Business context and reporting period
WillScot Mobile Mini Holdings Corp. filed this unaudited Form 10-Q for the quarter ended September 30, 2022. The company leases, sells, delivers and installs modular workspace and portable storage solutions across the U.S., Canada, Mexico and the U.K. Following the sale of Tank and Pump Solutions, results for that business are presented as discontinued operations.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue from continuing operations | $604.2m | $461.0m | $1,632.3m | $1,295.6m |
| Gross profit | $314.3m | $239.2m | $858.6m | $651.1m |
| Gross margin | 52.0% | 51.9% | 52.6% | 50.3% |
| Operating income | $154.1m | $91.4m | $369.6m | $228.0m |
| Income from continuing operations | $85.7m | $57.1m | $200.1m | $75.3m |
| Net income, including discontinued operations | $128.6m | $61.1m | $253.1m | $85.9m |
| Adjusted EBITDA (non-GAAP) | $251.3m | $179.2m | $652.5m | $499.4m |
| Adjusted EBITDA margin | 41.6% | 38.9% | 40.0% | 38.5% |
| Operating cash flow | $210.4m | $130.4m | $544.2m | $392.1m |
| Free cash flow (non-GAAP) | $83.4m | $78.5m | $207.4m | $251.7m |
At September 30, 2022, cash was $15.4m and total debt, including finance leases, was $2.95bn, compared with $2.69bn at December 31, 2021. The ABL Facility had $1.1bn of available borrowing capacity; the company reported $1.9bn in outstanding ABL principal. Current debt due within 12 months was $13.5m. Management said available liquidity and operating cash flows were sufficient for anticipated requirements over the next 12 months.
Material changes versus the prior comparable period
- Third-quarter continuing revenue increased 31.1%; leasing revenue rose 30.6% and delivery and installation revenue rose 44.5%. Management cited stronger pricing, higher units on rent, acquisitions and greater delivery activity.
- Q3 Adjusted EBITDA increased 40.2%, with margin up 270 basis points. Nine-month revenue increased 26.0% and Adjusted EBITDA increased 30.7%.
- For Q3, average modular-space monthly rental rates rose 18.3% and portable-storage rates rose 25.5%. Portable-storage utilization increased to 88.9%; modular-space utilization declined to 68.9%.
- Interest expense rose to $38.2m in Q3 and $102.4m for the first nine months, reflecting higher borrowings and benchmark rates, partly offset by lower margins under the amended ABL Facility.
- Nine-month free cash flow declined despite higher operating cash flow, as rental-equipment and refurbishment spending increased substantially to support fleet and leasing growth.
- The company sold Tank and Pump Solutions on September 30, 2022 for approximately $323m; cash proceeds were $319.5m. Q3 net income includes discontinued-operations income of $42.9m, including a $34.0m gain on sale.
Outlook, commentary and risks
The filing does not provide specific numerical earnings or revenue guidance. Management described continued priorities of growing leasing revenue, investing in fleet and acquisitions, improving customer experience, and allocating capital among reinvestment, debt reduction and share repurchases. It said inflation had increased material, labor, transport and fuel costs, but pricing and scale had helped support margins; significant supply-chain disruption had not been experienced to date.
During the first nine months, the company repurchased 14.6m shares and equivalents for $524.4m; $863.3m remained under its $1.0bn authorization. It also spent $208.7m on acquisitions, net of cash acquired. The June 2022 ABL amendment increased facility commitments to $3.7bn and extended maturity to 2027. The company reported compliance with debt covenants.
Key risks include variable-rate debt, inflation and labor or materials availability, customer credit and receivables collection, acquisition integration, economic demand, currency movements, and the company’s substantial indebtedness. A 100-basis-point increase in rates was estimated to increase quarterly interest expense by approximately $5.3m at current ABL borrowings. The U.K. business faced unfavorable translation effects from a stronger U.S. dollar. Management said ordinary-course legal matters were not expected to have a material adverse effect, while noting outcomes are uncertain. Risk factors were reported as not materially changed from the 2021 Form 10-K.
Important facts for investors to verify
- Separate recurring results from discontinued operations and the $34.0m Tank and Pump sale gain when assessing earnings.
- Track whether rent rates, unit utilization and organic units on rent sustain growth, particularly given the decline in modular-space utilization.
- Assess cash conversion and fleet investment: nine-month free cash flow fell to $207.4m as capital spending increased.
- Monitor floating-rate exposure, borrowing levels, ABL availability and debt-service costs as rates and leverage change.
- Review the returns and funding implications of the share repurchase program and recent acquisitions alongside core fleet reinvestment.
- Consider the company’s non-GAAP Adjusted EBITDA and free cash flow definitions and limitations when comparing performance across issuers.