelerating and we have complete flexibility in appetite to pursue our capital allocation priorities.

Page 25 shows our capital allocation framework and our performance over the last 12 months.

In the right hand chart, our LTM capital deployment is very much in line with our framework with the divestitures driving additional deleveraging in the short term.

I expect our results will revert back closer to the framework through the course of the year with no further deleveraging and likely stronger tuck in acquisition volume.

During Q1, we closed two acquisitions for $80 million and expect to maintain or exceed that rate of reinvestment for the remainder of 2023.

We also repurchased $216 million of our common stock, reducing our economic share count by nine 6% over the last 12 months, representing an extraordinary return to shareholders.

Even the embedded earnings and cash flow growth in our portfolio. We are confident that the allocation of this capital will be significantly accretive to our long term shareholders.

And page 26 shows our updated guidance relative to prior expectations, we tightened our revenue outlook and are still centered on $2 $4 billion of revenue for the year, which means that the business is compounding sequentially exactly as we expected it would.

Most importantly, the guidance still implies a lease revenue run rate that is up 10% to 15% heading into 2024, which is what we primarily care about.

We increased our adjusted EBITDA midpoint by $25 million to 125 to $1 75 billion.

Which is a function of our revenue performing as expected combined with the cost and margin initiatives that I spoke about earlier.

And we do see margins running ahead of our original expectations through the remainder of the year, which gives us another strong tailwind for 2024.

We reduced our net capex range to $250 million to $300 million based on deferral of the storage segment retail remodels and the maintenance efficiencies in the modular segment.

We have not assumed any further acquisitions in our outlook, so M&A beyond that which we closed in Q1 would be incremental.

Sequentially I would expect EBITDA to be relatively flat into Q2, and then accelerate into Q3 and Q4.

Leasing costs will increase sequentially as delivery volumes increase into Q2, which should compress leasing margins and delivery and installation margins could compress sequentially as we get a higher mix of delivery relative to return transportation revenue.

Overall, the midpoint of the EBITDA range implies 19% growth year over year, and approximately 250 basis points of margin expansion, which is on top of the 250 basis points of expansion that we delivered in 2022.

And we'll deliver free cash flow in excess of the long term milestone that we established three years ago. When we underwrote the mobile mini acquisition before Covid before Ukraine and before this most recent round of recession fears.

Most importantly, the guidance sets us up with a leasing revenue run rate that is up 10% to 15% heading into 2024 and with better margins given the forward visibility in our model.

The business is compounding as expected the fundamental drivers of this compounding our intentionally designed and within our control and we will continue to execute our strategy to drive drive growth expand return on invested capital and create value for our long term shareholders.

With that Brad I'll hand, it back to you.

Thanks, Tim I would like to take a moment to thank our team for safely and frugally delivering yet another outstanding quarter and progressing each of our growth levers all while successfully navigating our CRM system organization.

We will easily eclipse, our $1 billion adjusted EBIT milestone in 2023, and we are on track to achieve all of our long term financial targets that we established just 18 months ago.

Excuse me I wish all of you listening today continued safety and good health that concludes our prepared remarks, operator would you 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.

Okay.

And our first question is from Andy Wittmann with Baird. Your line is open.

Great. Good morning. Thank you for taking my questions I guess I would just start with trying to get a better sense of some of your leading indicators in particular.

The order book Brad.

Obviously, the revenue line doesn't move very quickly at all in response to economic changes, but the order book is probably the best.

I guess derivative in terms of what Youre seeing so I was hoping you could talk about what youre seeing.

And if you could break it down a little bit what youre seeing in modular versus what youre seeing in storage.

And talk about some of the key cyclical end markets, including your construction related customers.

Yes.

As I said on my prepared comments Theres not a lot changed changed versus Q1, our order book remains robust looking forward. We expect a work order production. As example in module, which will be in line with our expectations three or four months ago.

We are comping as you've mentioned against record levels of 2022, the most notable.

Change if you will Andy is that attributed to the retail sector, primarily the store remodels.

And if you take the balance of the portfolio across modular and storage in nonresidential construction in the commercial industrial sectors.

Been cautious.

I would not expect growth.

Across the board in those sectors yet this year again. This is what we don't expect we remain cautious we have been very prudent here.

We could see a bit, but we're well positioned irrespective of what these in markets present.

Got it and maybe just as a follow up I'd have you elaborate a little bit more on the comment about the EBITDA run rate turning up 10% to 15% in 2024.

I guess I guess, that's almost implicit in your guidance you can you can kind of get there that that thats whats included but could you talk a little bit about what some of the puts and takes are regarding that.

One of the things I heard I think it was in Tim's comments was that.

There is some rate upside that youre seeing and so I was just wondering like how does that factor into your guidance the rate upside for this year as and is that included.

And how youre looking at 2024 at this early stage.

Hey, Andy This is Tim its a great question and this is what we really spend our time managing is how do we drive that sequential run rate into any future period and to be clear my comment was around the leasing revenue run rate So price times volume times value added.

Products across the combined business as we get into Q4 going into.

Next year, we see 10% to 15% growth going into 2024, and there aren't many businesses out there that I'm aware of that can say that with confidence and thats just a function of the lease duration and the predictability in our business model as Brad mentioned, the only real notable change in the guidance is the deferral of the <unk>.

Retail store Remodels in the storage segment.

For a variety of reasons are pushing into 2024.

And what we have seen in the storage segment is offsetting benefits in pricing and value added products such that the midpoint of our revenue range on a consolidated basis has not changed.

Products across the combined business as we get into Q4 going into.

Our delivery and work order expectations in the modular segment are not materially different than in our original guidance and of course that original guidance had some conservatism in the back half of the year, which we maintain so as you think about what could change in terms of where you end up in that.

10% to 15% range.

If pricing continues to progress ahead of our expectations that could take you higher.

If.

Volumes.

Improved materially from where they are today, that's not going to impact our 2023 results significantly, but it impacts the run rate for 2024, which is great.

And then value added products as well we've baked in some growth on the.

The storage side of the segment and kind of a continuation of the trends we've had on the modular side of the segment. So I think those assumptions are balanced, but upside or downside either way. It takes you to the 10% or 15% side of the range and as I mentioned in the prepared remarks M&A would be incremental.

Great. Thanks, a lot guys.

Thank you one moment for our next question.

Okay.

And our next question comes from Ken <unk> with William Blair. Your line is open.

Go ahead, Tim good morning.

Good morning, Good morning, Tim.

Thanks for taking my question I'm thinking about Europe .

End market exposure.

Real estate more broadly nonresidential construction can you just talk about how much your business is tied to non residential construction thats all it contractors subcontractors architects whatever like all in and how do you think about that piece of the business being impacted looking forward with tightening credit conditions, particularly regional banks.

Yes, Tim it's a good.

Question, we break it out in our in our <unk> by customer size C code and you see it's roughly 35% is going to be tied to non res.

Construction and Thats all the general contractor is big and small that you just referred to there is another component that's around five ish percent. That's residential we worked with the larger homebuilders there.

And then the other 60% of our business are basically every other sector of the.

U S and Canadian economies and that is one of the misconceptions and our business is there is a segment of approximately 40% that's directly tied to construction customers and then there is another 60% that use our services as the most cost effective and flexible alternative to construction and we see that playing pretty well in this environment.

Within the non res.

Sector itself, we see all the same forecast that everybody else does.

Nonresidential starts should probably be down this year, we focused more on the square footage starts and we've factored that into our.

Guidance as we always would.

Within that non res mix, though there are a lot of puts and takes right. We are absolutely benefiting from.

The megaproject onshoring and manufacturing trends that everybody is talking about it seems like every week I'm getting a new <unk>.

Multimillion dollar long duration customer contracts that would that would fit that type of description.

We clearly have infrastructure spending picking up in the United States and we've always maintained that thats likely a second half of 2023.

In 2024 tailwind for the business.

Your question around the impacts of.

Tightening of financial conditions is a is a good one and this is something that we've seen in the business going back into the second half of last year, especially up in Canada. For example, I can think of a number of larger project opportunities that were not cancelled because of tightening financial conditions, but budgets are being recalibrated based on elevated.

Input prices labor constraints.

And then capital costs.

See in Canada, now a lot of that backlog start to flow back through the pipeline, which is pretty encouraging.

Going back into our budget process, we were already assuming some impacts in our non resi markets related to.

Tightening financial conditions, and I think some of the the reactions to events in the last couple of months or probably overblown because that was happening for the last 12 to 18 months.

Right and Recalibration sounds very different than the cancellation rate.

Absolutely it is and remember.

Disruption in lengthening of project duration helps us that's one of the mitigating factors and the churn of our portfolio and we are seeing that in terms of return volumes that are lower than we would have forecasted to start the year.

Yes, the only thing.

For everyone. This is not a cyclic profile.

Tim just talked.

Andrew through the 10% to 15% revenue growth, we're highly confident in next year, if volumes change in one or 2% it's not meaningful.

So the end markets are going to be what they are we've shared our outlook.

But irrespective of what they present.

We're extremely bullish and we will continue to be.

Thank you for the clarification there for all the clarity on that answer I'm just sneak my follow up real quick on free cash flow.

It's expected to be strong this year. So just curious how you're thinking about deployment of that extra capital that you'll now have.

If share repurchases are a priority right now, particularly given the pullback in the stock price over the last month or so I am wondering how you think about <unk>.

Pending the stock at this valuation thank you.

Jamie.

We love the stock.

Even if even at Pryor.

Valuations. So yes, we do calibrate our repurchase activity in part based on valuation, but we've also said that we won't Miss a good tuck in acquisition.

Thank you for the clarification there for all the clarity on that answer I'm just sneak my follow up real quick on free cash flow.

That comes our way so we do maintain a waterfall here we've given you what our organic investment plan is for the year. We've told you that based on current pipeline tuck in.

Volume is likely a bit above 22, 2022 levels and you can infer that given the fact that we're at the low end of our our leverage range everything else is going to go to the repurchase and will calibrate that based on <unk>.

On valuation.

Got it thank you so much.

Thank you one moment for our next question.

Valuations. So yes, we do calibrate our repurchase activity in part based on valuation, but we've also said that we won't Miss a good tuck in acquisition.

And our next question is from Kevin Mcveigh with Credit Suisse. Your line is open.

That comes our way so we do maintain a waterfall here we've given you what our organic investment plan is for the year. We've told you that based on current pipeline tuck in.

Great. Thanks, so much.

Please Tim or Brad.

You said it I think I missed it you talked about that $400 million of highly credible and then.

An incremental $100 million in containers.

Volume is likely a bit above 22, 2022 levels and you can infer that given the fact that we're at the low end of our leverage range everything else is going to go to the repurchase and will calibrate that based on <unk>.

And just I want to make sure I understand that comment because I think it's important.

Yes, just in round numbers.

We've traditionally talked about what was our modular focus over the last 10 years being in that 300 to 350 at the time of the merger, we talked about a $50 million incremental opportunity by putting furniture and the <unk> that together now is about $400 million, great and Theres, another 100 million of opportunity.

On valuation.

Got it thank you so much.

Thank you one moment for our next question.

And our next question is from Kevin Mcveigh with Credit Suisse. Your line is open.

We're very comfortable with on the storage side.

And remember that's on top of the growth that's been delivered over the course of the last two years. So we've grown the business we've grown value added products.

Great. Thanks, so much.

Tim or Brad.

You said it I think I missed it you talked about that $400 million of highly credible and then.

We've continued to extend both the magnitude and the duration of that growth opportunity.

An incremental $100 million in containers.

Just don't want to make sure I understand that comment because I think it's important.

Through new product introduction and better penetration of the.

Yes, just in round numbers, we've traditionally talked about what was our modular focus over the last 10 years being in that 300 to 350 at the time of the merger, we talked about a $50 million incremental opportunity by FERC, putting furniture in the goes that together now is about $400 million and there's another 100 million of opportune.

The volume that we have the original <unk>.

Estimates for container of apps back in Investor day were approximately $50 million.

Thats conservative.

We're comfortable.

Rounding up from there to get to that $500 million.

Prospective opportunity on top of everything we've already delivered.

<unk>.

We're very comfortable with on the storage side.

Makes sense.

10000.

And remember that's on top of the growth that's been delivered over the course of the last two years. So we've grown the business we've grown value added products.

Units that were pushed out I mean, obviously implicitly implies you increased the guidance can you maybe dimensionalize what the impact of the revenue on that would've been.

And we've continued to extend both the magnitude and the duration of that growth opportunity.

Again was that just timing of some store remodels or what drove that the push out of those 10000 units.

Through new product introduction and better penetration of the.

Okay.

Tim can jump in here, but I would qualify Kevin that we were contemplating that in our original guidance right I mentioned in my commentary that there was uncertainty so within the range of guidance.

The volume that we have the original <unk>.

Estimates for container of apps back in Investor day were approximately $50 million.

Thats Conservative and we're comfortable.

<unk> it was contemplated now.

Rounding up from there to get to that $500 million prospective.

It's just on it.

Sure.

Active opportunity on top of everything we've already delivered.

Yes.

Some of the challenges facing the retail sector are not this is not a secret right. So you do have companies like target, saying Hey.

Makes sense.

The 10000.

Units that were pushed out I mean, obviously it implicitly implies you increased the guidance can you maybe dimensionalize what the impact of the revenue on that would've been in <unk>.

We're not doing that.

Activity this year to save on costs.

And Theres also some store format considerations that they are going through but this is not a matter of if it happens it's just a matter of win.

Again was that just timing of some store remodels or what drove that the push out of those 10000 units.

Historically been a good reoccurring recurring source of business for us and in terms of in year impact to rental revenues Youre, probably talking about something in the 12 ish million dollar range, plus some transportation to and from on those.

Okay.

Tim can jump in here, but I would qualify Kevin that we were contemplating that in our original guidance right I mentioned in my commentary that there was uncertainty so within the range of guidance.

Before it was contemplated now it's just not it.

Awesome. Thank you.

Certainly.

Thank you one moment for our next question.

Yes.

Some of the challenges facing the retail sector are not this is not a secret right. So you have companies like target, saying Hey.

And our next question is from Delon coming with Morgan Stanley . Your line is open.

We're not doing that activity this year to save on costs.

Great. Good morning, guys. Thanks for the question just wanted to see if you could talk through again.

And there is also some store format considerations that theyre going through but this is not a matter of if it happens it's just a matter of when.

EBITDA opportunities you called out on Slide 15, I think the market is probably not giving you full credit for achievement of those of the long term.

I think most investors are still confident that longer term as well just curious if you can kind of talk through our resilient those are in a more choppy or macro environment and the potential non res recession.

And do you feel.

Around hitting that $1 billion growth figure them over the long term in such an environment.

Awesome. Thank you.

Yes.

I'll start.

Just working down the list on.

Thank you one moment for our next question.

Youre on the value growth slide Tim just talked about value added products and service.

And our next question is from Dillon Cumming with Morgan Stanley . Your line is open.

Peg that at $500 million back in November of 21, Investor day, we've been harvesting from that it's apparent in our results and we're saying it's still $500 million. So there's a fair bit of reloading here lease rate optimization of $200 million that doesn't assume any volume expansion.

Great. Good morning, guys. Thanks for the question just wanted to see if you could talk through again.

EBITDA opportunities you called out on Slide 15, I think the market is probably not giving you full credit for achievement of those of the long term I.

We've already talked about the spread between the units were delivered in the last 12 months and the average of the portfolio highly confident in that the vast theyre going to fall through call it 75% to EBITDA.

Do you feel kind of around hitting that $1 billion growth figure them over the long term in such an environment.

The lease rate optimization, well over 90% once we pay commissions and such market penetration. That's one we've been waiting for the CRM project.

Yes, I'll start.

Just working down the list on your.

Youre on the value growth slide Tim just talked about value added products and service.

Project.

Conclude to really start to make traction there.

Peg that at $500 million back in November of 21, Investor day, we've been harvesting from that it is apparent in our results and we're saying it's still $500 million. So there's a fair bit of reloading here lease rate optimization of $200 million that doesn't assume any volume expansion.

So again, we're excited that we've successfully harmonize those two systems.

I think it's going to create operating efficiencies as well as customer satisfaction that will drive cross selling and market penetration over time.

Thats logistics Timna, we mentioned that was $50 million back in November of 'twenty one.

<unk> harvested over $50 million since then and still $50 million looking forward and Thats, primarily based upon the fact that we're just starting to get to work combining the two systems.

The lease rate optimization, well over 90% once we pay commissions and such.

The mobile mini platform and will Scott and logistics, which will really help with route optimization continued in sourcing and the sort.

<unk> penetration that's one we've been waiting for the CRM.

Project.

To conclude that really start to make traction there. So again, we're excited that we've successfully harmonize those two systems.

And then the M&A and scale efficiencies.

This includes the M&A that we know about.

And then the scale efficiencies again are apparent in.

And I think it's going to create operating efficiencies as well as customer satisfaction that will drive cross selling and market penetration over time.

If nothing else 650 basis points of EBITDA margin expansion year over year.

Thats logistics Timna, we mentioned that was $50 million back in November of 'twenty one.

Got it that's very clear thanks, Brad let's ask a second one on the leverage range. So I think you've demonstrated clearly in terms of the free cash flow profile that youre comfortable enabled operate in that three to three five times range pretty comfortably.

We've harvested over $50 million. Since then its still $50 million looking forward and Thats, primarily based upon the fact that we're just starting to get to work combining the two systems.

If that does become a bigger second the market would you consider maybe reducing it by a half a turn turn so if that would kind of opened ourselves up to new investor classes are you kind of think more logistic youre willing to stand Pat on that three to three five times range.

The mobile mini platform and will Scott and logistics, which will really help with route optimization continued in sourcing and the sort.

Look I think investors are very well educated on this point at this point just given the stability of our leasing revenues in the predictability of the business and the churn in our in our top line. So yes, we always look at capital allocation Holistically.

And then the M&A and scale efficiencies.

This includes the M&A that we know about.

And then the scale efficiencies again are apparent in.

Call, if nothing else 650 basis points of EBITDA margin expansion year over year.

But to one of the questions earlier strongly prefer to buy the stock at this level then to pay off.

Got it that's very clear thanks, Brad and good luck.

One of the leverage range. So I think you've demonstrated clearly in terms of the free cash flow profile that youre comfortable enabled operate in that three to three five times range pretty comfortably.

Pre tax cost of debt at five 7% in alright, So thats.

In my Investor discussions this is not the sticking point that's come up.

If that does become a bigger second went for the market would you consider maybe reducing it by a half a turn turn so if that would kind of opened ourselves up to new investor classes are you kind of I think more religious theyre willing to stand Pat in that three to three five times range.

For over two years really busy.

The business does have a very significant deleveraging capacity I mentioned in my remarks, if we want to we can take a turn out of leverage in 12 months and that is just a.

Really profound.

Luxury that we have in this business and we're perfectly comfortable at the three times level that we're currently operating at.

Very clear thanks, Tim if I can sneak in one last quick clarification the change in the milestone right on slide 13 for the modular apps from 606 does.

But to one of the questions earlier strongly prefer to buy the stock at this level then to pay off.

Does that just reflect the movement of the <unk> out of the segment or is that more of a conscious change on your part.

Pre tax cost of debt at five 7% alright, So thats.

That is a very astute observation thats really just the mix of pulling out smaller square footage ground level offices from modular segment and moving them into the storage segment, where they belong.

In my Investor discussions this is not a sticking point that's come up.

For over two years really.

The business does have a very significant deleveraging capacity I mentioned in my remarks, if we want to we can take a turn out of leverage in 12 months and that is just a.

Implies the remaining larger square footage modular equipment in the modular segment.

A higher capacity for value added products.

Really profound.

Luxury that we have in this business and we're perfectly comfortable at the three times level that we're currently operating at.

Appreciate the time thank you.

Thank you one moment for our next question.

Yeah.

And our next question is from Scott Schneeberger with Oppenheimer. Your line is open.

Thanks, very much good morning.

Covered a bit on the.

The smaller customers.

That is a very astute observation thats really just the mix of pulling out smaller square footage ground level offices from the modular segment moving them into the storage segment, where they belong.

The financing concerns and then.

Quantifying on Kevin's question of retail and appreciate that.

Got it Tim could you guys address the Mega projects I know youre not to open the sizing it as a percent of units or revenue, but could you provide demand goes or maybe give us a feel for how powerful these projects RPM I heard you say earlier it feels like every week there is another one.

Which implies the remaining larger square footage modular equipment in the modular segment as a a higher capacity for value added products.

I appreciate the time thank you.

Thank you one moment for our next question.

So it sounds like these remain consistent how competitive is this.

And our next question is from Scott Schneeberger with Oppenheimer. Your line is open.

Are you the only one that gets a walk or others.

Thanks, very much good morning.

The tail sounds good but can you just speak about how powerful they see as an offset to.

Covered a bit on the.

The smaller customers.

The financing concerns and then the quantifying on Kevin's question of retail and appreciate that.

The concerns that are out there in the market. Thanks.

It's extremely powerful right and as we've mentioned in our prepared comments our scale, our total value prop et cetera puts us in a very unique position to respond to these simple way of thinking about it roughly a third of our net book value is associated with large complexes.

Brian Tim could you guys address the Mega projects I know youre not to open the sizing it as a percent of units or revenue, but could you provide demanded dose or maybe give us a feel for how powerful. These projects are Tim I heard you say earlier it feels like every week there is another one.

Most of those if not all of those big projects will have those assets deployed so that is a space. We're uniquely positioned we've got in house construction services team I mean, if youre setting up 10000, 20000, 30000 square foot, which many of those will require sometimes you need to stack two or three high.

So it sounds like these remain consistent how competitive is this.

Are you the only one that gets a walk or others.

The tail sounds good but can you just speak about how powerful this is as an offset to it.

Concerns that are out there in the market. Thanks.

We're uniquely positioned to deliver on that aspect of the.

It's extremely powerful right.

Still relatively small percentage of total project spend.

We've mentioned in our prepared comments our scale, our total value prop et cetera puts us in a very unique position to respond to these simple way of thinking about it roughly a third of our net book value is associated with large complexes.

Scott I think the opportunity for us prospectively on these is these are multi year engagements say 357 years in some cases.

And an area, where we can I think a very significant advantage is owning that project over the lifecycle not only winning the national general contractor with whom we've clearly got the best relationships, but then all of the other subcontractors and trades that are coming on and off of that project.

Complexes.

Most of those if not all of those big projects will have those assets deployed so that is a space. We're uniquely positioned I mean, we've got in house construction services team I mean, if youre setting up 10000, 20000, 30000 square foot, which many of those will require sometimes you need to stack two or three high were.

Over the course of its life cycle with a full suite of our offering and if there's one area where.

We are.

Uniquely positioned to deliver on that aspect of the.

Spending some time as a team we're already confident we're going to get.

Still relatively small percentage of total project spend.

The main general contractor in the main project is owning everything else over the course of that multi year cycle, which is the real opportunity here.

Scott I think the opportunity for us prospectively on these is these are multi year engagement say 357 years in some cases.

Thanks, I appreciate that guys on the Capex.

Can you take us a level deeper on the initiatives focused on work order efficiency to improve vendor administration and material consumption, maybe quantification of that and savings.

How meaningful is that.

Sure.

You pull back on that on the guidance.

And then you did provide a little bit more color.

Over the course of its life cycle with.

With a full suite of our offering and if there's one area where.

In the deck and then this discussing about about.

We're spending some time as a team we're already confident we're going to get the I mean.

Rating in the Capex this year, but.

It maybe maybe what youre doing with.

The main general contractor in the main project is owning everything else over the course of that multi year cycle, which is the real opportunity here.

The decrease in container purchases and a little bit more color there to let us know where you are in the.

In the Capex cycle. Thank you.

Thanks, I appreciate that guys on the Capex you.

Yes, Scott this is Tim and I am Super excited about this this has been a bit of a long time coming coming through the mobile mini integration.

Can you take us a level deeper on the initiatives focused on work order efficiency to improve vendor administration and material consumption, maybe quantification of that and savings.

We basically got a $65 million reduction in the midpoint of the Capex guidance about 40 of that is coming from the fact that because we're not doing the retail store remodels in storage, we don't need to buy 7000 containers right. So thats the biggest chunk right. There on the modular side, we're getting about a $20 million burner.

Meaningful is that on your on your pull back on that on the guidance.

And then you did provide a little bit more color.

In the deck and then this discussing about about.

<unk>.

Rating in the Capex this year, but.

Roughly 10% efficiency savings in our cost per refurbishments.

Maybe maybe what youre doing with.

The decrease in container purchases and a little bit more color there to let us know where you are.

And as you go back to the integration now two years ago with SAP.

In the Capex cycle. Thank you.

One of the areas, where we've gotten a lot better visibility analytics and reporting is around how much material is going on average into a certain type of reefer, how much labor are we using in house labor or subcontractor labor.

Yes, Scott this is Tim and I'm Super excited about this this has been a bit of a long time coming coming through the mobile mini integration.

And looking at variances on these types of metrics across the entire branch network, you see or you used to see extraordinary variability. So step number one is tightened that variability reinforced those standards from.

From a quality standpoint around what is our expectation for the quality of unit, that's going out into the field.

<unk>.

From roughly 10%.

<unk> savings in our cost per refurbishment.

And just by tightening that variability we began to see significant.

And as you go back to the integration now two years ago with SAP.

Capex savings and modular referred to in the second half of last year and those are being sustained in our bottoms up re forecast heading into Q2, and Q3, which is really encouraging.

As you know there has been cost inflation in the business over the last couple of years and this is really.

And looking at variances on these types of metrics across the entire branch network. You see are you used to see extraordinary variability. So step number one is tightened that variability reinforce those standards.

A really nice tailwind, that's starting to offset that in a meaningful way and the only other thing I'd call out is we are still integrating like the branch network.

We do expect some proceeds from property sales.

And the forecast as well, which is going to be a further net capex opportunity you can't do those every year, but we will still continue to see those types of proceeds as we optimize our real estate footprint.

From a quality standpoint around what is our expectation for the quality of the unit that's going out into the field.

And just by tightening that variability we began to see significant.

And thanks, Tim Thanks, Brad.

Capex savings and modular referred to in the second half of last year and those are being sustained in our bottoms up re forecast heading into Q2, and Q3, which is really encouraging.

Thanks.

Thank you one moment for our next question.

And our next question comes from Manav Patnaik with Barclays. Your line is open.

As you know there has been cost inflation in the business over the last couple of years and this is really.

Sure.

Hi, Good morning. This is Ron Kennedy on for Manav. Thank you for taking my question, Tim can I, just ask where youre assessment and thoughts on at a high level kind of pricing dynamics.

A really nice tailwind, it's starting to offset that in a meaningful way and the only other thing I'd call out is we are still integrating it like the branch network.

We do expect some proceeds from property sales.

The last few years through Covid with supply chain and inflationary dynamics.

And the forecast as well, which is going to be a further net capex opportunity you can't do those every year, but we will still continue to continue to see those types of proceeds as we optimize our real estate footprint.

And what Youre seeing now we've gotten a lot of questions on what people are seeing with regards to surveys that storage prices.

Pricing on shipping containers et cetera, so how that plays into versus your initiatives around pricing and you acting like a pricing leader within the industry.

And thanks, Tim Thanks, Brian Nice work.

Okay.

Thank you one moment for our next question.

Your outlook for how you think that will play out in the assumptions around pricing for the remainder of the year and forward.

And our next question comes from Manav Patnaik with Barclays. Your line is open.

Yes, Ryan this is Tim I'll start and Brad you can jump in this is an area where were both quite passionate so we could spend the rest of the call talking about it.

Hi, Good morning. This is roni Kennedy on for Manav. Thank you for taking my question, Tim can I just ask for your your assessment of and thoughts on at a high level kind of pricing dynamics.

As you know the double digit rate growth in our modular business has been going on since Q4 of 2017 right.

Last few years through Covid with supply chain and inflationary dynamics and.

Before we had we had less than 20% market share.

And what Youre seeing now we've gotten a lot of questions on what people are seeing with regards to surveys of storage prices.

Value added products have been a great contributor there dynamic price segmentation and technology has been a great contributor sure. We went through this period of.

Pricing on shipping containers et cetera, so how that plays into versus your initiatives around pricing of new acting like a pricing leader within the industry.

Supply constraints, but remember COVID-19 was a negative demand shock across our business and we continued to drive price through that period.

And your outlook for how you think that will play out in the assumptions around pricing for the remainder of the year and forward.

I do think that driving pricing was incrementally.

Yeah. Ryan This is Tim I'll start and Brad you can jump in this is an area where were both quite passionate so we could spend the rest of the call talking about it.

Year during the peak inflation periods and you saw that.

Through some of the expansion in our delivery and installation.

Margins, but the real momentum there is coming from things like our pricing process in the storage business product positioning where we're charging for patented premium features on certain products.

Before we had we had less than 20% market share.

Sure.

Value added products have been a great contributor there dynamic price segmentation and technology has been a great contributor sure. We went through this period of <unk>.

And offering a different price point for customers that just want a standard shipping container.

One of the reasons, we're moving the ground level office product into their mobile mini branch network. We've got other products that meet that need for a smaller square footage footprint like our HQ product and our eight wide mobile offices, so introducing structured products positioning with price differentiation and put.

Supply constrained, but remember COVID-19 was a negative demand shock across our business and we continue to drive price through that period.

I do think that driving pricing was incrementally.

Easier during the peak inflation periods and you saw that.

Through some of the expansion in our delivery and installation.

<unk> those everywhere, we see opportunity in the market as a price leader. This is what we do this is what we love.

Margins, but the real momentum there is coming from things like our pricing process in the storage business product positioning where we're charging for patented premium features on certain products.

Love doing is the leader in the marketplace, so I'm not the least bit concerned about.

Changes in maritime container pricing, it's one thing to have a container in the port of Los Angeles, it's quite another to.

And offering a different price point for customers that just want a standard shipping container that is one of the reasons, we're moving the ground level office product into their mobile mini branch network. We've got other products that meet that need for a smaller square footage footprint like our HQ product and our eight wide moat.

To have containers.

Populated in Milwaukee, Wisconsin in Lexington, Kentucky, and everywhere they need to be in order to service, our our captive customer base.

<unk> offices, so introducing structured products positioning with price differentiation and pushing those everywhere, we see opportunity in the market as a price leader. This is what we do this is what we love.

That's very helpful. Thank you and then if I may a follow up on kind of competitive.

Dynamics within the industry given some M&A.

The competitor some sizable M&A and entry and a focus on storage also some.

Sure.

Love doing as the leader in the marketplace, so I'm not the least bit concerned about.

<unk>.

Portfolio moves I think replicating along the lines that you had done with divestitures of the UK tank and pump et cetera.

Changes in maritime container pricing, it's one thing to have a container in the port of Los Angeles, It's quite another.

It's a broader industry competitive dynamics and your outlook for M&A, if that changes your stance or approach on M&A or does the current macro outlook change M&A priority.

To have containers.

Populated in Milwaukee, Wisconsin in Lexington, Kentucky, and everywhere they need to be in order to service, our our captive customer base.

Now we've said for a long time that we won't Miss a good tuck in.

And that we like and I think you can.

That's very helpful. Thank you and then if I may a follow up on kind of competitive.

Infer that we see everything.

It goes on in the industry.

Dynamics within the industry given some M&A.

Very excited about the tuck ins that we've executed over the course of the last 24 months. We are the acquirer of choice in the market I don't think anybody else offers a stronger.

A competitor some sizable M&A and entry and a focus on storage also some.

<unk>.

Portfolio moves I think replicating along the lines you had done with divestitures of the UK tank and pump et cetera.

Value proposition to a prospective seller than we do we can be very targeted in our due diligence.

So broader industry competitive dynamics and your outlook for M&A, if that changes your stance or approach on M&A or does the current macro outlook change M&A priority.

We know the assets that we're dealing with.

We can diligence close all cash in a very short window of time, because we know what we're doing and we know how to integrate efficiently even with smaller portfolios right. So no change in our appetite for M&A, it's always been there.

Now we've said for a long time that we won't Miss a good tuck in.

And that we like and I think you can.

Infer that we see everything.

It goes on in the in the industry.

We're more confident from an integration standpoint, just given all of the efficiencies that we're seeing in our business the progress on pricing on value added products as well as the margin expansion that we're seeing across our portfolio as all of these.

Very excited about the tuck ins that we've executed over the course of the last 24 months. We are the acquirer of choice in the market I don't think anybody else offers a stronger.

Value proposition to a prospective seller than we do we can be very targeted in our due diligence.

Acquisitions are integrated into our network and we're also improving the talent level of the organization.

We know the assets that we're dealing with.

So doing so it really checks the boxes across all aspects of our strategy.

Thank you I appreciate it.

Thank you one moment for our next question.

And our next question is from Faiza <unk> with Deutsche Bank. Your line is open.

Good morning, Thank you.

Wanted to touch on storage pricing again.

Sure.

What are the implications of the.

This firm and have detailed remodels.

Into 2024 on pricing.

Acquisitions are integrated into our network and we're also improving the talent level of the organization.

I think you mentioned that there was still.

Wow.

So doing so it really checks the boxes across all aspects of our strategy.

Realized pricing.

And spot pricing on modular, but curious how you're seeing spot pricing trend on the storage side.

Yes.

Thank you one moment for our next question.

Hey, Faiza, it's Tim.

The remodels won't impact storage pricing at all we were getting.

And our next question is from Faiza <unk> with Deutsche Bank. Your line is open.

Much higher rates on seasonal storage capacity with retail with retailers and that's because it's short duration rate. That's typically just <unk>.

Good morning, Thank you.

Wanted to touch on storage pricing again.

What are the implications of the.

September to January type rental contract and it should have a much higher higher rate, which is why you saw very.

This form Endo retailed remodels.

Into 2024 on pricing.

Very modest sequential decline from Q4 into Q1.

I think you mentioned that there was still.

The retail Remodels are more like core business from a pricing standpoint, so there's no change to our pricing expectations and I would expect that we see continued sequential improvements.

Or the point gap between realized pricing.

And spot pricing on modular, but curious how you're seeing spot pricing trend on the storage side.

On storage pricing, yes, we haven't talked about the DSR the spot spreads in the business but.

Hey, it's Tim that the Remodels won't impact storage pricing at all.

They are as strong as they've ever been in modular the spreads on most recent contracts are about 35% above the portfolio average.

We're getting.

Much higher rates on seasonal storage capacity with retail with retailers and thats because its short duration rate that's typically just.

Just under 30% on the ground level office product and pushing 20% on our most recent contracts on the storage product so pricing is extremely healthy.

September to January type rental contract and it should have a much higher higher rate, which is why you saw.

Modest sequential decline from Q4 into Q1.

To the question earlier, we're going to continue to do our part there as the market leader.

The retail Remodels are more like core business from a pricing standpoint, so there's no change to our pricing expectations and I would expect that we see continued sequential improvements.

Great. Thanks for that and then just when.

Bringing it all together.

What really changed over the last few months.

When you first gave the fiscal 'twenty guidance it sounds like <unk> came in better than.

On storage pricing, yes, we haven't talked about the DSR the spot spreads in the business but.

They're as strong as they've ever been in modular the spreads on most recent contracts are about 35% above the portfolio average.

Better than how you will have Todd ignite and maybe these retail department is something new and that's led to the Capex decline, but what's what's really changed from your perspective.

Just under 30% on the ground level office product and pushing 20% on our most recent contracts on the storage product so pricing is extremely healthy.

This is Brett I'll go first from my perspective, it was the outstanding margin.

Both both EBITDA margins the flow through as well as the free cash flow margins in the first quarter.

To the question earlier, we're going to continue to do our part there as the market leader.

Great. Thanks for that and then just.

As I mentioned before the store Remodels.

Bringing it all together.

Were contemplated in the range before.

What's really changed over the last few months.

They're kind of a certain now.

And then Tim characterized in revenue terms, it's relative relatively insignificant.

When you first gave the fiscal 'twenty three guidance it sounds like <unk> came in better than.

When you are talking about over $2 billion of revenue.

Better than how you had thought it might and maybe these retail.

And the beauty of this business is not much change as quickly if the strategies <unk> been very consistent execution has been I think phenomenal.

Retail Department is something new and that's led to the Capex decline, but what's what's really changed from your perspective.

I agree with Brad.

Margin performance across the board is really exciting and I think whether it's in logistics or SG&A as I talked about there continue to be opportunities. There, we're not doing any cost cutting or anything like that that's not what we're talking about we're talking about just managing the business more efficiently.

This is Brett I'll go first from my perspective, it was the outstanding margin.

Both EBITDA margins flow through as well as.

Free cash flow margins in the first quarter.

As I mentioned before the store Remodels.

A lot of flexibility we have in the overall cost structure. So.

Were contemplated in the range before.

They're kind of a certain now and Thats Tim characterized in revenue terms.

Very pleased with that based on what we've seen is sustainable.

Well into 2024, so I think we're set up for another year of.

Its relative relatively insignificant.

You are talking about over $2 billion of revenue.

Consistent margin expansion, which we've been doing ever since we went public.

And the beauty of this business.

So not much has changed there and.

Not much change as quickly the strategies <unk> been very consistent execution has been I think phenomenal.

Again appetite for M&A is still there and the growth opportunities that Brad Brad tick through very thoroughly are all.

I agree with Brad.

Frankly bigger and longer in duration than we than we would have.

<unk>.

Back at Investor Day.

Great. Thank you.

Thank you one moment for our next question.

And our next question is from Steven Ramsey with Thompson Research. Your line is open.

Very pleased with that and based on what we've seen it's sustainable.

Hi, This is actually Catherine Thompson TRT. Thank you for taking my question today.

Well into 2024, so I think we're set up for another year of.

Consistent margin expansion, which we've been doing ever since we went public.

And just a follow up on Mega projects.

So not much has changed there and.

Just bigger picture how much of Nextgen Mega projects are embedded in your Investor day long term guidance.

Again appetite for M&A is still there and the growth opportunities that Brad Brad ticked through very thoroughly are all.

And does this meaningfully improve your leasing revenue.

For 'twenty three 'twenty four.

Frankly bigger and longer in duration than we than we would have expected.

I know you touched on on going after a mega projects earlier.

Certainly back at Investor Day.

Great. Thank you.

On the call but.

Maybe a little bit more color on.

Thank you one moment for our next question.

Just.

Pacific steps are being taken to take advantage of this.

And our next question is from Steven Ramsey with Thompson Research. Your line is open.

And do you prefer this type of business.

And some of the legacy day to day work. Thank you.

Hi, This is actually Catherine Thompson with TRT. Thank you for taking my question today.

Hi, Catherine this is Tim I'm going to start by just talking about what is kind of been in versus not in our long term outlook because I think that's a very interesting question and then Brad can you can maybe follow up on the question around how we go to market and the unique advantages. We have on these types of projects, but if you go back to November of 2021, the only thing we knew.

And just a follow up on Mega projects.

Just bigger picture, how much of Mexico Mega projects are embedded in your Investor day long term guidance.

And does this meaningfully improve your leasing revenue.

For 2003 and 'twenty four.

About back then it was the infrastructure Bill.

I know you touched on ongoing after mega projects earlier.

And.

That was that was relatively new news at the time so.

On the call but.

Maybe a little bit more color on.

We didn't really include any market based expansion in our Investor day targets the whole point of that.

Just.

What specific steps are being taken to take advantage of this.

And do you prefer this type of business versus some of the legacy day to day work. Thank you.

The presentation was that we're talking about the things that are within our control.

And now what we have is better visibility into that.

Projects directly funded from the infrastructure stimulus and that's great and we've always said that those will start to ramp up in the second half of this year going into 2024, and we maintain that perspective, we certainly did not anticipate the magnitude of the re shoring that's happening in the United States Manny.

The unique advantages we have on these types of projects, but if you go back to November of 2021. The only thing we knew about back then was the infrastructure Bill right and.

Manufacturing expansion.

Renewable energy investment, we're seeing opportunities across all of these things right and the confidence in our ability to win.

That was that was relatively new news at the time so.

We didn't really include any market based expansion in our Investor day targets the whole point of that.

Is one of the reasons that the revenue guidance isn't changing in light of maybe a net.

Presentation was that we're talking about the things that are within our control.

Greater concern around the impact of tightening in the financial system here right. So this is the nature of the business. There are always puts and takes in terms of the end markets that we serve our job is to be there and I think we've got a disproportionately strong competitive footing on these bigger more complex projects.

And now what we have is better visibility into that.

I think Catherine.

<unk> characterize this extremely well if we just use a couple of cases a specific example, so we've done a large project near Austin.

Manufacturing expansion.

Renewable energy investment, we're seeing opportunities across all of these things right and the confidence in our ability to win.

Chip plant well before the chipset.

It was actually.

<unk> in place, we will typically supply.

Is one of the reasons that the revenue guidance isn't changing in light of maybe a net.

We're from 10 to 20000 square foot of we'll call. It anchors turnkey space solutions oftentimes, though we have.

The general contractor that's building the new facility.

And then have for the customer themselves that are bringing their early engineers on site et cetera that will run the facility once it's up and running these are three to four year duration projects.

And it's not just our fleet the puts us in a very unique position to supply those it's our capability to set that size of a building up right maintain it over the course of the three to five year project duration and bring it back and redeploy it.

Catherine.

<unk> characterize this extremely well if we just use a couple of cases a specific example, so we've done a large project near Austin.

Chip plant well before the chipset.

It was actually.

I think.

So quite interesting Tim referred to one of the earlier responses, we have been very good and very unique in our capability to win that anchor.

In place, we will typically supply.

We're from 10 to 20000 square foot of we'll call. It anchors turnkey space solutions oftentimes, though we have for the general contractor Thats building the new facility.

If you will.

We have a massive opportunity to make sure. We win every subcontractor every single wide unit every storage unit again in a full turnkey scenario as we go forward. So.

And then have for the customer themselves that are bringing their early engineers on site et cetera that will run the facility once it's up and running these are three to four year duration projects.

Yes.

I couldnt be more bullish with respect to the next three to five years here and I think.

And it's not just our fleet that puts us in a very unique position to supply those it's our capability to set that size of a building up right maintain it over the course of the three to five year project duration and bring it back and redeploy it.

It's a very unique scenario, both in our position as well as the market set up here.

Yes.

Referencing the Samsung filled out and.

I think whats.

Austin market.

Yes.

Exactly.

Yes.

We had a heavy material producing private contract company conference.

If you will.

We have a massive opportunity to make sure. We win every subcontractor every single wide unit every storage unit again in a full turnkey scenario as we go forward. So.

Bringing.

45000 jobs.

Just for that one project essentially.

So this is Ed.

And multiple year.

Construction project, how are you just to wrap it up.

Yes.

I couldnt be more bullish with respect to the next three to five years here and I think.

Do you get this because you have the main.

The main producer Samsung.

It's a very unique scenario, both in our position as well as the market set up here.

What is your strategy for getting the subs can you scale that to other markets in the U S.

Yes.

Referencing the Samsung filled out.

For sure and the CRM harmonization was a key.

The Austin market.

Enabler for that.

Yes exactly.

We use the Samsung project as an example, that's large enough and scale everyone on our teams mobilized and aware.

Yes.

We had a heavy material producer private conference Company conference say that essentially bringing.

And in talking to each other that was quite manual prior to the CRM cutover, So whether it's that Samsung project data center projects that have been a similar magnitude kind of all over the U S. Over the last several years, we're moving that from a phone a friend.

45000 jobs.

Just for that one project essentially.

So this is I get.

A multiple year.

Construction projects, how are you and just to wrap it up.

Do you get the subs because you have the main.

To our team being fully enable I talked about.

The main producer Samsung.

What is your strategy for getting the sites can you scale that to other markets in the U S.

The marketing and <unk>.

Analytics that are capable of we're capable of leveraging now with our new CRM harmonization to make sure over the life of the three to five year project.

For sure and the CRM harmonization was a key.

Were potentially touching every person that comes on and off of that job site.

Okay, great. Thanks very much.

Thanks.

Thank you one moment please for our next question.

And our final question comes from Phil <unk> with Jefferies. Your line is open.

Kind of all over the U S over the last several years, we're moving that from a phone a friend.

Hey, good morning, guys Maggie on for Phil.

<unk>.

Our team being fully enable I talked about the.

I guess first starting on the lower Capex guide I mean, all the areas you are pulling back makes sense and Tim I think you mentioned <unk> <unk> levels or kind of a maintenance level for the business.

The marketing.

In analytics that are capable of we're capable of leverage and now with the new CRM harmonization to make sure.

Over the life of the three to five year project.

Yes.

The 250 to 300 guide for the year is that how we should think of maintenance level for the current fleet and.

Put potentially touching every person that comes on and off of that job site.

Okay, great. Thanks very much.

Thanks.

Ken.

That should be a nice tailwind for free cash flow. This year can you just kind of remind us how you think about free cash flow and maybe a softer macro backdrop.

Thank you one moment please for our next question.

Yes.

And our final question comes from Phil <unk> with Jefferies. Your line is open.

Yes, Matt this is Tim.

Hey, good morning, guys Maggie on for Phil.

We talked about this a bit I think it was on the Q2 call last year and kind of pegged maintenance in that 175 million to $200 million of net capex range, and I'd say that $200 million level is.

I guess first starting on the lower Capex guide I mean, all the areas you are pulling back makes sense and Tim I think you mentioned one.

Good proxy for just a.

<unk> capex levels were kind of maintenance level for the business.

Unit on rent neutral.

On.

Investment level, what takes us into.

The truth of data 300 guide for the year is that how we should think of maintenance levels for the current fleet.

The kind of midpoint of our current range is a fair amount of growth capex going into value added products and services right, where we're continuing to see no slowdown in penetration in our modular business and growth in the storage segment as I said undeniable in and starting to ramp up so we will continue to fund.

And then that should be a nice tailwind for free cash flow. This year can you just kind of remind us how you think about free cash flow and maybe a softer macro backdrop.

Yes, Maggie this is Tim.

<unk>.

That initiative.

We talked about this a bit I think it was on the Q2 call last year and kind of pegged maintenance in that 175 million to $200 million of net capex range and I'd say that $200 million level is a very good proxy for just a.

Sure.

Wherever we see opportunity it is arguably the it is the fastest growing and arguably the most profitable part of the business from an ROIC standpoint, so it's really it's really that simple.

Investing around 200 million on maintenance the majority of that is going into modular refurbishment in a given year and as we ramp up growth, we're either buying containers.

Unit on rent neutral.

Investment level it takes us into.

Increasing modular refurbishments to put more units on rent or investing in value added products and services.

The formula that we've been running for a long time, and we reassess it using a zero based process every 90 days.

Having just gone through that process.

That initiative.

The foundation for the guidance and the forecast that we gave you every quarter.

Wherever we see opportunity it is arguably the it is the fastest growing and arguably the most profitable part of the business from an ROIC standpoint, so it's really it's really that simple.

Okay. Okay got it and then on the CRM integration, maybe if you could just kind of dig in a little deeper Q.

Investing around $200 million.

Both near term opportunities Youre seeing there and what you are thinking long term.

And maintenance the majority of that is going into modular refurbishment in a given year and as we ramp up growth, we're either buying containers.

Is that more on pricing volumes logistics, new customer group.

Increasing modular refurbishments to put more units on rent or investing in value added products and services and that's the formula that we've been running for Ah.

Maybe just walk through how youre thinking about the opportunities there.

It's really all of the above and I'll use a couple of quick analogy. So Tim mentioned, we went live with the ERP back.

A long time, and we reassess it using a zero based process every 90 days.

Having just gone through that process. That's that's the foundation for the guidance and the forecast that we gave you every quarter.

Back in May of 'twenty, one it took us about a year to really get fully optimized reporting in place to really leverage the power of that and youre seeing it in the margins and the free cash flow margins. So I'll put that out there as kind of a time expectation, we're just live with the CRM.

Okay, Okay got it.

And then on the CRM integration, maybe if you could just kind of dig in a little deeper kill.

Both near term opportunities Youre, seeing there and what Youre thinking long term.

We're going to follow the same process will put advanced analytics in place for our team, we're going to leverage marketing cloud and all the tools of the Salesforce dot com platform and going back to the disc.

Is that more on pricing volumes logistics, new customer group.

Maybe just walk through how youre thinking about the opportunities there.

A discussion, we're having with Katherine with respect to the Samsung project. It doesn't have to be a person. The calls every potential customer right and says do you need the storage container and by the way you need lights ramps and shelves with that right that can be highly automated.

It's really all of the above.

And I'll use a couple of quick analogy. So Tim mentioned, we went live with the.

<unk> ERP.

<unk> still leveraging the core team we have some we're super excited about I think this year the successful cutover give us the year to really build out all of the reporting and analytics.

You are going to leverage all the automation thats.

We're going to follow the same process will put advanced analytics in place for our team, we're going to leverage <unk> marketing cloud and all the tools of the Salesforce dot com platform and going back to the <unk>.

It's not rocket science, it's in place, but it needs to be tuned and customized to all of our end market segments.

And then as a clear accelerant in 2024 2025 and beyond.

Discussion, we're having with Katherine with respect to that Samsung project. It doesn't have to be a person. The calls every potential customer right and says do you need a storage container and by the way do you need lights ramps and shelves with that right that can be highly automated.

Okay, great. Thanks, guys.

We have now reached the end of today's call I will now turn the call back over to Nick.

Thank you Amy Thank you all for your interest and we will skip mobile. Many if you have additional questions. After today's call. Please contact me.

Still leverage in the core team we have some we're super excited about I think this year the successful cutover give us the year to really build out all of the reporting and analytics.

Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.

You are going to leverage all the automation thats.

It's not rocket science, it's in place, but it needs to be tuned and customized to all of our end market segments.

And it is a clear accelerant in 2024 2025 and beyond.

Okay, great. Thanks, guys.

We have now reached the end of today's call I will now turn the call back over to Nick.

Thank you Amy Thank you all for your interest and we will skip 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.

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Q1 2023 WillScot Mobile Mini Holdings Corp. Earnings Call

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