WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC) Q4 2023 Earnings Call Transcript

Faiza Alwy: Okay. Understood. Thanks for that. And then I don’t think the question around sort of modular pricing has been asked yet. I’m just curious, it feels like the rental rate, like just the growth in pricing has been decelerating through the course of the year, right? In the first half, we were up 17%. It’s a little bit less in 4Q. Curious if there was a mix impact there and what that might be and then how we should think about modular pricing in ’24.

Tim Boswell: Yes. As I mentioned a minute ago, one place I typically look is just the spread that we’re seeing between our delivered spot rates and the average rental rates. And right now, if we exclude ground-level offices, that spread is about 29%. And if we isolate ground-level offices, that spread is about 22%. So those are very healthy spreads going into 2024. And a simple way to think about that is, if you’ve got a three-year average lease duration, divide that spread by three, so you can get roughly 10% annual growth just by holding the current spot rates that we’re seeing in the business. So that remains a very powerful tailwind as we enter 2024, and that is our base case assumption across the modular products, inclusive of gloves.

Faiza Alwy: Great. Thank you, so much.

Operator: Our next question comes from the line of Steven Ramsey with Thompson Research. Your line is open.

Steven Ramsey: Hi, good afternoon. So modular activations and orders trending up to start the year. Can you clarify on storage, if you exclude the holiday runoff and if you exclude retail remodel kind of storage onto construction, industrial type job sites, is that trend pacing behind where modular is to start the year? And maybe this gets to how cross-selling is happening in this period of modular activations moving up kind of in real time.

Tim Boswell: I’ll focus more on our outlook, Steve, it’s just probably the better place to go. We’ve assumed that activations in the core storage business are relatively flat for purposes of Q1 and Q2 and then start building as we get into the second half of the year. That’s mostly a function of the comps being easier as we get into the second half of the year. I wouldn’t say that we’ve embedded assumptions specific to greater cross-selling, although I think that’s definitely an opportunity. I think there’s opportunity within our enterprise account portfolio, for sure, to the earlier question around store remodels as well as other non-retail related customers. But it’s more a function of kind of what we see to start the year and making sure that we’re taking a balanced approach with those assumptions across the portfolio given the non-res activity that we just saw in Q4.

Steven Ramsey: Okay. Got you. And then on the CapEx range, thinking about the midpoint $50 million higher year-over-year, how much of that is tied to the revenue range? Basically, do you foresee having to invest to the high end of CapEx for the year to reach the high end of revenue? Thanks.

Tim Boswell: Look, CapEx is demand-driven. And just to clarify, if we did about $185 million of net CapEx in 2023, the midpoint is about $90 million higher than that or about a 50% increase. So this is a significant increase, although very much centered on where we would have pointed to in terms of our long-term kind of normalized annual CapEx requirement. If you assume there’s around $180 million of maintenance CapEx spend in the business, this does imply growth investments to support modular refurbishments as well as growth investments to support primarily the climate-controlled storage platform that we introduced. I think it is — depending on where the growth to get you to the higher end of the range comes from, it may or may not require incremental CapEx. If we got surprised to the upside in terms of storage demand, well, we’ve got plenty of excess capacity.

Those assets don’t require refurbishment, and you could capture that incremental storage demand without a meaningful increase in CapEx above this midpoint. If that demand came more from the modular side of the business, I fully expect we’d be investing incremental refurbishment dollars in order to get there. The only area in the business where we need new fleet would be across the new 2 new platforms. And that will be purely demand-driven as those assets get absorbed into the market. We can feed more inventory into the bridge network. That obviously is a very good thing and would support our run rate going into 2025. So I think we can grow with a lot less CapEx on the storage side based on how we’re positioned right now and normal modular refurbishment activity.

We reassess every 90 days using our zero-based capital allocation process and no change in that from my perspective.

Steven Ramsey: Great. Thank you.

Operator: Our next question comes from the line of Philip Ng with Jefferies. Your line is open.

Philip Ng : Encouraging to see modular activations and net orders up year-over-year. Any end markets that stand out that’s driving the pickup in activity? And when we look at modular versus storage, trends obviously have diverged a bit even at the start of the year. Outside of retail, anything else that’s driving some of that divergence from your perspective?

Brad Soultz: I’d say, Phil, that modular is pretty broad-based. I mean, obviously, with the decline we experienced in non-resi construction, we’re winning in infrastructure, other large onshoring, reshoring, et cetera. And it is pretty broad-based geographically and by end market, so quite encouraged by that. And as Tim mentioned in his prepared remarks, we just haven’t seen the storage volumes turn yet accordingly.

Philip Ng : And Brad, the uptick has been more on some of these mega projects infrastructure that you’re seeing on the modular side in terms of activity?

Brad Soultz: Maybe a bit biased to that, but it’s been pretty broad-based. I mean including ground-level offices and modular, the activations over the last three months are up low single digits. And excluding ground-level offices, they’re up more than that. So as Tim said, it’s encouraging. It’s early. So it’s one that we’ll watch and we’re prepared to invest if that demand continues.