WillScot Holdings Corporation (WSC) Earnings Call Transcript & Summary

Welcome to WillScot's Second Quarter 2026 Earnings Conference Call. My name is Chereine, and I will be your operator for today's call. Please note that this conference is being recorded. I will now turn the call over to Charlie Wohlhuter, Senior Director of Investor Relations. Charlie, you may begin.

All right. Thank you, Chereine. Good afternoon, and welcome to our second quarter 2026 earnings call. With me in the room today are Worthing Jackman, our Executive Chairman; Tim Boswell, President and Chief Executive Officer; and Matt Jacobsen, our Chief Financial Officer. Today's presentation material may be found on our Investor Relations website at investors.willscot.com. Before we begin, I'd like to direct your attention to Slide 2 of our posted presentation containing our safe harbor statement. We will be making forward-looking statements during the presentation and our Q&A session. Our business and operations are subject to a variety of risks and uncertainties, many of which are beyond our control. As a result, our actual results may differ materially from comments made on today's call. For a more complete description of the factors that could cause actual results to differ and other possible risks, please refer to the safe harbor statements in our presentation and our filings with the SEC. And now it's my pleasure to turn the call over to our President and Chief Executive Officer, Tim Boswell, to begin today's discussion.

Thank you, Charlie, and good afternoon, everyone. We appreciate you joining us on today's call for a discussion of the operating environment, our second quarter 2026 results, strategic priorities and expectations for the remainder of the year. Our second quarter results reflect steady progress across both our commercial and operational initiatives and highlight the capabilities that continue to position us well to serve our customers and create long-term value for shareholders. A top priority this year has been returning to organic top line growth, which we achieved in the second quarter and are positioned to sustain through the remainder of the year. Matt will provide additional detail on the quarter's financial results, but the key takeaways are that activation volumes and our order book continue to be quite strong in certain segments. We are increasing variable expenses and fleet investments to support that demand, and the combination makes us more confident in our outlook for the remainder of the year and sustained lease revenue growth. Total revenue of $612 million was up 4% year-over-year in the quarter, driven by leasing and services revenue growth of 6%. Within that, delivery and installation revenue increased by over 25%, which is extraordinary and builds upon the strong growth we were seeing in Q1. Matt will touch on the impact of the World Cup, but modular activations were up 16% year-over-year in the quarter and modular pending orders are up 13% year-over-year sitting here today. In a backdrop where overall nonresidential construction square footage is still declining, I'm really encouraged by the opportunities our team is finding across our target verticals as well as our win rates. And there is clear progress supporting these results across each of our commercial priorities to improve local market execution, expand our enterprise accounts and verticals and grow our value-added space solutions. Staffing is up approximately 5% across our sales organization with initiatives in place to continue improving their productivity. Our enterprise accounts and vertical strategies are still in their early innings from an execution standpoint, though showing great traction with enterprise account revenue up 21% year-over-year in the quarter. And we expect that revenue from our newer offerings such as climate-controlled storage, clearspan industrial tenting and perimeter solutions will exit 2026 on roughly a 20% growth rate, supplementing the strength we are seeing in our modular space offering. So our commercial strategy is focused, execution is improving. It's driving a higher quality revenue mix long term, and it is allowing us to be highly competitive in the segments of the market where we're seeing the biggest opportunities. And the opportunities we're seeing are diverse across verticals. We continue to support critical infrastructure investments, manufacturing projects, power generation facilities, data centers, large-scale retail operations and special events of all sizes. We believe our expanded offering of space solutions, our operational capabilities and our scale where we specialize continue to differentiate us in these environments, and that distinction is becoming increasingly clear, particularly at the enterprise account level. In our field operations, it's been an extremely dynamic year, and I've been very impressed by how our teams have rallied together and are executing across multiple priorities. Our branch network is advancing our fleet readiness initiatives with modular work order and refurbishment activity up 17% year-over-year in the quarter, supporting elevated activation levels. At the same time, our team is on track executing our fleet and real estate disposition plan. And taken together with the planned new fleet investments this year, 2026 will likely represent the most significant upgrade to our modular fleet in company history. With all of that going on, we moved over 2,000 fleet units in and out of World Cup host cities over the last three months and are redeploying them to new customer opportunities. And our safety performance continues to improve year-over-year with fewer recordable incidents despite increased activity levels. So we are executing in the right way, consistent with our culture and company values. Looking to the second half of the year, our commercial pipeline suggests that these activity levels will continue. We are rolling out our route optimization and dispatch software platform, which will be a benefit heading into 2027. And we're continuing to make improvements in other business processes within our shared services, which again have potential benefit to both margins and the customer experience. Together, all these initiatives improve execution, enhance customer outcomes and further differentiate WillScot's long-term competitive positioning. And I'd like to thank all of our team members who are aligned and executing against these priorities. Looking over the remainder of the year and how we thought about the guidance, we're still very conscious of the bifurcation in demand levels between large and small projects and recognize that we continue to face headwinds among our more transactional product lines. But we're also seeing a lot of strength across the business, much of which is internally driven. So we're continuing to take a balanced approach with our updated outlook while remaining squarely focused on executing the commercial and operational priorities that are within our control. We are modestly increasing our previously issued full year 2026 outlook for revenue and adjusted EBITDA. The rationale for the revenue increase I covered in the commentary. Matt will discuss the margin cadence through the remainder of the year, though the margin impacts we see in Q2 and in the outlook are normal in our business and to be expected in periods with sharp changes in activity. So I think we've got different pathways to meet the forecast that would set us up well for 2027 with a solid lease revenue trajectory and margin expansion opportunity. And lastly, on capital allocation, the business continues to be highly cash generative and capital efficient on a relative basis even in periods of significant investment. Those who have followed us for a while know that our capital investments are entirely demand-driven and that agility is an important attribute of the business. We have few long-term supply commitments or constraints and our ability to ramp up our own work order production volumes rapidly is a significant competitive advantage. We increased our outlook for net CapEx based on the reality that we're seeing a lot of interesting opportunities. Utilization levels are rising in key product categories. The commercial pipeline is stretching into 2027, and we remain very confident in the returns we can generate on organic investment. So this level of investment is higher than we would expect over time in our long-term capital allocation framework, but it's the best possible allocation both for the business and shareholders right now. Overall, I'm pleased with the start to the year and the continued momentum we are seeing across the business and our internal initiatives. It's been several years since we've seen these activity levels. And based on the improvements to the business over that period, we're extremely well positioned to execute and win in this environment. The dedication, focus and capability of our team have been humbling, and I'm incredibly proud of what we're building together and excited about our prospects. Every day, we're discovering new commercial opportunities, strengthening our already differentiated capabilities and reinvesting strategically in the business with a focus on long-term value creation. Thank you again to the entire WillScot team for the nice work in the first half of the year. And I'll now turn the call over to Matt to discuss our financial results and outlook in more detail.

Thanks, Tim. Our second quarter results exceeded our expectations entering the quarter and reflected continued progress against our objective of returning the business to sustainable leasing revenue growth. Large project demand remains strong. The order book continued to grow, and we saw further evidence that the commercial initiatives we've discussed over the past several quarters are translating into improved underlying activity levels. Total revenue for the quarter was $612 million, up 4% year-over-year and surpassing our expectation of approximately $585 million. Leasing and services revenue increased 6% year-over-year, driven by continued strength in modular activation activity that drove delivery and installation revenue up 25% year-over-year. This was supported in part by activity related to the World Cup event, but even more so by other large project deployments. And lastly, leasing revenue increased 2% year-over-year to approximately $450 million, marking an important milestone as we continue to progress towards broader leasing revenue growth across the portfolio. I'll touch on this a bit more in a moment. Net income in the quarter was $47 million and diluted earnings per share was $0.26, which was flat to the prior year. Adjusted net income in the quarter was $52 million and adjusted diluted earnings per share was $0.28. Adjusted EBITDA for the quarter was $228 million, exceeding our outlook of $223 million. Adjusted EBITDA margin came in at 37.2%, reflecting continued investment to support elevated activation volumes and large project activity, as Tim mentioned. Margins compressed sequentially from Q1 as we anticipated and communicated in our last call, compressing by about 500 basis points year-over-year. Margins are temporarily pressured primarily because modular activity activation activity accelerated. We invested approximately $17 million more in cost of leasing and unit transfer costs during the second quarter compared to the same period last year, which helped drive 16% year-over-year growth in modular activations. These upfront costs weighed on margins by about 250 basis points, but support growth in our future leasing revenue. Another 160 basis points of the impact is purely revenue mix driven, resulting from the higher delivery and installation revenues we had in the quarter. Lastly, the remaining 100 basis points of impact was primarily driven by SG&A, higher sales headcount, increased variable compensation in addition to our provisions for credit losses, offset by savings in other SG&A categories as we continue to drive cost opportunities in the business. As we look forward to Q3 and Q4, we expect to see significant sequential margin expansion as many of these drivers moderate and lease revenues continue to build, potentially resulting in flat to positive year-over-year EBITDA margin comparisons by the fourth quarter. Circling back now to leasing revenue. We continue to see stabilization in the overall portfolio. Modular activations increased for the third consecutive quarter and combined with our current order book gives us increased confidence in our organic growth outlook. Average modular units on rent in the second quarter were within 450 units of the prior year. The World Cup contributed about 750 units on rent growth in modular year-over-year, where we continue to make significant progress towards volume inflection in modular units on rent. Activations in portable storage were again slightly positive year-over-year with the World Cup being the driver of those results. While we continue to see year-over-year unit on rent headwinds in our portable storage portfolio, growth in climate-controlled storage continues to partially offset those headwinds and remains one of our strongest performing product categories, supporting both revenue growth and portfolio diversification. Value-added product leasing revenues increased 3% year-over-year to approximately $103 million in the quarter. While total reported leasing revenue was up 1.5% year-over-year, this includes the shorter-term contribution from the World Cup event. Excluding this event, combined leasing revenue for modular storage and VAPS was essentially flat year-over-year in Q2. Even with the benefit of the World Cup event behind us, we expect continued year-over-year leasing revenue growth throughout the rest of 2026. So our outlook on leasing revenue has continued to improve given the positive activation trends we're seeing over the last three quarters. Cash flow in the second quarter reflects further reinvestments in our business. Net cash provided by operating activities was $162 million in the quarter. We invested $114 million of net CapEx in Q2, reflecting increased investment in higher-value product lines and differentiated offerings based on our demand outlook. Adjusted free cash flow for the quarter was $55 million, primarily reflecting the increased level of organic reinvestment in the business with very strong unit economics and underlying project activity. In the past 12 months, we have used just over half of our capital generation to support large project demand by reinvesting in the business, which we believe drives the highest incremental returns. Remaining free cash flow in the quarter was used to fund returns to shareholders through our quarterly dividend program and pay down $27 million of outstanding debt. We ended the quarter with net debt of approximately $3.5 billion and leverage of 3.7x last 12 months adjusted EBITDA and maintained substantial financial flexibility with roughly $1.5 billion of available liquidity under the ABL facility. Our debt structure remains highly favorable with no maturities until August of 2028. Moving now to our updated outlook. Based on first half performance and continued momentum in commercial demand, we are increasing our full year 2026 outlook, which reflects the year-over-year leasing revenue inflection that we saw in Q2 sustained through the remainder of the year. Importantly, our outlook recognizes the top line momentum we've generated while remaining mindful of the continued economic uncertainty. With our Q2 beat and continuing momentum through year-end, we now expect revenue for 2026 of approximately $2.3 billion or a $50 million increase from our prior outlook, broken down by roughly $25 million of higher leasing revenue and $25 million more of delivery and installation revenue. We have increased our adjusted EBITDA outlook to approximately $920 million, which reflects the continued upfront investments in cost of leasing and transfer costs to support the opportunities that we're seeing, but limits the upfront flow-through to EBITDA. Remember, this follows the normal sequential progression that we've seen in prior periods of growth where we invest today to drive leasing revenue and free cash flow growth in future periods. Looking at Q3 specifically, we expect total revenues of approximately $585 million, up about 3% year-over-year, driven primarily by increased leasing and services revenues as a result of continued strong demand and our large project pipeline. Adjusted EBITDA for the quarter is expected to be approximately $232 million or about a 39.7% margin, reflecting the expected sequential margin expansion I discussed earlier. Looking at a few other items for Q3. We expect depreciation and amortization expense in the period to be approximately $100 million, interest expense to be about $54 million and our effective tax rate to remain around 27%. In support of the large project demand momentum, we are increasing our net CapEx outlook for the year to approximately $375 million with the incremental dollars exclusively for new units and refurbishment of highly utilized fleet to support our large-scale project pipeline of known opportunities into early 2027. And although these large-scale projects may not have significant impact in our 2026 adjusted EBITDA results, it improves the quality of our revenue over time and supports growth. In summary, we delivered another solid quarter with revenue, adjusted EBITDA and commercial activity levels all outperforming our expectations. Leasing revenues inflected to growth in the quarter. And as we look toward the back half of the year, we remain focused on converting growing activation volumes into sustained leasing revenue growth and positioning the business for continued improvement through 2026 and into 2027. With that, I'll hand it back to Tim.

Thank you, Matt. We are encouraged by the commercial momentum we're seeing across the business, though we are mindful of the mixed demand environment. We are laser-focused on executing the internal commercial and operational initiatives that are starting to flow through to our results. And we're investing behind attractive opportunities where our differentiated capabilities continue to win in the market, providing us confidence in our outlook. Most importantly, I want to thank our team again for their focus on improving execution, for executing in the right way, consistent with our values and for our shared commitment to create long-term value for our customers and shareholders. With that, operator, we can open the line for questions.

[Operator Instructions] Due to time restraint, we ask that you please limit yourself to one question and one follow up question. [Operator Instructions] Our first question comes from the line of Kyle Menges with Citigroup.

It sounds like a lot of the momentum being driven by large projects. So just curious, starting to think about 2027, just is there any risk of modular rates turning negative at some point, just maybe from a mix of larger projects driving the growth in 2027?

Kyle, it's Tim, and Matt can follow up with any color commentary. But I think the short answer there is no risk driven by the large project mix. And to the extent there are newer and differentiated fleet products coming into the mix over the next 6 months, they are supportive of higher modular rates. We do still see very strong growth across our panelized and flex fleet, which could present -- is a net mix headwind. But overall, we're really encouraged by the large project activity. You're getting very strong rate, very good VAPS penetration in most cases and better duration as well. So when we're talking about the higher quality revenue and fleet mix, it's all of those things that we see when we look at the opportunity pipeline.

Yes, nothing really to add there. I mean these are good investment opportunities for us to support that growth with high returns, and that's why we're making the investments.

Great. So maybe just to put a finer point on it, thinking about maybe more like-for-like rate on products, is the understanding then that rate that you're getting today on activations is higher than whatever rate you're getting on current units on rent like-for-like?

I mean there's quite a few dynamics there and mix can have some pretty big impacts there, Kyle. But I mean, I think what you saw in the quarter was that the whole blend of that was an increase of 3% in the portfolio. So -- and I think as we look at these projects and these opportunities where we're making incremental investments, I think that those are opportunities where the returns are probably a little bit better than like an average potential unit that we may already have in some of the other categories. So no, I don't see risk there. I think it could be a potential opportunity, but we'll stay measured there.

The other aspect to that, Kyle, is that we wouldn't be making some of these investments unless we were seeing increasing fleet constraints across certain categories. And whenever that's the case, that's also suggesting that you've got a strong rate environment.

One moment for our next question and that will come from the line of Tim Mulrooney from William Blair.

I kind of want to build on that a little bit, looking at your CapEx, it looks like free cash flow was down versus last year in the second quarter due to the step-up in CapEx as your activations ramp. Should we expect a similar dynamic in the second half of the year here with free cash flow being down year-over-year in the second half?

Yes, I think that's right, Tim. I mean we're going to continue to make investments as we get to kind of that guide of $375 million. I mean, you can look at what we spent year-to-date, but we'll see a similar dynamic, I think, into the third quarter. And then obviously, the fourth quarter, we'll continue to monitor things and there's -- we can impact refurbishment and some of the activity there if something were to change. But based on what we're seeing right now, pretty strong activity. So I think you continue to reinvest in the business and really focus on driving that recurring lease revenue.

Yes. Okay. I mean you noted in your slides that, that step-up in CapEx is due to increased investments in these higher-value product categories that you guys have been discussing today. I mean, just stepping back, do these higher-value product categories, do they require more CapEx as a percentage of sales? In other words, how do you think about the IRR on those product categories versus your more traditional offerings?

Yes. It's -- some of these -- I mean these are units, higher differentiated units are also units that we've had in our fleet for a very long time. So think of units that couple together to make the complex, for example. There's no change there, Tim. So, yes, these are still getting very good returns. And I think the focus has been on more of those where there's some capabilities required to help kind of plan and execute on those projects rather than maybe some of the single wides and containers, which are a bit simpler and not as differentiated.

From an ROIC standpoint, though, Tim, we haven't changed any like underwriting thresholds or anything like that. So we're still holding a pretty high bar on these. And really, I think the differentiators are attractive return on capital, long duration and positioning us well for a lot of this more complex project activity that we're seeing in the market. And as you know, market activity has kind of shifted in that direction, which is creating more constraints in those types of areas as well as the services required to install and set up and transport and deliver. And those are all things that are fundamental to our value proposition and are allowing us to see increasing win rates across the commercial organization. So all of this is a net positive from my perspective and really focused on setting up a more attractive trajectory for 2027.

Understood. Okay. So higher CapEx, but good pricing, better pricing, better sell-through, longer duration, good ROI.

One moment for our next question and that will come from the line of Scott Schneeberger with Oppenheimer.

I'd like to ask about -- if you guys could just go over -- I think you said the World Cup units. I thought I heard 2,000 overall and 750 modular. If you did same or open to, could you please clarify that? And then where the question is in that is just how should we think about that maybe with the dismantling of units, the cost pressure? You've given the third quarter guidance so we get the sense, but of what that impact will be. But kind of that impact this year, how are you thinking about the comp next year? Or how should we think about it? I know you're not giving guidance for next year, but it seems pretty meaningful in size. I'm just curious if you guys could just kind of discuss this once every four-year event.

Well, unfortunately, I don't think it will be here in North America every four years. But Scott, this is Matt. Yes, I can give you a little bit more there. So there's about 2,000 units that we put out at the various sites. That's roughly kind of half and half between modular and storage. The revenue in the quarter was kind of around $13 million or so. That's not the entire project. But as we're looking at Q2, what that looked like. And that's split about 40% towards rental and about 60% to D&I. And really, what's left in the third quarter is primarily some of that dismantle that you that you talked about. So roughly $5 million or so maybe of D&I primarily that would be there. So you will have kind of a little bit of a step down from that project. Obviously, we're still driving a lot of other underlying activity from the large project demand and those activations to drive leasing revenue growth year-over-year still in the third quarter. And that's kind of why we called out what the underlying, excluding that was. We were basically kind of flat in the quarter in leasing revenue, excluding the World Cup, if that's helpful. So that's kind of a run rate to build off of. But I think that probably gives you what you need. For next year, obviously, we don't have that project. I don't know of a project similar to that. But we're focused, obviously, on the large project demand and driving overall unit on rent sequential growth in the future.

That helps just a clarification. I appreciate it. For my follow-up, I want to discuss -- it sounds like you have great momentum with large projects. And I want to ask just about the sustainability of the demand environment. It sounds like the order book is very good. And there was a quote in the release about win rate being strong. So I kind of want to get an idea of the demand environment and sustainability and then also how you all are doing within the demand that's there, just following up on that win rate. How competitive is it out there on those larger projects and with separation of modular versus storage in that discussion?

All right. I'll take that one, Scott. This is Tim. So when you look at the modular activations and order book, they're up double digits across both enterprise customers and non-enterprise. So we're seeing pretty good success there across the modular business. If you look at storage activations, I think for the last 13 weeks, we're up about 2% year-over-year, but there's a big enterprise component there. So our local customers would still be down on the storage business, but still stabilizing. When you look at the major project activity and the sustainability of it, we don't have a crystal ball, but we do have a large volume of opportunities that we're juggling. It does seem that weekly, one big project pushes to the right, but another one pops up and surprises us in its place. And that's a bit of an unusual environment to be in. The other thing that's a little different is we are seeing opportunities that stretch into 2027 from a start standpoint. You know our lead times typically correlate positively with size of projects. So that's why we're seeing that extension in lead time. And then the comment on win rates has been -- it's been an encouraging trend in the business. We started to see some of this changing towards the second half of last year, but it's continued to improve through the course of the first half of 2026. And I think it comes down to operational capability at the end of the day. As without going into too much detail on it, as project complexity goes up, our win rates have gone up. And I think that's a reflection of the service levels that we're able to provide, of course, in the field, but also from our shared services resources. And because of that, we are changing a bit how we deploy our commercial resources. We've been adding to the Enterprise team and also the types of things that we're going to reinvest in the fleet. So we are letting that commercial activity and some of those nuances help us reallocate resources as we look forward.

Thanks. Sounds encouraging for next year.

One moment for our next question and that will come from the line of Angel Castillo with Morgan Stanley.

Just wanted to go back to the discussion around the kind of key end markets and a lot of what you're seeing. I think a lot of positive trends. Just was hoping to get a little bit more color specifically on rates. I think you gave some mentions earlier, but just any discounting activity and just kind of rental rate kind of incremental, I guess, quantification that you could provide across modular and particularly also storage, where I think you're still seeing a little bit of pressure there, but just curious if any impact on margins from any of that and how you're kind of seeing it in the second half?

Yes. I wouldn't see -- I wouldn't say there's been really a change in like the transactional activity or environment there, Angel. We've continued to see pockets of areas where we do arm our teams to be able to look at each opportunity, and we may take a different approach on certain projects than we do on other ones. But I wouldn't say there's been any market change there. I think the change has probably just been a little bit more, again, on the large projects where some of the fleet is getting a bit more constrained, and we know that it's a bit more constrained kind of across the industry, right? So that's really the only piece I would talk to. There's not much else has moved there.

Got it. That's helpful. And then just I wanted to maybe talk about the visibility aspects of maybe how you're running your business. I think, Tim, you kind of touched on it, but just to the degree that you're now investing given visibility into 2027 due to some of these kind of mega projects. Just curious, one, what gives you confidence, I guess, that there's not going to be pushouts on some of these? And just as you think about the strategy of how you run the business and that degree of visibility perhaps extending, how is that kind of changing ultimately your underlying appetite for CapEx? It sounds like you're clearly moving forward a little bit more with that. But just as we look forward, how do you kind of mitigate risk of projects moving around?

Yes. It's a good question, and we as a team are talking about that definitely weekly, if not daily at this point. And the reality is the project pipeline, probability adjusted supports the CapEx levels that we are deploying this year. It is absolutely the case that it's the norm for major projects to delay, and we are seeing that across the business. But there's enough activity that where one delays, one also starts. And it's that dynamic that has us comfortable with these investment levels. The second piece I kind of alluded to earlier is kind of the win rates and the probabilities that we're attaching to it. And then third is the investments we're making are in some of the most versatile fleet categories that are available in the industry. And when I look at the type of major project activity, it's continuing to increase as we look at just the opportunities that are kind of coming into our project database. The large and mega projects that we're seeing were up another 14% year-over-year in terms of new opportunities coming into the pipeline. And data centers are only about 1/4 of that project activity. So when I talked about diversity across end markets, it's not like it's all one vertical. We're actually seeing interesting stuff across all the different categories that I mentioned. The other piece of this is the kind of where we're at with the enterprise account and vertical strategy. I said in my commentary, it's early innings. I think that momentum is still building. And all else equal, we're going to have more larger project activity coming from that team. So it's a combination of these things that we're taking into account that are -- have us quite comfortable with the approach here.

One moment for our next question and that will come from the line of Andrew Wittmann with Baird.

So the questions on kind of the status of the demand environment have been asked a couple of different ways. Obviously, you talked about ex World Cup, revenue was kind of flattish, and that's good. I wanted to look specifically or talk more concretely about orders and activations. So I think this quarter, you said order book was plus 13%. I think last quarter, 14%. So kind of the same number. That metric tells us kind of pretty stable maybe sequentially. The one number that I try to -- I think would be helpful to understand would be the activations this quarter without the World Cup, you gave us some moving pieces there. I don't know if we can totally back into it. I think last quarter, you said it was high single digits-ish. And was it better than that this quarter on the activations?