Willscot Holdings Corp annual report, FY2023

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Business context and reporting period

WillScot Mobile Mini Holdings Corp. (Nasdaq: WSC) filed this Form 10-K for the fiscal year ended December 31, 2023. It provides turnkey temporary modular space and portable storage solutions, principally through leasing, across the U.S., Canada and Mexico. The filing reports full-year results, not standalone fourth-quarter results. Following the sale of its UK Storage Solutions business in January 2023 and Tank and Pump Solutions in 2022, continuing operations are focused on North American Modular and Storage solutions. Unless stated otherwise, amounts below are in U.S. dollars.

Key financial results

  • Revenue: $2,364.8 million, up 10.4% from 2022. Leasing revenue rose 13.1% to $1,833.9 million; delivery and installation revenue increased 1.9% to $437.2 million. Recent 2023 acquisitions contributed an estimated $59.0 million of revenue.
  • Profit and margins: Gross profit was $1,333.9 million, up 17.5%; gross margin increased to 56.4% from 53.0%. Operating income rose to $673.5 million from $511.5 million. Income from continuing operations was $341.8 million, up from $276.3 million; diluted continuing-operations EPS was $1.69 versus $1.25. Adjusted EBITDA, a non-GAAP measure, was $1,061.5 million, up 20.1%, and its margin increased to 44.9% from 41.3%.
  • Total net income: $476.5 million versus $339.5 million. The 2023 figure includes $134.6 million of income from discontinued operations, including a $176.1 million gain on the UK business sale; continuing-operations profit is a better view of the ongoing business.
  • Cash flow and investment: Operating cash flow was $761.2 million, up 2.2%. Free cash flow, as defined by the company and not a GAAP measure, was $576.6 million versus $330.3 million. Net capital expenditures were $184.7 million versus $414.3 million, reflecting lower fleet purchases and refurbishment spending. Investing activities used $350.0 million, including $561.6 million of acquisitions, partly offset by sale proceeds.
  • Debt and liquidity: Total debt, including finance leases, was $3,557.3 million at year-end, compared with $3,076.4 million a year earlier. Cash was $11.0 million. The $3.7 billion ABL Facility had approximately $1.2 billion of available borrowing capacity. Interest expense increased 40.2% to $205.0 million, principally due to higher rates and debt balances. The company reported compliance with debt covenants.
  • Fleet and utilization: The company reported more than 368,000 units, with fleet net book value of $3,381.3 million. Average modular utilization fell to 64.7% from 68.5%; portable storage utilization fell to 73.2% from 86.8%. Average monthly rental rates nevertheless rose 16.9% for modular space and 24.0% for portable storage.

Material changes versus 2022

  • Higher rates and VAPS penetration more than offset lower average units on rent: total average modular and portable storage units on rent declined 7.0%. Management attributed softer demand to lower construction activity, fewer retail remodels and lower seasonal retail demand compared with strong 2022 levels.
  • Gross and Adjusted EBITDA margins expanded as pricing outpaced cost growth. Adjusted EBITDA from continuing operations increased by $177.6 million.
  • Interest expense increased by $58.8 million. The allowance for credit losses rose to $81.7 million from $57.0 million, and the provision for credit losses was $49.7 million.
  • Income from discontinued operations increased largely because the UK sale gain was higher than the prior-year discontinued-operations gain. The company also completed several acquisitions in 2023 for a combined $561.6 million, including business combinations and smaller asset acquisitions.
  • The company repurchased 18.5 million shares for approximately $810.8 million in 2023; 189.97 million shares were outstanding at year-end. Shareholders’ equity declined to $1,261.3 million from $1,565.3 million.

Outlook, management commentary and risks

Management cited infrastructure spending, onshoring and reshoring, pricing, VAPS growth, cross-selling and operational improvements as potential growth drivers, while acknowledging an uncertain macroeconomic environment. It did not provide specific 2024 revenue or earnings guidance in the supplied filing text. In January 2024, the company announced a proposed acquisition of McGrath RentCorp, expected to close in the second quarter of 2024 subject to regulatory and shareholder approvals. Consideration may be $123.00 in cash or 2.8211 WillScot shares per McGrath share; committed financing includes bridge facilities and an ABL increase, subject to customary conditions. Completion, financing costs, integration and projected synergies remain uncertain.

Other notable risks include economic and end-market cyclicality, lower utilization, competition and pricing pressure, customer credit and equipment recovery, inflation in labor, materials, fuel and transportation, variable-rate debt exposure, acquisition integration, and cybersecurity or operating disruptions. Management said inflation had not materially affected results, citing pricing and scale. No environmental matter or ordinary-course legal proceeding was reported as material at year-end. Management and the auditor concluded that internal control over financial reporting was effective; the financial statement audit opinion was unqualified. The auditor identified the allowance for credit losses as a critical audit matter. In January 2024, the company also entered into additional interest rate swaps covering $500 million of ABL borrowings.

Important facts for investors to verify

  • Whether utilization and units on rent stabilize or recover, particularly in portable storage, and whether rental-rate increases remain sustainable.
  • How much of reported net income reflects ongoing operations versus the UK divestiture gain, and how acquisitions contributed to revenue and profit.
  • Whether the elevated credit-loss provision and $81.7 million receivables allowance adequately reflect customer payment and collection risks.
  • Debt, interest costs and borrowing-base availability after the 2023 financing and in light of the proposed McGrath acquisition and its committed financing.
  • Cash returned through repurchases versus investment needs, and the company’s progress toward leverage and capital-allocation priorities.
  • Whether 2024 integration, unified go-to-market and logistics initiatives deliver the expected operating efficiencies; segment reporting will also change in 2024.