Q1 2024 WillScot Mobile Mini Holdings Corp Earnings Call
Okay.
Welcome to the first quarter 2024, well Scott mobile mini.
Sherry: Earnings Conference call. My name is Sherry and I will be your operator for today's call. At this time all participants are in a listen only mode.
Speaker Change: 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.
Nick Girardi: Senior director of Treasury, and Investor Relations, Nick you may begin.
Nick Girardi: Howard to present, our full suite of capabilities to every customer at every opportunity.
Nick Girardi: Page 33 lays out revenue and adjusted EBITDA for the quarter total revenue was up 4% with 5% growth in our leasing revenues, partly offset by a 6% decline in our transportation revenues, which was driven by lower volumes of storage Activations and returns.
Nick Girardi: It's a modular activations I think are up 5% on track with original plans, which I would assume the implications for units on rent inflection are the same in total units on rent for the year to be flat to down low single digits. What are the implications of what youre seeing on the monthly activation rates and storage being below plan as the risk the storage.
Nick Girardi: Volumes, the ultimate implication for you or for the year.
Nick Girardi: Yes, I think youre right on actually in terms of your assessment of the modular business. So on track with our original expectations with unit on rent, reflecting sometime in the second half assuming those activation rates are sustained.
Nick Girardi: Activation rates for storage or a bit below our original expectations for the year and I expect that unit on rent our average unit on rent.
Nick Girardi: Is down slightly sequentially into Q2.
Nick Girardi: And then it really kind of Q4 is probably the earliest we would see a year over year unit on rent inflection.
Nick Girardi: In the storage business.
Nick Girardi: But again a few of.
Nick Girardi: Our enterprise accounts here or there can really move the needle and I'm encouraged by some of the discussions we're having there.
Speaker Change: Got it thank you very much.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of Tim Mulrooney with William Blair. Your line is open.
Timothy Michael Mulrooney: Yes, Brad Tim Good afternoon, just a couple of quick questions here.
Timothy Michael Mulrooney: On demand you highlighted the demand across the customer segments supports a unit on rent inflection in the second half of 2024. So that was really interesting can you just.
Timothy Michael Mulrooney: Dig into that a little bit more for us is that because you're expecting an improvement in nonresidential construction or retail remodel or some other facet of end market demand in the second half just curious what youre seeing that gives you confidence to make that statement.
Timothy Michael Mulrooney: Yes, Tim this is Tim.
Tim: Good afternoon.
Nick Girardi: So this was our we're talking about the modular product.
Tim: Specifically, when we say that and this was always the.
Timothy Michael Mulrooney: Expectation for the year. It was predicated on mid single digit year over year activation growth sustained through the course of the year.
Tim: And because we have three year lease duration.
Nick Girardi: Underpinning the unit on rent portfolio. It takes several consecutive quarters of year over year activation growth.
Nick Girardi: To cause unit on rent to inflict inflect positively on a year over year basis. So that is indeed, what we've seen now through April.
Nick Girardi: What we see as we look at the backlog out into the next two months.
Nick Girardi: We don't have perfect visibility of course into the second half of the year, but in terms of how we've started the year and what we see going into Q2. It's in line with our original plans and if it is sustained it would cause you're done on rent to inflect sometime in the second half for the modular pre tax.
Speaker Change: Got it. So this isn't built on help I mean this is just extrapolating current trends that's helpful. Thanks, John and I ask this other question last.
Speaker Change: Quarter, but I'm going to ask it again this is on pricing for your portable storage.
Speaker Change: Curious if you could provide what the core portable storage average rental rate growth was in the first quarter excluding the.
Speaker Change: The cold storage acquisition I think last quarter, you said about half of that increase was driven by the cold storage acquisition, but there was some noise I think from seasonal retail pricing. So was it about half again this quarter as well, implying the core portable storage rental rates were up maybe.
Speaker Change: I don't know like 10% year over year something like that.
Speaker Change: I think saying that about half is attributable to take hold as a fine way to think about it Tim the bigger point here is that we do use product differentiation broadly speaking as a way to drive rate and higher value per unit, so even with within the traditional storage fleet, you've got standard shipping containers.
Speaker Change: Got it.
Speaker Change: Mobile mini branded containers with <unk> and other specialty features and we've got differentiated pricing across all of those different products called as just another one that happens to be at a higher higher price point. So yes, I do expect we'll continue to have a mix benefit within the storage product class part of which is being driven by cold.
Speaker Change: Part of which is also being driven by those other traditional.
Speaker Change: Specialty mobile mini.
Speaker Change: Thanks.
Speaker Change: Yeah.
Speaker Change: Understood very clear thanks, Tim.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of Steven Ramsey with BRG. Your line is open.
Speaker Change: Hi, This is Katherine Thompson, calling in for Stephen today, and thank you for taking our questions today.
Kathryn Ingram Thompson: Looking forward as you.
Kathryn Ingram Thompson: Our focused on Mcgrath acquisition.
Speaker Change: He's had a great track record of free cash flow generation.
Kathryn Ingram Thompson: And managing Capex as you look forward, Tim Mcgrath, how does that what if any changes are there from your capital expenditure capex profile and free cash flow.
Speaker Change: Thank you.
Kathryn Ingram Thompson: Hi, Catherine this is Tim and I'm sure Brad will have.
Timothy Michael Mulrooney: So some comments to add here, so when we announced the Mcgrath transaction.
Timothy Michael Mulrooney: We did say that it would be accretive modestly accretive to earnings free cash flow per share in the first full year.
Timothy Michael Mulrooney: It's both.
Timothy Michael Mulrooney: Clothing, and we continue to believe that's the case I think it gets a lot more interesting as you kind of roll the model forward and let it compound and we always take that kind of long view is.
Timothy Michael Mulrooney: As a management team.
Timothy Michael Mulrooney: There are a host of.
Kathryn Ingram Thompson: Synergy and value creation opportunities inherent in the transaction and Brad tick through 10 of them.
Kathryn Ingram Thompson: On page 26, we announced the transaction, we highlighted $50 million of very straightforward cost synergies, which are representative of efficiencies we've realized in all of our past transactions.
Kathryn Ingram Thompson: But page 26 really gives you a view of all of the Optionality that's inherent in the transaction to create value for customers for employees and for shareholders.
Kathryn Ingram Thompson: And you can see the right hand column, our return on invested capital has a lot of checkmark Senate right Thats, because they are cross selling opportunities across both companies' complementary product offerings.
Kathryn Ingram Thompson: There are diversification opportunities as we go bigger into the education segment.
Kathryn Ingram Thompson: There are a host of operational efficiencies is when we think about scale advantages using inventory centers sharing fleet across the combined branch network and Salesforce.
Kathryn Ingram Thompson: So the list literally goes on and on and the beauty in a transaction like this is you don't have to execute and being successful across.
Kathryn Ingram Thompson: All 30 of these nodes if you want to think about it that way you can win some you can lose some.
Kathryn Ingram Thompson: But we're highly confident that this is going to be a homerun overtime.
Speaker Change: Okay great.
Speaker Change: Thank you for that.
Speaker Change: And then just I appreciate your color in terms of the EBIT margin flow sequentially, just with modular versus storage impact on margins at least.
Speaker Change: Sit back and look at the bigger picture in terms of the overall mix not only just what youre seeing near term in the quarter.
Speaker Change: Do you see in the pipeline over the next 12 months or so what is that telling you in terms of just the overall macro view and then against that backdrop what are you seeing.
Speaker Change: That give you insights on just how well.
Speaker Change: Well, Scott wins, and the Reindustrialization of the U S. Thank you.
Speaker Change: Yes, Catherine this is Brett I'll touch on that first I think.
Brett: We've mentioned a few times on the call the modular activation rates being up 5% on a rolling three month basis with an outstanding outcome. Given the continued non resi headwinds and we're clearly seeing continued wins and benefits on these larger.
Brett: Mega projects onshore in reassuring reindustrialization in the such so this is one we've discussed a number of times.
Brett: Medium and long term I am quite bullish.
Brett: With respect to the opportunities.
Brett: Associated with nonresident construction, mainly on those fronts, but we're certainly seeing I think outperformance in modular we don't need any heroics as far as recovery to accomplish everything's terms outlined outlined with respect to modular volumes. This year and I just think we're extremely well positioned to continue to take advantage of what I.
Brett: Several years of a great setup here.
Speaker Change: Alright, thanks very much.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of Andrew Wittmann with Baird. Your line is open.
Andrew John Wittmann: Great. Good afternoon. Thanks for taking my questions I was wondering if you could talk a little bit about.
Andrew John Wittmann: Conversion rates from your quotations to your orders and how that is informing.
Andrew John Wittmann: Maybe your opinion on the customer's price sensitivity or their view of the health of their end markets, maybe talk about how the timing is changing if at all between the time between quotation and order and delivery I know maybe last year. This time, you were saying that that was extending a little bit I was wondering if.
Andrew John Wittmann: If thats still extended or if it's extending further contracting.
Speaker Change: Just some detail around the consumer behavior as youre seeing it on your leading indicators.
Speaker Change: Yes, Andy.
Speaker Change: This is Brad to start with so you're right. We've talked about this phenomenon last year, but it was specific to the modular portfolio and I think effectively we're seeing something very similar right. We've said storage will lag modular so our rolling four months quote activity in the storage business is up year over year as Tim mentioned, we are.
Speaker Change: Conversion rates slow, but that's not necessarily because we are losing business right I think this is.
Speaker Change: Maybe a timing phenomenon a bit like we saw in modular.
Speaker Change: And as we do as normal course, right in every market and every product position that Tim mentioned, we will always test price great to see the validated if there is price volume elasticity, both on the core product itself as well as with.
Speaker Change: With the logistics side of the.
Speaker Change: The value prop so.
Speaker Change: I don't.
Speaker Change: Personally see anything too much to read into that other than the storage recoveries lagging.
Speaker Change: Modular and I think we're seeing a lot of the similar setup.
Speaker Change: Got it thank you.
Speaker Change: I thought it was curious Tim you were talking about total moves being down.
Speaker Change: Activation is the obvious thing, but the fact that storage units are not being returned at the same rate.
Speaker Change: I guess, that's a little dip.
Speaker Change: Different from what I would've expected.
Speaker Change: Expected.
Speaker Change: Is there something to read into that about what that is saying about the macro at all.
Speaker Change: I don't think so Andy I don't see anything unusual in the volume of returns that you wouldn't expect just based on the fact that you've got fewer units on rent right. So you can think about returns as being proportional to in some way to the installed base.
Speaker Change: As the installed base gets a bit lower.
Speaker Change: A lower quantity of units will return every period and that's one of the kind of self mitigating elements of both portfolios and it works a little bit differently and storage than it does in modular.
Speaker Change: But I do actually see a benefit to unit on rent in storage from.
Speaker Change: <unk> from lower return volumes as we look out through the rest of the year, but kind of expected based on where overall unit on rent has trended.
Speaker Change: Okay, I guess the corollary to that is that the average lease time for those storage units isn't changing I was wondering if the average time on rent was the logging and that was a factor, but it sounds like the average duration of the storage leases about the same.
Speaker Change: I think thats right.
Scott: Okay. Thanks, Scott.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of Faiza <unk> with Deutsche Bank. Your line is open.
Faiza: Yes, hi, thank you so much.
Faiza: Wanted to talk again about.
Faiza: Why modular activation is trending better than storage I know, we've talked about this before but I wonder as time has gone on.
Faiza: Changed in terms of your assessment and bought some of the factors are and whether you think there's differences in supply differences than competition or is it just a function of customer mix and large buses.
Speaker Change: Small small project so.
Speaker Change: Just give us some color on that and if you think there's any risk that storage is more of a leading indicator and.
Speaker Change: Modular to the extent that there isn't an improvement in the macro environment sort of modular sort of doesn't recover at the rate.
Speaker Change: We hope it does.
Speaker Change: Yes.
Speaker Change: <unk>. This is Tim that storage is some type of leading indicators.
Timothy Michael Mulrooney: Is it bizarre concept because the modular almost always goes out at the very beginning of a project. It comes off at the end, whereas youre going to get more intra project churn in the storage business. So that one doesn't hold any water. The only difference really that we see between.
Timothy Michael Mulrooney: The.
Speaker Change: Drivers of the modular business versus storage there are really two big ones. One is the retail exposure that we have in storage, which we don't have in modular and I think we've beat that one to death over the last.
Speaker Change: A couple of quarters. The second is that we do have a disproportionate exposure in the modular business to larger mega projects right and so as the mix of nonresidential construction activity skews more towards those.
Speaker Change: Larger more sophisticated projects that has a disproportionate benefit to us in the modular business. That's an obvious well documented phenomenon in terms of the mix of nonresidential construction activity currently I expect it persist for the foreseeable future based on frankly how draw.
Speaker Change: And out these federal stimulus programs are likely to be and I do view that as a tailwind, especially for the modular business.
Speaker Change: Over the course of the coming years not months.
Speaker Change: Understood. Thank you and then just I wanted to touch on the deal and Brad.
Speaker Change: Absolutely appreciate your comments around how you don't want to engage in hypotheticals and all of that but youre come in your comments you sound very confident about the deal getting done and I think that's in Stark contrast to a lot of.
Speaker Change: A lot of investors believe so I wonder if you can give us a peek into what type of discussion questions.
Speaker Change: Youre getting from the regulators and sort of what your defenses.
Speaker Change: In terms of that.
Speaker Change: The consolidation happening in this space.
Speaker Change: Look we've said this is a great transaction, we have high confidence in closing we said the transaction would require filing we made the filing the filing was selected for a review we're complying with the review.
Speaker Change: And I think other than what I've already shared in my prepared comments, we're not going to get into further details on speculation here.
Speaker Change: Understood. Thank you.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of Angel Castillo with Morgan Stanley. Your line is open.
Angel Castillo: Alright, Thanks for taking my question.
Angel Castillo: I just wanted to go back to an earlier comment about.
Angel Castillo: Pricing or some of the moves in volume not necessarily.
Angel Castillo: Driven by kind of market share loss or any impact because of pricing just could you give us a little bit more color on that and what gives you comfort around some of the moves being more kind of macro or project related rather than anything related to kind of a pricing dynamic I think if I recall correctly.
Angel Castillo: Some of the reported numbers from Mcgrath showed kind of growth in some of the unit on rent. So just wanted to understand some of the differences and kind of what gives you comfort around the pricing side.
Angel Castillo: Hi, This is Tim in terms of Mcgrath <unk>.
Timothy Michael Mulrooney: Report they reported a utilization decline right in a pretty meaningful one so the unit on rent growth was the acquisition. So I think that was maybe just a misinterpretation of that piece, we can identify the retail exposure within the storage portfolio as of Q1 non residential square footage starts were down 13%.
Angel Castillo: Year over year, right and non res square for it starts have been down.
Angel Castillo: Over the past 12 months, if you look at year over year. So you know that.
Angel Castillo: Overall volume of activity at least in the construction market.
Angel Castillo: As contracted right I can also go back and look at where units on rent are today versus where they were in 2019 and were up meaningfully since that time and non res square footage start volume are in line with 2019. So that tells me there hasnt been a meaningful share trade over that period of time.
Angel Castillo: Granted it has been a pretty volatile volatile period as you go from 2019 into Covid than the rebound and then to where we are today.
Speaker Change: That's great. Thanks, Thanks for the color and then just wanted to go back to the mid single digits sequential.
Speaker Change: Kind of implication for the full year guide can you just give us a little bit more of a sense for what kind of mix within that in terms of how much is kind of a unit on rent improved.
Angel Castillo: Versus how much is just rental rate in <unk>.
Angel Castillo: Sequential pick up here.
Angel Castillo: Yes. So we continue to have a storage sequential headwind going into Q2, right and I expect that sequentially those volumes that improve in Q3 and Q4.
Angel Castillo: Sequentially modular volumes are improving right. So I expect that continues and I think the rate trends frankly have been very stable and predictable and I don't see anything in our leading indicators right now that would suggest.
Angel Castillo: That's changing as we roll the model forward, so frankly, more and more similar than than different as we compare our leasing kpis sitting here today versus the original expectations for the year with storage volume being the one the one change.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for our next question.
Angel Castillo: And that will come from the line of Philip <unk> with Jefferies. Your line is open.
Philip: Hey, guys, Tim if I heard you correctly, you are you expecting margins to be flat sequentially and kind of stepped up in <unk> <unk> and the full year, it's up about 50 basis points. So my math correct I think it implies a pretty sizable step up first half second half call it to kind of basis points and Youre, telling me a modular is stronger versus storage and storage.
Angel Castillo: I think it has higher margins. So what kind of gives you the confidence of that nice step up in margins in the back half which seems.
Angel Castillo: Pretty outsized versus seasonality.
Angel Castillo: It's the same lease revenue build sequentially that we expected through the course of the year.
Angel Castillo: As we get more storage movements that we anticipate through the remainder of the year you get better leverage off of the trucking fleet and so DNI margins fell actually do impact the overall.
Angel Castillo: Margin profile of the business and that will be.
Angel Castillo: A benefit and then the third lever.
Angel Castillo: Is really resulting from the.
Angel Castillo: Implementation of our field service and dispatch platform, which we executed in Q1.
Angel Castillo: What this does is this allows us.
Angel Castillo: In any given market through a single dispatcher to leverage our trucks, our drivers our service crews across any of the customer activities that we're servicing whether it's a storage delivery or return or a module modular delivery or return, we're setting up furniture in any of our.
Angel Castillo: Equipment, so to date before the integration of the two.
Angel Castillo: Teams locally, we basically had redundancy across of all of those functions.
Angel Castillo: No I don't view this as a.
Angel Castillo: A huge cost reduction initiative by any means but in any given local market. If we've got a HVAC technician that resided at a modular branch well, we can use that HVAC technician across the entire fleet now and maybe not use as much third party.
Angel Castillo: Service and third party transportation and then there are also some efficiency implications for our back office by virtue of having the entire company on one system and you can almost think of this Phil as the realization of some of the cost synergies that we expected from the mobile mini.
Angel Castillo: Acquisition, a few years ago, obviously much more value has been created through our commercial initiatives over the past few years, but now that we're on a single CRM front end ERP backbone and field service platform I expect we're going to be unlocking efficiency efficiencies here not just in the.
Angel Castillo: Half of the year, but.
Angel Castillo: Going into 2025 as well.
Angel Castillo: And Tim on this initiatives, you're talking about the dispatch that's largely going to flow through to the DNI side on the margin side or is actually going to flow through.
Angel Castillo: Modular and storage.
Tim: I think you can see it on the leasing margin I think you can see it in DNI and I think we will see it in SG&A. So I think it is going to touch us in a lot of ways. Okay. And then you gave some great color on modular.
Tim: Of units on rent largely unchanged storage, a little weaker more flat sequentially.
Speaker Change: It'd be helpful to kind of give us a little more context in the back half how to think about progression just because just frankly, there's less visibility.
Speaker Change: Update on the retail side of things have you heard any.
Angel Castillo: Stronger pull through perhaps in the back half or are still TBD at this point on the retail side.
Angel Castillo: No specific quarter.
Angel Castillo: Formation to share with you as it relates to Q4, but as I said, I think a quarter or so ago or hard to see it being much worse than it was.
Angel Castillo: The activation volumes and order rates that Brad referenced in storage are building sequentially as we go into as we go into Q2 now that is normal and to be expected from a seasonality standpoint, but we are seeing it right. So that does give us.
Angel Castillo: Reason to expect unit on rent flattened sequentially and you would normally see build from Q2 into Q3, and then Q4 is.
Angel Castillo: Always frankly, the highest Q.
Angel Castillo: Order for unit on rent and storage so.
Angel Castillo: Our expectations, there I think are pretty modest.
Angel Castillo: <unk> on kind of a normal seasonal progression from where we are today.
Speaker Change: Okay alright, thank you.
Speaker Change: Thank you I'm showing no further questions in the queue at this time I would like to turn the call back over to Mr. Nick <unk> for any closing remarks.
Nick: Thank you Sherry. Thank you all for your interest and we'll come over many if you have additional questions. After today's call. Please contact me.
Speaker Change: Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.
Speaker Change: Okay.
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