Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Q2 revenues were up 4%, driven by strong performance in rate and value-added products.
- Modular activations were up modestly compared to the prior year, showing resilience in the modular portfolio.
- The company implemented a plan resulting in a 15% reduction in indirect headcount, leading to durable cost savings.
- WillScot Holdings Corp (WSC, Financial) announced the consolidation of its entire offering under the WillScot brand, simplifying and amplifying marketing efforts.
- The company has a strong liquidity position with $1.8 billion in current liquidity and a weighted average pretax cost of debt at 5.8%.
Negative Points
- Q2 nonresidential square foot starts were down 14% year-over-year, impacting smaller-scale commercial construction projects.
- Storage activations were down 12% year-over-year, although they were up more than 20% sequentially.
- The sequential activation growth in storage and modular was slower than expected.
- The company revised its full-year outlook downward due to a lower revenue trajectory entering the second half of 2024.
- There were significant one-time expenses in Q2, including a $133 million noncash charge due to the impairment of the Mobile Mini trade name and $23 million related to the ongoing regulatory review of the McGrath acquisition.
Q & A Highlights
Q: The midpoint of your previous guide was looking for 8% revenue growth for the full year. Now you're looking at 4% at the midpoint. Is this decrease in your outlook more related to volumes or pricing?
A: It is 100% related to the sequential volume growth in the business. The vast majority of the adjustment to guidance reflects that the sequential volume build from Q1 into Q2 was not as strong as we had forecasted, reducing the base on which the business compounds into Q3 and Q4. We continue to expect sequential price increases across the storage fleet through the remainder of the year.
Q: What is the spread between your average modular rate in the LTM rate today? How has that changed now that we're moving away from the inflationary period?
A: The spread is favorable in the 15% to 20% range, which represents a significant tailwind or insulator for the business as we close out 2024 and head into 2025.
Q: Can you elaborate on the strong activation trends and the outlook for the remainder of the year?
A: It was a mixed quarter from a modular activation standpoint. April and May activations in modular were up 8% year-over-year, but June was light relative to last year. July activations were up about 3% year-over-year in modular, and the backlog going into August is encouraging. Overall, three out of the four months were pretty encouraging.
Q: Given that you have a three-year lease duration and it takes several quarters of year-over-year activation growth to cause a positive unit on rent inflection, when can we expect that modular inflection?
A: It's possible in Q4 this year. The business is likely to not have a volume headwind as we get into 2025, which is a significant improvement relative to how we started 2024.
Q: How well prepared is the fleet for 2025, and what is the refurbishment activity now through the end of the year?
A: We can dial up or dial back refurbishment activity on roughly a two-week lead time. On the storage side, there's 20 points of idle capacity with minimal refurbishment or maintenance associated with it. We run a 90-day zero-based capital budgeting process based on the demand outlook, so no need to change those processes heading into 2025.
Q: What are the key drivers that will put you at the high end or the low end of your new guidance range for the balance of the year?
A: The margin trajectory is important, and we need to maintain the expansion from Q2 into Q3. Modular volumes are forecasted to be sequentially flat through the end of the year. We have high confidence in meaningful volume improvements in the storage business progressing through the second half of the year.
Q: Are you seeing good visibility for infrastructure activity, and what is the persistence of large projects going forward?
A: Larger project opportunities continue to provide a foundational level of demand across all regions in the United States. We don't see a material change in the volume and demand from larger projects. Rate cuts will provide some marginal benefit to the transactional side of our customer base.
Q: With the cost-cutting plan resulting in a 15% reduction in indirect headcount, are there some savings expected this year, and what might the impact be for next year?
A: The annualized benefit of the headcount reduction actions is about $40 million. The benefit starts to build in Q3, with the full run rate realized in Q4 and the full year benefit in 2025.
Q: How are you thinking about AMR growth for the storage side of things, given that delivery rates have been flat for the last few quarters?
A: We expect sequential growth in storage AMR as we progress into Q3 and Q4. Value-added products and services, the growing mix of temperature-controlled storage, and seasonal contributions are all factors contributing to this growth.
Q: Are you competitively advantaged or disadvantaged in transactional interest rate-sensitive projects?
A: Our modular activations are up modestly despite nonresidential starts being down, indicating we are faring well. We are targeting transactional customers efficiently using digital channels and converting them, with plans to add modest e-commerce capabilities to our customer portal.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
