WillScot Mobile Mini Holdings Corp. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Amounts below are in U.S. dollars unless stated otherwise. The filing registrant is WillScot Mobile Mini Holdings Corp.
Business context
The company leases, sells, delivers and installs modular workspace, portable storage and specialty tank-and-pump solutions in the U.S., Canada, Mexico and U.K. Leasing is its core business and principal recurring revenue source. At quarter-end, it reported approximately 280 branches, more than 85,000 customers and fleets exceeding 164,000 modular units and 218,000 portable storage units.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $581.6m | $461.1m | $1,090.5m | $886.4m |
| Gross profit | $308.9m | $222.8m | $575.7m | $436.2m |
| Operating income | $131.7m | $70.6m | $229.6m | $145.9m |
| Net income | $73.4m | $20.4m | $124.5m | $24.8m |
| Diluted EPS | $0.32 | $0.08 | $0.55 | $0.11 |
| Adjusted EBITDA (non-GAAP) | $233.3m | $175.5m | $425.2m | $339.1m |
| Adjusted EBITDA margin (non-GAAP) | 40.1% | 38.1% | 39.0% | 38.3% |
| Operating cash flow | $188.3m | $139.5m | $333.9m | $261.6m |
| Free cash flow (non-GAAP) | $69.4m | $82.1m | $124.0m | $173.2m |
Q2 gross margin was 53.1%, up from 48.3%; six-month gross margin was 52.8%, up from 49.2%. Revenue growth reflected higher rental rates, increased units on rent, delivery activity and acquisitions. Q2 leasing revenue rose 24.9% and delivery and installation revenue rose 36.8%. Recent acquisitions contributed an estimated $19.0m to Q2 revenue. Portable storage utilization improved, while modular space utilization declined year over year.
Q2 SG&A increased 32.5% to $162.2m, reflecting higher employee, variable compensation and activity-related costs. Interest expense increased 15.1% to $33.6m, driven by higher borrowings and rates. Six-month net income comparisons also reflect the absence in 2022 of 2021 warrant fair-value losses and debt-extinguishment losses; these prior-year items materially affected comparability.
Cash, debt and liquidity
- Cash and cash equivalents were $11.7m at June 30, 2022, versus $12.7m at year-end 2021.
- Total debt carrying value was $3.04bn, compared with $2.71bn at December 31, 2021. The company reported $2.0bn of ABL principal outstanding and $1.0bn of available ABL borrowing capacity. It said it was in compliance with debt covenants.
- On June 30, the company amended its ABL facility, increasing commitments from $2.4bn to $3.7bn and extending maturity to June 30, 2027. U.S.-dollar borrowings moved from LIBOR-based pricing to Term SOFR-based pricing.
- Six-month investing cash use was $313.7m, including $225.4m for rental equipment and refurbishments and $103.9m for acquisitions. Financing cash use was $20.8m, including $319.2m for share and warrant repurchases, partly offset by borrowings.
- Management stated that cash, operating cash generation, ABL availability and expected capital-market access should meet anticipated requirements for the foreseeable future. It also stated liquidity and operating cash flows were sufficient for the next 12 months.
Material changes and capital allocation
- During the first half, the company repurchased 9.3m shares and stock equivalents for $326.9m; $629.8m remained under the existing $1.0bn authorization at June 30. In July, the board approved an additional authorization of up to $1.0bn.
- Second-quarter asset acquisitions added approximately 4,100 storage units and 1,000 modular units for $46.4m net of acquired cash. Across the preceding four quarters, acquisitions added approximately 22,300 storage and 4,700 modular units.
- Free cash flow declined despite higher operating cash flow, as fleet investment rose to support growth. Management described free cash flow as countercyclical in the business.
Outlook, risks and unusual items
- The filing provides no quantified financial guidance. Management emphasized organic leasing growth, pricing and value-added services, acquisitions, customer experience and continued capital allocation flexibility.
- Risks highlighted include variable-rate debt and interest-rate increases, foreign-currency exposure, inflation and availability of labor and materials, customer credit and collections, economic and end-market demand, acquisition integration, and operational, cybersecurity and business-disruption risks. A 100-basis-point increase in ABL rates was estimated to add approximately $4.7m to quarterly interest expense at current borrowings. The $400m interest-rate swap expired May 29, 2022; no foreign-currency hedges were in place.
- Q2 other income included $3.8m of income, primarily insurance proceeds related to Hurricane Ida. Six-month other income was $5.1m, also primarily related to those proceeds.
- Ordinary-course legal matters were not expected by management to have a material adverse effect, although outcomes were described as uncertain. Disclosure controls were assessed as effective, and the filing reported no material change in internal controls.
Important facts for investors to verify
- Whether rental-rate gains and unit-on-rent growth can continue, particularly as modular utilization softened and inflation increased operating costs.
- How the ABL amendment, higher variable-rate borrowings and expiry of the interest-rate swap affect future interest expense and liquidity.
- Whether increased fleet spending and acquisitions generate returns sufficient to offset lower reported free cash flow.
- How much reported earnings growth reflects ongoing operations versus prior-year warrant and debt-extinguishment items and current-period insurance proceeds.
- The pace and funding of the expanded repurchase authorization relative to debt reduction, acquisitions and capital investment.